Next month the Office for National Statistics will issue data for the first time on the UK’s wellbeing. In the exercise, the ONS is recognising that GDP, which now includes estimates for the market value of illegal drugs and prostitution, is at best only a partial measure of our economic health. Not that one would draw this conclusion from the political tub-thumping that improved GDP figures bring.
GDP is a measure of economic activity in the market and in the moment. So its key shortcoming is that it collapses time and makes us short-term in focus. It counts investment and consumption in the same way – an extra £100 spent on education is equivalent to the same amount spent on fizzy drinks.
Studies have repeatedly shown that the time horizon of the financial markets in particular is ever more short-term. Shaving about 0.006 seconds off the time it takes computer orders to travel from Chicago to the New Jersey data centre which houses the Nasdaq servers made it worth investing several hundred million dollars in tunnelling through a mountain range to lay the fibre optic cable in a straighter line. More than two-thirds of trades in US equity markets are high-frequency automated orders. How has the search for profit so foreshortened our vision?
It wasn’t always so. The term “Victorian values” now speaks to us of characteristics such as narrow-mindedness, hypocrisy and conformity, but it could also speak of hard work, self-improvement and above all self-sacrifice for the future. The list of the Victorians’ investments in our future is staggering. It includes railways, canals, sewers and roads; town halls and libraries, schools and concert halls, monuments and museums, modern hospitals and the profession of nursing; learned societies, the police, trades unions, mutual insurers and building societies – organisations that have often survived more than a century.
Why the Victorians managed to be so visionary is not entirely clear, but it had something to do with the confidence of an age of discovery both in science and other areas of knowledge, and also in geographical exploration and empire building. They made such strides against ignorance and the unknown, firm in their sense of divine approbation, it seems a belief in progress came naturally to them.
Civic and business leaders in the late 19th century had extraordinary confidence and far-sightedness, even as they too stood at the centre of social and economic upheaval. This Victorian sense of stewardship is something we could usefully remind ourselves of when thinking about how we measure value today. In the late 19th century it was the innovators and the builders of institutions who had standing, and it was the men and women of vision who were understood to be the creators of value.
They still are, even if it is often hard to measure or quantify what they build. Anything of value has its roots in values and vision, as much today as at any time in the past.
Financial markets have their place as a powerful way of harnessing incentives to achieve desirable outcomes. For example, the market in the US for trading permissions to emit sulphur dioxide, which helps cause acid rain, has been a triumphant success in removing what was once a serious environmental harm.
However, there is no sign that the wider public has stopped challenging the ascendancy of markets and money. The bestseller status of Thomas Piketty’s Capital in the 21st Century bears witness to that. It has put the question of the great inequality of wealth in the market economies at the centre of public debate, and it underlines another question: what is the point of economic growth if it does not make most people better off? Or, worse, if growth is actually destroying things that many of us value.
A further problem with GDP is that it obviously includes many things that are value-destroying. Natural disasters are good for GDP growth because of the reconstruction boom afterwards; the destruction of assets and human life is not counted. The metric ignores the depletion of resources, the loss of biodiversity, the impact of congestion, and the loss of social connection in the modern market economy.
People have long proposed alternative measures of progress – recently, environment-adjusted measures, or simply measuring happiness, directly by survey. What could be more straightforward than asking such a direct question? But reported happiness changes very little over time because, whether it’s the joy of a lottery win or the catastrophe of being disabled in an accident, it only takes about two years for people experiencing even a dramatic change in their life to revert to previous levels of happiness.
This takes us back to monetary measures, back to GDP and its inclusion of things that clearly have negative value. It also excludes “informal” activities such as housework and caring, many volunteer activities, and always excludes the full value of innovations. Nathan Mayer Rothschild was the richest man in the world at the time of his death from an infected tooth abscess in 1836. An antibiotic that hadn’t then been invented but now costs just $10 would have saved him. How much would he have paid for that medicine?
• This article is based on an essay Diane Coyle wrote for Vestra Wealth LLP
Source: The Guardian