By Chris Harman
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Economic growth – the meaning of numbers

This article is over 14 years, 4 months old
Economic "reforms" for increased growth are often justified by the ruling class as being good for everyone. But what is the truth behind the statistics?
Issue 340

Adair Turner, head of the Financial Services Authority, hit the headlines when he called for control on financial transactions through a tax. Not so widely noticed was his comment that much of what finance does is “socially useless”.

It was a remark which has enormous implications for the British economy, since finance and business services employ more people than the whole of manufacturing and absorb about half of all business investment. The implication is that much, if not all, of the growth of the British economy over the past decade and a half has been non-growth. Instead of producing things which are useful, huge amounts of effort went simply into gambling on the profit to be made from moving money from one pocket to another.

Yet year after year New Labour’s justification of its “modernising” reforms was that they had supposedly led to record economic growth.

There are similar contradictions in the case of other countries. Successive Indian governments have been boasting that “reforms” have increased the rate of growth of the economy. The supposed aim of that growth in India is to pull the mass of people out of poverty. Yet, as the radical economist Utsa Patnaik has pointed out in Monthly Review, growth in recent years has been accompanied by a fall in average food consumption.

The usual measure of a country’s economic success is Gross National Product (GNP), or sometimes the related Gross Domestic Product (GDP). People are said to be getting more prosperous if GNP per head increases. But a minimum of scientific scrutiny shows that GNP does not measure people’s wellbeing. Domestic Product (GNP and GDP) figures are arrived at by adding together the amounts paid for things in a single year. It is not just for things that make up living standards – like food, energy, manufactured goods or the provision of health and education – but also things like armies, advertising and bankers’ bonuses.

All sorts of other anomalies follow from this. To give a few examples: GNP rises when new, faster cars are produced, but also when speed humps are put on the roads to slow them down. If the new cars lead to more crashes that too adds to GNP, since people have to be paid to tow away the wrecks and bury the victims. Selling the wood from forests that have existed for hundreds of years increases GNP, even though it means a depletion of resources.

Even an editorial in that house organ of the capitalist class, the Financial Times, has been forced to admit some of the anomalies: “As US GDP rose during the past three decades, incomes stagnated or fell in the bottom half of the population” while GNP figures include “some production we would be better off if we could do without: guns are one example, systemic risk-raising financial products another”.

A host of high-flying economists and politicians also recognised anomalies at a conference a couple of years ago. Now President Sarkozy of France has, for his own dubious reasons, set up a commission headed by economist Joseph Stiglitz to examine the issue. But all attempts to find a substitute measure of economic growth have come to nought.

In fact, the attempt to separate what is genuinely productive of wealth from what is non-productive goes back a long way. Adam Smith, writing in the early days of industrial capitalism in the late 18th century, supported capitalism because he saw it as advancing humanity’s capacity to produce wealth in a way old feudal systems of class could not. And so he identified as productive any economic transaction that increased the wealth of individual capitalists.

But, once capitalism was fully established, a lot of economic transactions did not involve the creation of any new wealth at all, but merely consisted of competition between them over who had what already existed. Karl Marx, writing 90 years after Smith, recognised this.

What was productive for the individual capitalist was not necessarily productive for the system as a whole. And what was productive for the system as a whole could be far from productive in terms of meeting the needs of the people who worked for it.

These contradictions have deepened enormously since then. Expenditures on finance, advertising, marketing and, above all, the military have risen to a much higher level than Marx ever imagined. The growth of capitalist economic transactions as measured by GNP can be accompanied by a deterioration in the lives of vast numbers of people. And now growth is also based upon a level of environmental degradation that threatens the very interactions with nature on which the future of humanity depends.

One of those worried by anomalies with GNP, Enrico Giovannini, chief statistician of the Organisation for Economic Cooperation and Development, says, “We cannot reduce the complexity of the world to a single number.” But capitalism is a system that does reduce everything to a single set of numbers – the cash nexus that lies behind profitability.

It is hardly surprising that it measures economic growth in those terms – even when that growth is of useless activity, like financial gambling, and of destructive activity that, for instance, emits greenhouse gases. Meanwhile, those who want to pay for the banking collapse by cuts in the public sector denounce a whole range of genuinely useful jobs as “unproductive”.

These arguments are about more than statistical definitions. They are about the sort of society in which we live.

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