14
Dec

We value what we measure

This is the third and final part of a series of posts about contemporary progressive thinkers who challenge the ‘conventional wisdom’ about economic growth. Part one looked at Richard Wilkinson and Kate Pickett’s The Spirit Level and part two looked at Tim Jackson’s Prosperity without Growth.

Wilkinson, Pickett and Jackson suggest that economic growth should no longer be — even cannot be — central to the progressive project. But what about those within the economics profession itself?

Joseph Stiglitz is a U.S. Nobel prize-winner, former chief economist of the World Bank, and author of Globalisation and Its Discontents and Freefall: America, Free Markets, and the Sinking of the World Economy. Amartya Sen, born in India, is also a Nobel prize-winner, and the author of Development as Freedom and The Idea of Justice. Both are highly-regarded progressive economists.

In 2008 and 2009, together with Jean Paul Fitoussi (a distinguished French economist), they headed a Commission on the Measurement of Economic Performance and Social Progress set up by President Nicolas Sarkozy of France, who felt that existing measures like Gross Domestic Product (GDP) didn’t tell a full and proper picture of the economy or society.

The Stiglitz-Sen-Fitoussi Commission produced a lengthy, thoughtful and thorough report. They argued that GDP was indeed a partial and often misleading measure, and proposed reform across three dimensions. First, classical GDP statistics needed to be refined to better take account of things like income distribution and the actual value of public services. Secondly, there was a need to complement GDP with measures of ‘quality of life’, including both purely subjective aspects such as happiness, and more objective factors drawn from Sen’s ‘capability framework’. Thirdly, we need to measure and track the sustainability of our economy, defined quite precisely as whether “at least the current level of well-being can be maintained for future generations” — for this the Commission argued that an approach based on changes in resource stocks (which Tim Jackson would recognise) would be needed.

Across all three dimensions, the Commission’s arguments are well-developed and compelling, although they were clear that their report was very much a starting point for what would be a complex exercise of statistical reform.

And, while predominantly an expert technical process, their work is likely to have important policy consequences and implications for progressive thinking. This is because the way we account for things helps determine the way we see the world. What we measure, we value; and, too often, if it isn’t measured, it slips out of view. This was a central theme of New Zealand politician and academic Marilyn Waring’s feminist critique of economic statistics, Counting for Nothing, back in 1988, and this work is very much in that vein.

In a ‘Reflections’ paper accompanying the main report, Stiglitz, Sen and Fitoussi are more explicit about this aspect of their project:

It is our belief that an open discussion of the issues – and problems – involved in measuring economic performance and social progress provides an important context within which societies can engage in critical debates about societal values. (p. 27)

Otherwise, the “risk is that as countries strive to increase measured GDP, they take actions which now, or in the future, may actually lower societal well-being” (p. 10). This can be seen with the environment:

Countries that enjoy high living standards today by depleting their inheritance of natural resources – without investing the proceeds – are “robbing” future generations. It is possible that doing this does not even increase their welfare, as people usually care about the well-being of their children, but they may unintentionally act this way, at least partially because they are not informed, absent the right metric. (p. 10)

And even with the recent Global Financial Crisis:

Many concluded, for instance, that financial deregulation was good, because it led to rapid expansion of the financial industry and an increase in measured GDP. We now know that that growth was not sustainable; that much of the profits earned in 2004-2007 might more appropriately be looked at as winnings in gambling by some, which were more than offset by the losses in 2008, and the following years, by others. (p. 11)

What, therefore, are the likely implications of measuring things in a broader and more accurate way? How would this approach, if implemented, be likely to inform the further development and renewal of progressive ‘theoretical foundations’?

In some respects, it would likely be compatible with the arguments of The Spirit Level and Prosperity without Growth. We would become more aware of which types of societal and economic development were having the most positive (or negative) impact on quality of life, and whether we were on a sustainable path. The Commission’s work can’t at this stage point to whether a strict path of de-growth is necessary, as Jackson argues, but would nevertheless encourage us to see the quantum of economic activity as just one set of factors in achieving progressive goals of equitable wellbeing. Metrics on things like leisure, happiness and political voice would help to provide a broader picture.

A secondary but still important consequence might be to counter negative images of the effectiveness of public services. The modern image of the public sector languishes under the constant suspicion of inefficiency and dysfunction, a far cry from the chilling efficiency of ‘bureaucratic authority’ depicted by Weber and which (I have argued) helped underpin the Keynesian-era confidence in the state. Cautiously, without wishing to prejudge, the Stiglitiz-Sen-Fitoussi Commission suggests that if we could better measure the value and not simply the input costs of non-market public activity, we may see a more positive picture of improved value over time (often in form of better quality and more effective services in areas like health and education, rather than larger volumes).

That may be one more way in which the seemingly mundane process of statistical reform could transform the way we see things, and deconstruct some of the statistical ’story’ that neoliberalism has constructed about the primacy of growth and markets.

Links:

  • The main Stiglitz-Sen-Fitoussi Commission report.
  • The accompanying ‘Reflections and Overview’ paper from Stiglitz, Sen and Fitoussi.
  • My earlier post on Weber.

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3 Responses to “We value what we measure”

  1. Rob Salmond says:

    This is an excellent post and summary, David. I think this broad area (maybe “holistic economics”) has potential to both help communities escape from a treadmill mentality, and also help progressives form their policy views and supporting arguments. It is certainly an area we will all need to watch closely for developments. Your work here helps us do that.

  2. Ayesha says:

    Wow, thanks for the summary – the report reads like a tour-de-force of what’s wrong with conventional economics.

    I’m incredibly taken by the ‘capabilities’ approach to freedom. Theoretically it appeals as emphasising both the importance of choosing ones own life path and the role society plays in constructing an environment that determines choices. It provides progressives with a language of social progress that is also the language of opportunity.

    I’ve been interested to read a little about how Sen’s ideas fit into political philosophy more generally. This excerpt from the Stanford Encyclopaedia of Philosophy describes the capabilities approach as an answer to the enduring question ‘what is it that should be distributed equally?’ Answers can include only political rights (libertarians), resources (Rawls), responsibilities (egalitarians), outcomes (the extreme left) and capabilities (Sen).
    http://plato.stanford.edu/entries/equality/#ConDisEquEquWha

    I read there has been debate on whether the capabilities proponents seek to equalize should be prescribed. Apparently Sen initially argued that the capabilities should be vague and undefined, but the direction this report takes suggests a change of heart. Martha Nussbaum had originally worked with Sen but did later seek to specify the capacities that should be equalized: Life, bodily health & integrity, senses, imagination, thought, emotions, affiliations, play, practical reason among others. Though some of it is quite wacky I think it is interesting to see the humanist interpretation she brings to this project.

    If ‘holistic economics’ is born in response to the arbitrary nature of GDP calculations and perhaps misplaced enthusiasm in this single measure, we should be careful of replicating the same mistake. I’m sceptical on whether a composite measure of quality of life or well-being is useful – surely it is a matter of widening the frame of economic and social indicators rather than collapsing them all into one. (Incidentally, did anyone else think it was bizarre to see NZ ranked third in this year’s Human Development Index also created by Sen?) It strikes me that the greater contribution these authors make is to arm progressives with the language to critique the narrow account of equality favoured by the right and to use it is a basis for advocacy of progressive ideals. I’m also sceptical that leaders from the left or right can adopt these ideas yet resist the temptation to replace capabilities with a normative concept of wellbeing or quality of life. For example is social cohesion a capability or is it a vehicle for reactionary fears of immigration and diverse family structures?