How to measure the economy more fairly | Economy


A new world emerges inexorably. While the old man resists disappearing. The idea of ​​growth at all costs that characterizes the current economic model is being questioned both by the scientific community, as well as by multilateral organizations and some governments. The Great Recession left behind a trail of inequality that the increase in subsequent productive activity has not been able to eliminate; global warming cracks the planet by building a increasingly worrying future for new generations, while the technology that minimizes these two ballasts is already operational, although its impact is probably not getting as far as it should be, nor is it possible to quantify precisely. The citizens complain. Increase the riots, the conflicts, the discontent. And populist parties become strong in societies tired of their governments putting the economy as the faithful of the balance instead of their welfare. Tired of always winning the same.

This is the scenario that the debate on whether the gross domestic product (GDP), the standardized tool to measure the wealth of the countries, is on the table, is the appropriate indicator to assess its progress or if another one more linked to the quality of life for governments to prepare their accounts and make the best spending decisions. A discussion that has been present this week in the Davos World Economic Forum. The Organization for Economic Cooperation and Development (OECD) is leading the current that puts people before numbers. “The growth measured as production and consumption is costing us very expensive”, they maintain in the direction of the organism. “We cannot use GDP as the only indicator of economic progress because it has led to many distortions, such as increasing inequality in all countries of the OECD

The organization led by Ángel Gurría leads the flow of inclusive growth, a more sophisticated formulation, which is based on establishing as a fundamental parameter the well-being of people in terms of disposable income, access to education, health, infrastructure, certainty in work or quality employment, among other variables. “We have to evaluate public and private investments according to a kind of checklist that indicates the natural resources that will be lost when they are made or if they will support the development of the communities. We have developed an inclusive growth framework in which we tell countries that we are not going to give up GDP because it is a standardized international measure, but it must be complemented with other indicators so that their rulers make decisions in the framework of inclusive growth and can modify them in terms of taxes, expenses or productivity depending on how they are affecting people, ”they say from the OECD.

Experiment

New Zealand is the first country that has abandoned the doctrine of economic growth at any price. Last May, her Prime Minister, Labor Jacinda Ardern, presented the so-called welfare budgets. Accounts that, for the first time, have focused on trying to tackle the most pressing problems of its almost five million inhabitants: the mental health of the population, the fight against child poverty, support for indigenous communities, the transition to a low-emission economy and the momentum of innovation, explains Nigel Fyfe, New Zealand’s ambassador to Madrid.

To do this, he has put on paper 25.6 billion New Zealand dollars (about 15,000 million euros) for the next four years and has prepared the so-called Living Conditions Framework, which analyzes areas of well-being such as environment, health, housing, identity cultural, income, consumption, employment … “to advise governments” on how their political commitments “can affect the living conditions of the entire population.” Half of the expenditure will go to social priorities. The new meters have not yet paid off. The same as the policies. “We need more time, since both are long term. The important thing is that we have made the change, ”says Fyfe.

Although a game of 455 million New Zealand dollars (271 million euros) has been approved for the implementation of a new mental health system and reinforced with 40 million the suicide detection system, as well as implemented 1,000 places to accommodate homeless The Government will show the evolution of the indicators when one year of the budget is completed, as the disputed general elections, which will be held this year, approach. Because the impact analysis variables, their measurement traffic light, is a key piece to guide spending priorities.

New Zealand has opened the gap, says Diego Isabel La Moneda, director of NESI (New Economy and Social Innovation Foundation), a non-profit organization whose goal is to help change the economic model to make it more human and sustainable; but two other governments, the Icelandic and the Scottish, are working on it through the Wellbeing Economy Alliance (WeAll), a laboratory of innovative policies aimed at improving well-being beyond GDP. The three Executives and more than 60 international civil organizations participate, including NESI.

Because, according to Isabel La Moneda, new indicators are needed that are at the service of people and the planet. “GDP does not serve to make decisions but for countries to compete with each other,” he appreciates. In his opinion, the citizens themselves would have to participate in the decision of the sum of markers that assess their quality of life and their progress. Variables not only quantitative but qualitative and that should not be the same for all countries.

It is the idea encouraged by the OECD, “because with our arsenal of economic analysis we are not capturing intangibles, which are precisely those that generate trust among citizens,” he says. Also for the world Bank, which has incorporated a new social mobility index into its newly presented human development barometer.

The 2001 Nobel Prize in Economics, Joseph E. Stiglitz, is the leader of the current that questions GDP for its limitations as an indicator of progress. “If we only focus on material well-being (for example, in the production of goods, rather than health, education and the environment), our vision becomes distorted […]. We become more materialistic, ”he wrote in this newspaper, in his article Beyond GDP, just over a year ago. In his opinion, inadequate metrics have led to inefficient policies, such as obsessive austerity after the crisis, which could have been redirected with other meters. “It is time to withdraw indicators such as GDP,” he wrote most recently in The Guardian, in view of the three crises the world faces: climate, inequality and democracy. “If we measure the wrong, we will do the wrong. And it should be clear that, despite the increases in GDP, despite the fact that the 2008 crisis was left far behind, all is not well. We see this in the political discontent that spreads through so many advanced countries. ”

Because growth is now very limited in developed countries and productivity is not increasing as one would expect with technological advancement. The model runs out. The debate is not new, it resurfaces from time to time, explains Jesús Fernández-Villaverde, Professor of Economics at the University of Pennsylvania, since, in response to the Great Depression of 1929, the American economist Simon Kuznets, the inventor of national accounting, created the GDP to collect in a single figure the economic production of the countries so that governments could use it for economic planning. “Then it was explicitly said that it was an economic measure, not welfare. But people forget and equal GDP with welfare. ” And now it reappears again at the hands of Stiglitz and the OECD. The problem – he argues – is that it is not so clear what to measure and what weight is given to each variable, because for some it is more important education and for others health; There are those who want to focus on equality and who on life expectancy. It is a matter of values ​​and there are no better ones than others.

Subjective indicators are scary and half of those who evaluate social welfare are, says the former mayor of Paraguay and creator of the Paraguayan Foundation, Martín Burt, who has made a decision board based on 50 variables so that the citizen can elaborate through an online tool your personal plan to get out of poverty. And they provoke fear among other things, says Fernández-Villaverde, because politicians can distort them. “GDP is not perfect, but it is the best of existing systems,” he says.

The teacher is in favor of adding existing metrics, but does not participate in the idea of ​​finding a single aggregate of all these variables. “I think it’s very good to report more and more numbers, although I think that the super GDP that Stiglitz tries to find is going to be. Among other things because many social indicators are reviewed with a very low frequency, ”he adds.

“One of the most important elements of the discussion is whether or not it is going to be a menu of indicators or if they are going to be integrated into one. I am not very friendly to present an aggregate indicator because it hides many things, ”he supports Nora Lusting, professor at the University of Tulane (USA).

The most important limitations of GDP are that it leaves out domestic work, which has its social weight because it conditions gender equality, and does not consider environmental damage to debt and financial assets, which would result in lower economic growth if I would do it, appreciates Raymond Torres, director of Conjuncture and International Analysis of Funcas. The environment is precisely where the five largest global risks are detected for the first time, according to the World Economic Forum that met this week in Davos. In the Swiss town, the CEO of S&P Global, Douglas L. Peterson, has pointed out that GDP does not include either the submerged economy or tax evasion, which in many countries can represent up to 35% of GDP. But it is a critical indicator for investment decisions, he said.

Other barometers like The Gini coefficient, the world standard for calculating the degree of inequality of countries, has major flaws, says Lusting. “The income of citizens is not being well captured and that is why we do not know what the degree of real inequality is and how it evolves. We need anonymised tax returns to calculate it. But only the Government of Uruguay provides this information, ”he explains. In addition, all inequality indicators use relative inequality, when the absolute differences are the ones that grow.

The new progress markers have to gather at least three ingredients, in the opinion of Bruno Lanvin, director of Global Indices of the Insead business school: to detect the feeling of people, which can be measured through their behavior; be dynamic to be able to compare over time and, what is more complicated, incorporate the objectives of society, which are not the same in the West as in developing countries, nor in cities than in rural areas. According to Lanvin, economists who make indexes are currently reviewing them for the advancement of technology, big data, and the human factor.

“We move from a traditional economy to a digital economy and we must introduce digital variables in the indicators. Access to technology can be one of the first elements of social exclusion. You have to rethink the indexes, ”says Antonio García Zaballos, telecommunications advisor at the Inter-American Development Bank (IDB). “We must give answers to politicians, who need to assess citizen progress when GDP growth is low as today, and identify new sources of expansion,” says Lanvin.

The EU looks for formulas so that when economic growth is measured, well-being is not lost sight of. The International Monetary Fund also talks about it. The test that European countries pass also includes the analysis of a set of labor and social indicators, to which the European Commission plans to incorporate environmental objectives, such as the European Central Bank. The EU Economy Ministers have discussed how to strengthen the links between economic policy and quality of life decisions. At this week’s board meeting they discussed the priority policies for 2020: sustainability, productivity, economic stability and social justice. But despite this effort, the level of demand with social policies is not as strict as in the sphere of public finance, reports Lluís Pellicer. After all, GDP continues to send.

Gabriela Ramos (OECD): “Factual powers do not like an analysis beyond GDP”

Gabriela Ramos, cabinet director and 'sherpa' of the OECD.


Gabriela Ramos, cabinet director and ‘sherpa’ of the OECD.

Globalization has been a source of great progress, integration and technological advancement, but also a source of great inequality. ” 40% of OECD member countries have not seen their disposable income improve over the past two decades, says Gabriela Ramos, director of cabinet and sherpa for this agency. Given this exhausted model, the OECD has developed a framework of indicators of well-being, where intangibles occupy a very prominent place to find a clear radiograph of the situation of the people. The OECD has been working on its welfare index for 10 years, which includes redistributive issues and the impact of the environment, “but there are many vested interests that want to continue maximizing the benefits and many factual powers that interest us in this analysis more beyond GDP ”, says the right hand of Ángel Gurría, president of this organization.

Question. When do you think the welfare indicator could be standardized?

Reply. At the moment, our index is on the OECD website but with unweighted variables because we are a cautious organization. The first step has been to build the framework based on material conditions, quality of life and sustainability, which people ponder, to see how the well-being of different population groups is reflected. Not on average, since averages break the understanding of the environment and make public policies inefficient. And we want that in the future it will be just as useful as what GDP has been in order to replace it. But we need to decide how to adjust the environmental impact to national accounts, how it translates into less growth and prosperity, and how to account for people’s lack of confidence in economic policies.

P. Which countries support this initiative?

R. Especially from Europe. Denmark, Holland, Sweden, Finland, Norway, France and the Government of Spain too. But it is New Zealand who has jumped from intellectual reflection to make a different definition of development to benefit the most vulnerable population with their budgets and invest where it is most needed. A welfare-based budget automatically raises the effectiveness of public policies.

P. Do you expect it to become an aggregate indicator such as GDP?

R. It should be over time. But by the time we arrived, I would be content with the finance ministers considering the environmental and social impact when implementing their decisions. Because we continue with the narrative that economic growth works in all spheres. It has become the ultimate goal instead of the end to achieve people’s well-being, which we have not achieved. And seeing things in compartments has its disadvantages: the increase in populism, nationalism, the lack of multilateral support … It is the result of an angry society. And that brings social fracture, which is not good for growth.

P. How can institutions regain confidence and stop the rise of populisms?

R. Social confidence in OECD countries is so low because people perceive that economic growth has been unfair and that the authorities have not met. To the extent that rebalancing begins to occur, it will recover. It is time to intervene so as not to allow the law of the jungle to be imposed with out-of-control markets. Most countries are thinking how to do it, the problem is that others are in the hands of legitimately elected populist leaders who make totally opposite decisions. You have to be very careful. It is a matter of results and current policies have not even had a positive impact on growth.

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