For decades, it underpinned the analyses and economic policies of all corners of the world. We are referring to the Gross Domestic Product (GDP), defined as the sum of the finished goods and services produced by a country: a macro-economic indicator which, over time, has become the gauge of a nation’s well-being. But we are now witnessing a rapid change of tack that will lead to a clear paradigm shift. Lorenzo Fioramonti, Italy’s former Minister of Education, University and Research, outlines why he is so convinced of this in his book ‘The World after GDP’.
Fioramonti maintains that GDP only sees the tip of the iceberg, describing it as a measurement that only partially captures the complexity of a country, which is not just a question of taxes, revenues, fiscal policies and regulations. On the contrary, it is also a set of needs, relationships and hardships that the numbers often ignore. This is the reason why we need truly sustainable economic models.
“I wrote this book to highlight the paradox that we experience every day: we live in a society where inequalities are deepening.” Fioramonti believes that GDP “is not just a number – it is a powerful institution supporting the current economic system.” As he describes it in his introduction, this system “imposes stressful lifestyles, generates irrational desires and threatens to tear the world apart, while undermining the very social and natural foundations that make life possible.”
“GDP has actually never been completely adequate,” Fioramonti continues. “Because it has always conceived a country’s economic development based on what it produces and consumes without distinguishing between what was positive for the common good and what was not. Every production process has a social and environmental cost: any proper national accounting system should always help us to understand if a given production is really cost effective.” Fioramonti cites the example of oil: “How much does it cost to produce? Is it really cost effective? Is the energy it provides to drive cars and transport goods really useful, in other words does it create more value than the damage it does to the environment and to health? In the 1940s, these were not our concerns but things have changed, and it is time for these negative externalities to be taken into account and measured, before making any political decisions.”
How can we do away with GDP as an indicator of a country’s well-being and replace it with metrics that are on a more human scale? Fioramonti explains, for example, how “the metrics that ‘internalize’ the externalities of economic activities are likely to affect the political and public perception of large companies by accounting for their costs to society, ultimately undermining their licence to operate. At the same time, small businesses and the ‘sharing’ economy will see their contributions to wealth and progress amplified, as their contribution to societal well-being normally goes beyond the limited monetary impact captured by GDP. Thus, both policy makers and citizens are encouraged to shift their preferences towards a new type of economic growth. To achieve economic growth, the post-GDP economic system will need to optimize production and consumption instead of maximizing them, as is the case today.”
If there is one thing that has shown Fioramonti the inadequacy of GDP as an indicator, it is technological innovation. “With developments in technology, our economies now produce value in a radically different way. Think of phone boxes in the 1980s when it cost us money to make a phone call. Compare that with modern telephone systems that allow us to communicate at no cost from one side of the world to the other using photos, videos and live exchanges. The GDP indicator starts to move when we go into a telephone box because we spend money that is registered by the national accounting system, but it does not register when we send content via the network for free. I wonder which is the most advanced economy. The one that still uses telephone boxes or the one based on a digital communication system that is free of charge? GDP, which only measures direct spending, does not recognize the added value of an increasingly informal economy, which is adding wealth that has not been properly taken into due consideration.”
Fioramonti believes that “what we measure affects what we do. If I tell my workers that their salary is based on measuring a defined output, then they will respond by trying to increase their production. GDP measures a society’s performance: so, if that is the goal, everyone will respond accordingly. If we change the paradigm, specifying that successful companies are not only the ones who can increase production but also improve quality, creating fair and sustainable well-being and internalizing the environmental and social costs of their activity, at that point companies will have to conform. Changing how we measure is a smart way to influence political, social and economic behaviours.”
This then is the goal: a post-GDP economy “where the theory of value changes, recognising that it is also created by organisations within civil society that we do not currently take into consideration. These organisations do not produce goods to be sold on the market, but they do provide services for free that have a huge impact on society. By changing the paradigm, we will recognize that so many social entities to which we have attributed no economic value for decades, are in fact much more productive than others. We will place greater importance on common resources, on social roles, on civil society, on the role of social cohesion and the fight against inequality to create a well-being economy. The model of a verticalized economy, where production and consumption are disconnected, is becoming outdated and we will move towards a co-production system where consumers will abdicate their passive role and will instead interact with producers. This will be an increasingly horizontal economy with new opportunities for participation where non-marketed goods and services will be recognized for their transverse value – for far too long the logic of GDP has led us to believe that they have no economic value at all.”
“I am completely aware that changing a number will not, per se, change the world,” Fioramonti concludes. “For the latter to happen we need a concerted effort by various sectors of society: a global movement committed to challenging the status quo and the interests behind it.” Because it is also true that “there is no sustainable well-being, nor democratic accountability without the capacity of citizens to decide what the ultimate goals of political and economic life should be.”