The Growth Delusion

by David Pilling

  Is it working? Bhutan is, after all, undergoing a wrenching transformation dramatic even by the standards of places like India and China, which have seen huge increases in wealth. As recently as 1953 Bhutan was still a feudal country. Its first paved road was built in 1962. Now it is a parliamentary democracy of sorts, with an elected prime minister and a constitutional monarch. Rapid development has inevitably been accompanied by some of the usual trade-offs, as roads and dams sully previously untouched beauty and as people once content with subsistence living become unhappy city dwellers striving for a modern (and probably unattainable) lifestyle.

  “Who wants to do subsistence farming and get up at four in the morning and carry water if you don’t have to?” Paljor Dorji, a member of the royal family and a longtime close adviser to the former king, told one journalist. “Once you educate the people, nobody is going to live the same miserable life their parents did.”24

  Thimphu’s development is being strictly controlled, and the government has sought to ensure adequate provision of roads, sewers, and schools. One can’t compare tiny Thimphu with a sprawling megalopolis like Mumbai, a city with twenty times the entire population of Bhutan, but as any visitor to the less well-planned cities of India, Indonesia, or the Philippines knows, the uncontrolled influx of people can present ghastly urban problems of squalor, pollution, gridlock, and disease.

  By contrast, Bhutan’s modernization is planned and contained. If you want to build in Thimphu, you can’t just put up a tin shack and filch electricity from a nearby pylon. Constructions must incorporate designs from traditional Bhutanese architecture, including pitched roofs and distinctive windows. People are strongly encouraged to wear national dress in public. Bhutan limits tourist numbers and, through minimum spending requirements, ensures that only upmarket tourists can visit. “Thimphu is a pleasant walking city, with none of the chaotic warrens present in many Indian cities. Its people are cheerful, its merchants show none of the pushiness common in south Asia, and even its stray dogs seem benign. There are no slums,” writes one reporter.25

  Still, Bhutan is no Shangri-la. It is a lower-middle-income country with an income per capita of just over $8,000 adjusted for local prices.26 It has low literacy levels, despite the government’s association of happiness with good education; only 55 percent of Bhutanese women can read and write. In much poorer Bangladesh 58 percent of women are literate, while the Philippines, no richer than Bhutan, does even better, with female literacy at 97 percent.27 Nor is Bhutan’s health provision particularly outstanding, again notwithstanding the attention given to health in the National Human Development Report. Life expectancy is just below 70, which places Bhutan 114th in the world. That compares with a life expectancy of 79 (32nd place) for Cuba, a country dedicated to communism not happiness, and 81 for Chile (28th place), a state whose initial take-off under authoritarian rule was engineered by Chicago School economists. Neither Fidel Castro nor Milton Friedman were known as Mr. Happy.

  Bhutan’s dedication to cultural preservation is often praised. Culture is seen both as a source of identity and as protection against the more corrosive aspects of modernization. In the domain of “cultural diversity and resilience,” GNH measures fluency in one of a dozen dialects, people’s knowledge and interest in thirteen artisanal skills, including blacksmithing and embroidery, and their adherence to something called Driglam Namzha, or the Way of Harmony. Bhutanese people are expected to participate in six to twelve days of “socio-cultural” activities each year. In 2010 only one-third of the population reached the desired threshold of six days. (About 15 percent spent thirteen days or more in such activities, though whether this is seen as overdoing it is not mentioned.)

  Yet the idea of preserving culture covers a multitude of sins. Not all cultures are equally attractive. Culture could mean that women should know their place or get on with their embroidery instead of learning to read. In parts of Africa an index that rewarded cultural preservation would award points for female genital mutilation. In Bhutan culture has sometimes meant ethnic purity. In the 1990s the government cracked down on ethnic Nepalese, driving tens of thousands out of the country in what some human rights groups have called an act of ethnic cleansing.28

  Using Bhutan’s own yardstick, 91.2 percent of the population was happy in 2015, a 1.8 percent improvement on results when the exercise was carried out in 2010.29 A breakdown showed that 8.4 percent of Bhutanese were “deeply happy,” 35 percent “extensively happy,” and 47.9 percent “narrowly happy,” leaving under 9 percent categorized as “unhappy.” Both the result and the improvement appear to be a victory for the Bhutanese government, but one’s interpretation of the result depends entirely on one’s agreement or otherwise with what is being measured. The fact that Bhutan is measuring not happiness as reported by respondents, but a potpourri of bureaucratically determined indicators, might give pause.

  Interestingly, when it comes to subjective well-being, as formulated in the 2016 World Happiness Report, Bhutan scores 5.196 out of a possible 10. That puts it in 84th place in the world, just behind China and ahead of Kyrgyzstan. Call me a cynic, but for a country whose public policy is dedicated to delivering happiness that does not strike me as unalloyed success. Bhutan, then, has become symbolic of the happiness debate, but it may be a distraction rather than the useful campaign tool some of its proponents seem to imagine.

  It is entirely sensible for Bhutan to try to handle development cautiously and responsibly. Left purely to market forces and the vagaries of globalization, poor countries seeking to overcome poverty can indeed experience violent dislocations. But we should recognize the limitations of Bhutan’s approach.

  Happiness economics may have more to say about rich countries, for which the accumulation of ever-greater income cannot be the answer to everything. Layard is surely right that happiness measures point to some important things like the futility of endlessly seeking status and money, the importance of community, and a sense of security and stability. One does not need to treat happiness measures as sacrosanct to see that they can throw an important light on neglected areas of policy, such as depression and overwork.

  When it comes to self-reported happiness, though, one thing is certain: the Scandinavians are doing something right. If it is subjective well-being that you’re after, then, objectively speaking, you’d rather be in Tromsø than in Thimphu.

  13

  GDP 2.0

  If Simon Kuznets could choose where to be reborn, he might well choose Maryland. The inventor of GDP had serious reservations about his own measure of economic activity, which counted many “bads” and which ignored so much of what makes life worthwhile. Kuznets thought it was crazy to count pollution, commuting, and military defense as pluses. Likewise, he favored a measure that better captured some of the intangible contributions to well-being. But GDP, born in recession and war, took on a life of its own. By the time of Kuznets’s death in 1985 it had become precisely what he had warned against—a proxy for well-being and the distillation of everything we are supposed to aspire to as consumers, producers, politicians, voters, and citizens.

  If our obsession with growth as charted by GDP is the accidental fruit of Kuznets’s labor, Maryland’s alternative, the Genuine Progress Index, is much closer to the great man’s spirit. You could call it GDP 2.0. The GPI was adopted by Maryland in 2010. It was not invented there; its history goes back at least to the 1970s, when economists William Nordhaus and James Tobin began to think about what they called “measure of economic welfare.”1 Using GDP as a base measure, they added previously invisible “goods” such as leisure time and unpaid housework, and subtracted what they quaintly called regrettables, including commuting time, pollution, and spending on crime prevention.

  Variations on the same theme were developed over the years by academics and practitioners. The GPI, which came out of work begun by Herman Daly, an ecological economist, is one of the most enduring
of an alphabet soup of attempts to go beyond GDP. One way of thinking about these measurements is as net domestic product. Remember the G in gross domestic product stands for “gross,” with little account taken of depreciation of assets, especially natural ones, nor the side effects of production. By subtracting the bads, the various alternative indexes use GDP as a starting point and then attempt to come up with a more reasonable net figure. Like Niu Wenyuan, the father of green GDP in China, they hoped to scrape away at the outer form of the twentieth century’s favorite economic statistic and uncover something more authentic within.

  Martin O’Malley had been mayor of Baltimore for eight years until 2007, when he was elected the 61st governor of Maryland. During his time running the city, “he was very much into data,” says Sean McGuire, whom O’Malley hired to change the way Maryland measured progress. “He really thought data could drive decisions. Having the metric, having specific data sets and making sure that those data sets depict what’s really happening—versus what we think is happening—that’s really crucial.”

  McGuire had been interested in alternative economic measures since his student days at the University of Maryland, when he had studied ecological economics under Herman Daly. When Governor O’Malley asked McGuire to come up with a new metric, he was tapping into something McGuire had been thinking about for years. McGuire’s first thought was to suggest his favorite measure of all. It was called the Happy Planet Index. “It’s very elegant, it’s very clean,” McGuire enthuses. “It’s your happiness, multiplied by how many years you’re on earth, divided by the ecological footprint.”

  There were two big problems with the Happy Planet Index. One was that Maryland didn’t measure either happiness or its ecological footprint, which left McGuire pitifully short of relevant data. The second problem was more fundamental still. “I have never come across an elected leader,” says McGuire, “who could say ‘Happy Planet Index’ without laughing.” In the real world that matters. No index can be useful without political and popular credibility. Measurements need to be taken seriously. If the Happy Planet Index goes down, it should make grim headlines on the evening news and flash up on your Twitter feed. Heads should roll and voters should consider throwing out their elected leaders. That was never going to happen. McGuire gave it five minutes’ thought—and jettisoned the idea.

  At that point he turned to the GPI, a measurement with a forty-year track record, which had been tried out in various forms in countries from Japan to Finland. The GPI, says McGuire, is not that radical. It is really a refined version of GDP. Maryland’s Department of Natural Resources, which compiles the index, says the GPI is drawn up according to three basic principles. It adjusts for income inequality, which is regarded as bad. It includes non-market benefits from the environment (such as wetlands) and from society (such as volunteer work), and it deducts such things as the costs of environmental degradation, spending on things like crime prevention or health insurance, and loss of leisure time. Altogether, it uses twenty-six indicators, each expressed in dollars, to produce a single number akin to GDP. The indicators are divided into economic, environmental, and social categories as follows:

  Figure 6

  McGuire says one attraction of the GPI was that Maryland could compile it without collecting any new information. “This is all data straight from federal sources or data we were already collecting,” he says. “It is total acres of forest, total acres of wetlands, debt, roads. Every single thing in the twenty-six indicators we already had, we were already tracking. So that was another big sell. There’s nothing new here, kids. It’s just taking what we are already collecting and reformatting it slightly.”

  McGuire got some grant funding, hired an intern from the University of Maryland, and set about producing the first official state-level GPI in US history. The two of them started work in February 2009. By October they had crunched all the numbers and were ready to release their findings, together with a fancy new website. Because of a lag in the data, the most recent year for which they had a GPI was 2008. What did they learn about 2008 from all that work? I ask McGuire. “That’s a great question,” he replies. “We learned nothing.”

  Like GDP, he explains, the GPI is a single number. So on its own it doesn’t tell you a whole hell of a lot. The trick is to compare the GPI from year to year. Fortunately McGuire had been able to plot Maryland’s GPI right back to 1960, and that revealed rather more. One thing the half-century of data showed clearly was something that had cropped up before: while GDP had continued to grow, the GPI had stalled. Put another way, after a certain level of income, simply adding to economic activity produced diminishing returns—or no returns at all. There was a reason for that. You could increase GDP, say by building on greenfield sites or getting people to work longer hours, but in GPI terms the positive of higher economic output was offset by the negatives of natural destruction or the loss of leisure time.

  In explaining the GPI’s rationale, the department’s website gives the example of economic expansion resulting from the “explosive growth of urban sprawl.” All that activity in construction, new sewerage systems, new roads, and new cars counts toward growth, but sprawl is also associated with several costs such as longer commutes, loss of community, destruction of natural land, as well as water and air pollution. “Just because we are exchanging money within an economy does not necessarily mean that we are sustainable or prosperous.” It is pure Kuznets.

  McGuire has since moved to Oregon, where he is helping that state go through a similar exercise. So I called Elliott Campbell, who has succeeded him as the keeper of Maryland’s GPI. I start by asking for a few more details about how the GPI is actually compiled. First, he says, start with consumption. The GPI counts as positive all the things we pay for that we actually want, things like the food we eat, the house we live in, our holidays and leisure activities. “If you want to spend your money on something that contributes to your satisfaction, to your economic utility,” he says, invoking Jeremy Bentham, “we include that as a positive in the ledger of GPI calculations.”

  Figure 7

  GPI vs. the Gross State Product (GSP) of Maryland since 1960.

  But “if you would rather not spend your money on something, which is what we term a defensive expenditure, that’s counted on the negative side of the ledger.” So health insurance, locks for your doors, legal services, the costs of alimony and child support (remember the impact of separation or divorce on happiness), food waste, energy waste, and tobacco are all subtracted. So is “pollution abatement,” the money households and government are deemed to spend on dealing with noise pollution by for example fitting double glazing, or on mitigating water pollution, say by installing filtration systems. For normal growth measures, which make no distinction between spending money on a movie or on anti-cholesterol tablets or on a burglar alarm, all such items would be added indiscriminately.

  The GPI has evolved even in the few short years Maryland has been compiling it. These days Maryland is able to use big data to reflect real state consumption patterns rather than, as before, estimates extrapolated from national data. Similarly, it uses satellite imagery to work out more accurately the extent of Maryland’s forest and wetland reserves. We may have known for decades that growth was a poor measurement of well-being, or even of market activity, but new technology and big data provide the chance to improve our metrics. “Kuznets certainly recognized the limitations of gross domestic product,” says Campbell. “I think if he had the sort of data that we have available today, he would have developed the GPI.”

  The fact that Maryland does not have to conduct special surveys to calculate the GPI highlights something important. It is not that we don’t already possess tons of valuable information in our national income statements about what makes our societies tick and what makes them sick. The problem is that we don’t choose to emphasize much of it. One of the reasons for that is G
DP’s extraordinary rise to become the sine qua non of economic success, so important that it obscures most of the numbers in the hierarchy beneath it. A lot of important data remains hidden, squirreled away in official reports or buried in a jumble of numbers on electronic spreadsheets.

  If our goal as societies is to maximize growth, says McGuire, then the question will always be, what do we need to give up to achieve that: free time, green space, job security, fire or environmental regulations, public services? “Essentially, we always ask the question: ‘How much can we sacrifice for economic gain?’ ” says McGuire. “We never ask the question: ‘How much economic gain are we willing to sacrifice to ensure that our environment and our health are at ultimate highs?’ ”

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  McGuire remembers that when he first came up with the idea of GPI for Maryland someone in the state—a person he cheerfully describes as a “right-wing nut job”—accused him of simply throwing his favorite measurements into a pot. “He called the GPI ‘a Ouija board and Yahtzee dice.’ Just a random collection of numbers. That always stuck with me.” McGuire strongly disputes that characterization. He took the GPI exactly as he found it, he says, making only the tiniest adjustments to fit Maryland’s circumstances. For McGuire the GPI is an off-the-shelf index with a venerable history. Yet the right-wing nut job made a valid point. It is one we need to consider carefully when weighing up the pluses and minuses of indexes. Because the thing about an index is that you can put in it almost anything that takes your fancy. It is what Hans Rosling, the Swedish statistician, calls “GDP in the age of Excel.”