20 November 2018

The Growth Delusion

The Wealth and Well‑Being of Nations

David Pilling
2018, Bloomsbury, 352 pages,
ISBN 9781408893708

Reviewer: Dr Rebecca Harding, CEO, Coriolis Technologies

If you want to know why populism and economic nationalism are rooted in economics, and more particularly the use of GDP as a measure of economic success, then this is the book for you. It is a robust critique of the assumption that economic growth is necessarily a good thing and does not pull punches when he argues that economists have claimed a ‘scientific precision that their profession does not merit.’ ‘Only in economics is endless expansion seen as a virtue. In biology it is called cancer.’

Most economists reading this review would immediately retort that GDP comparisons are known to be flawed. One of his recommendations is that the focus of growth policy should be on growing per capita GDP rather than real GDP, and most economists would argue, as does he, that even per capita GDP is a weak measure of inequalities within countries. Indeed, most economists would not argue with most of what the book is saying, and that is what makes it so clever.

David Pilling takes the non-specialist on a journey through their fury at the economics profession. As he says, the latter has to bear heavy responsibility for a growth-oriented narrative that has dominated the public debate in the post-war period, but particularly in the run-up to the financial crisis. But he also quite clearly states that if the public is going to express its dissatisfaction with ‘experts’ then it needs both to speak their language and to understand the constraints within which they work. So the place the book ends up in is not to reject the discipline. Rather, it is to point out that policy makers, and indeed the ordinary voting public, have too been complicit in their interpretation of the messages coming from the ‘experts’.

The book begins with a brief overview of the history of GDP – focusing on Kuznets and Keynes in particular. From the outset it is clear that the creation of GDP was first to evaluate whether or not the US could afford to build up its military after the Great Depression. In this, its purpose was little different to pre-industrial monarchical societies in that the purpose of the economy was to finance war. Although this was not the premise on which Simon Kuznets started his work, and although his work on measurement initially created policies that pulled the US out of the Great Depression, in the end, the consequence of totting up the national accounts was to create a surplus should the country be required to go to war.

It is this acknowledgement that economics has always been both a political tool and a political get-out clause that makes it so worth reading. The book is not claiming that all economic growth is a bad thing – in fact, the chapter on ‘growthmanship’ points out that the focus in countries like South Korea, China and India has produced benefits that have indeed lifted the standards of living for many and, to a large extent, created the sense in the developed world that this growth has been at the expense of the Western growth model.

The book’s first real problem is with the way in which we use GDP and economic growth. This is developed in several ways throughout the text. For example, economic growth does not measure welfare benefits or inequality and therefore presents a ‘distorted view of the world.’ It looks at some of the bizarre aspects of measuring GDP – for example the inclusion of prostitution, gambling and handling of stolen goods in growth statistics – and the paradoxes that the focus on growth creates in welfare terms. This was done in order to make GDP statistics comparable with other EU countries, but, argues Pilling, national income as a result cannot distinguish between inherently ‘good’ and intrinsically ‘bad’ activities. But what we measure is a reflection of how we see ourselves and it does affect policy – the production of arms adds to GDP, but it also has the potential to kill people; tobacco companies produce products that kill people, but they pay taxes which add to the public coffers and help to pay for the wealth-creating hospital care that is a spillover from the consumption of tobacco.

What we measure determines what type of society we are endorsing. Yet this was never the purpose of GDP measurement which was simply to understand economic activity, not to place any value judgement on what we are doing, or to promote some activity others.

The book’s second problem is with the speed at which GDP growth itself is becoming redundant as a measure. How much economic activity, such as homeworking, is actually invisible to GDP statistics but valuable nevertheless? How do you measure the way in which we interact with the digital economy, or productivity in the digital economy? Does the digital economy, in that it reduces prices to zero but takes payment in terms of time and personal data as well as money, mean that we are over-estimating inflation and underestimating economic growth. And perhaps most importantly as well, in emerging economies which do not have good data collection systems, how meaningful is GDP as a measure of economic activity? Might it not be better to look at the levels of light pollution instead?

It is hard to do justice to a book that is such a humorous and readable tour-de-force of GDP and its role in creating the political climate that we are now in. But its message is clear. Our focus on ‘the economy stupid’ has meant that we have deregulated, privatised and globalised, particularly in the area of financial transactions. Wealth has been created globally as a result, but it has not been created locally. Middle-aged, white Americans, and their counterparties elsewhere, have seen this growth but not seen that growth in real wages in their back pockets. They have worked harder, while others, particularly in emerging economies, have benefitted.

The focus on growth at all costs is at best ill-advised and at worst misleading. It has created the populism that dominates the political landscape now; at a human level, it has contributed to the increase in suicides amongst white middle-aged Americans. Practically, Pilling argues, we should also look at improvements in per capita GDP, inequality, net domestic product, well-being and CO2 emissions and remember that ‘the economy is not real. It is merely one way of imagining our world.’

That the economy is not real is not an existential problem for economists – it is a statement of fact. Pilling’s book is a reminder of the profession’s strengths in gathering and interpreting data but also a plea to the ‘experts’ and to those to interpret them to take everything they say with a pinch of salt. The last word goes to Pilling: ‘Growth was a great invention. Now get over it.’