To Damiano and Lukas, wishing them all the best as they grow up in a post-GDP world
polity
Copyright © Lorenzo Fioramonti 2017
The right of Lorenzo Fioramonti to be identified as Author of this Work has been asserted in accordance with the UK Copyright, Designs and Patents Act 1988.
First published in 2017 by Polity Press
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ISBN-13: 978-1-5095-1138-9
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Most books are, directly or indirectly, the outcome of collective efforts that take many different forms. This book is no exception. My theoretical framework connects different strands of scholarly literature in the natural and social sciences, from institutional, ecological and evolutionary economics to complexity science and sociobiology. It also deals with governance, innovation and technological progress. Such an eclectic approach is the result of many collaborations, discussions and debates that I have had with a long list of colleagues and friends. They are too many to be mentioned here. Accept my apologies if, because of brevity, your name is not included below.
I would like to begin by thanking my ‘partners in crime’ at the Alliance for Sustainability and Prosperity (www.asap4all.org), especially Robert Costanza, Ida Kubiszewski, Enrico Giovannini, Kate Pickett, Kristín Vala Ragnarsdóttir, Lars Fogh Mortensen, Roberto De Vogli and Richard Wilkinson. My ideas about systemic change and collective action have also benefited from conversations I had with colleagues such as Mark Swilling, who co-directs the Centre for Complex Systems in Transition at the University of Stellenbosch, John Boik from MD Anderson Cancer Center at the University of Texas, Patrick Bond from the School of Governance of the University of the Witwatersrand and Dirk Helbing, the Chair of Computational Social Science at ETH Zurich.
While writing this book, I met with governments, organizations, companies and groups of citizens advocating for a shift to a post-GDP system of accounting. My journey was accompanied by many friends who share the same concerns about this number and the power it has acquired in contemporary societies. These individuals are Katherine Trebeck, Martin Whitlock, Alfred Tolle, Yannick Beaudoin, Otto Scharmer, Julia Kim, Lew Daly and Cylvia Hayes, as well as all participants in the Global Wellbeing Lab. My role on the task force coordinated by the Initiative for Policy Dialogue at Columbia University was also essential to introducing some of the concepts of this book into the policy debate. Thus I would like to thank Joseph Stiglitz, Akbar Noman and Ravi Kanbur for inviting me to join their initiative.
I would also like to acknowledge some colleagues at my home university. In particular, my team at the Centre for the Study of Governance Innovation, who were willing to take on more managerial roles while their director spent days typing relentlessly in his office, my co-director Ward Anseeuw, who leads some of our most innovative projects on distributed data generation, and Bernard Slippers, a professor of genetics, with whom I collaborate to foster trans-disciplinary research and collective science leadership through a new project called ‘Future Africa’.
Finally, I want to thank my wife, Janine, who shares this critique of the GDP world and works energetically with me to turn our home, our family and our communities into the dynamic core of a new economic and political system.
Nauru is a tiny island in Micronesia, the smallest nation in the Pacific. With 21 square kilometres of surface, it is the third-tiniest state in the world, behind only the Vatican and Monaco. It is completely surrounded by coral reefs, which emerge out of the ocean to seamlessly erect steep cliffs reaching over 70 metres above sea level. The island is immersed in a humid and hot climate, due to its proximity to the equator. Its name derives from the Nauruan word anáoero, which means ‘Let’s go to the beach’.1 When Captain John Fearn of the British whaling ship Hunter reported the presence of Nauru to the outside world in 1798, the place was so pretty that he called it ‘Pleasant Island’.
Until the mid-twentieth century, Nauru was a remote outpost of colonial empires, first German and then British, with a short period of Japanese control during the Second World War, and later it became a protectorate of Australia and New Zealand. Unknown till then, what eventually catapulted Nauru onto the global scene was its unparalleled development trajectory. Why? Because this island nation boasted the highest gross domestic product per capita in the world between the 1970s and the mid-1980s, overtaking financial paradises like Luxembourg and Liechtenstein and oil-rich Arab states.2 Its economic ‘boom’ was due to the exploitation of one of the world’s purest and most extensive reserves of phosphate, a key ingredient for the industrial production of fertilizers. When the country acquired independence in 1968, the New Nauru Phosphate Corporation intensified extraction and introduced innovative chemical treatments, with the support of foreign experts. With an unprecedented 91 per cent of purity, Nauru’s phosphate exports travelled beyond the conventional Australian and New Zealand markets to reach several Asian economies, from Indonesia, to Japan, the Philippines, South Korea and Taiwan. As of the early 1980s, the peak of extraction was around two million tonnes a year, at a market price of about US$60 per tonne. Unable to construct a deep-water harbour because of its coral reef surroundings, the government built gigantic cantilevers sticking out of the mines, transporting the brown powder for hundreds of metres through conveyer belts connected to ships stationed offshore. Out of the overall proceeds, less than US$3 per tonne would go the landowners’ fund, with another US$12 destined for long-term investments, including purchasing a fleet of Boeing aeroplanes and commercial ships, a chain of international hotels and a 52-storey skyscraper in central Melbourne, the tallest building in that city. After some spending on a host of social programmes, the remaining profits would stay with the local government council, which controlled the phosphate industry. Landowners shared in about U$1.4 million every three months, with the sums paid to each individual owner reaching as much as US$360,000. This meant an astonishingly high income by the standards of the Pacific atolls ‘where most people exist on subsistence agriculture and fishing, seldom seeing more than a few hundred dollars in cash in a year’s time’.3
Then things began to fall apart. In its rush to ‘development’, the Nauruan government over-exploited the phosphate mines, destroying the natural habitat supporting indigenous flora and fauna. Revenues plummeted in the late 1980s when most mines became unusable, and the government defaulted repeatedly on international payments.4 In a scramble to keep generating revenues, Nauru turned into a tax haven in the 1990s and was included in the list of ‘non-cooperative’ nations by the Financial Action Task Force on Money Laundering. For some time, the government adopted a number of questionable policies, including issuing passports to foreign nationals in exchange for a fee. With no arable land left and no other source of income, the country eventually accepted aid from Australia in 2001 in exchange for hosting the Nauru Regional Processing Centre, a de facto detention camp for asylum seekers, widely deplored for harsh conditions and ill-treatment of residents.5
As reported by Nauru’s former president Hammer DeRoburt, the strategy of digging into debt to fund the extractive infrastructure was ‘advised by economists’, despite some locals raising objections about the extravagant expenditures.6 When the president reached out to the Asian Development Bank in the 1980s to seek support for his industrial project, the request was turned down, ‘declaring that Nauru’s high per capita income made the government ineligible for assistance’.7 In a report to the United Nations (UN), Nauru’s leaders recognized that phosphate mining resulted in ‘drastic land degradation’, ‘removal of natural vegetation’ and ‘the almost total modification of the landscape of the topside’ of the island. The report concluded: ‘This is by far the most widespread and visible environmental concern in the country – an impact that has had a direct and/or indirect influence on all other environmental impacts and cultural change over the past 90 or so years.’8
Even the weather pattern has drastically deteriorated, so much so that present-day Nauru suffers from continuous heat rising from the mined-out plateau, which drives away rain clouds and leaves the sun-baked island plagued by constant drought. Water is so scarce that the island runs dry for most of the day, with households relying on a desalinization plant to satisfy their needs. When, in the late 1980s, the government won a case before the International Court of Justice against Australia’s mining operations, it invested the US$75 million of the settlement to restore some of the lost ecosystems ‘in hopes of coaxing pandanus, mango and breadfruit trees to grow again’.9 But to no avail.
With no viable economic opportunities, broken infrastructure, ecological mayhem and a dishevelled education system, mass emigration is the only long-term option for Nauruans, most of whom have sought better economic opportunities in New Zealand and Australia. As a traditional culture of fishing and garden plots was replaced by imports of western-processed foodstuffs, the dietary profile of Nauruans has also worsened to unparalleled levels worldwide, leading to a widespread health-care crisis. According to body mass index statistics published by the World Health Organization, Nauruans are the most overweight people in the world, with 97 per cent of men and 93 per cent of women being obese as of mid-2000 data.10 From ‘Pleasant Island’, Nauru has become one of the world’s capitals of cardiovascular diseases, kidney failure and type-2 diabetes, a diet-related chronic illness that has affected 40 per cent of inhabitants since the 1990s and has also claimed the life of former President DeRoburt.11
A 1995 report about the island published in the New York Times reads: ‘While Nauruans may be among the world’s most affluent people, they are also among the most sickly, racked by diabetes, high blood pressure and obesity brought on by a diet of fatty, imported food. Few Nauruans live much past the age of 60.’12 Nauru’s vicissitude is arguably an extreme case, yet it is coherent with the rules underlying contemporary approaches to economic prosperity as a function of the gross domestic product (GDP). I will provide a more thorough explanation of ‘what is wrong’ with GDP in chapter 2, but a few pointers are in order here. First of all, GDP only measures material output, without considering the value of natural and human inputs that are ‘depleted’ in the process. It conceptualizes progress as a continuously growing set of market transactions, regardless of whether these are beneficial to society or not. Undesirable conditions like diseases, traffic jams, disasters, pollution and crime do trigger economic transactions, for instance, by requiring more medical treatment, anti-smog devices, higher insurance premiums and larger jails. Thus they count positively towards GDP, but are certainly not evidence of prosperity. In many ways, the massive exploitation of phosphates in Nauru was consistent with its GDP trajectory, as none of the associated costs on the environment and society mattered to economic advisers and government officials, let alone foreign investors. A country that depletes its energy sources and destroys the environment to prop industrial output is seen as productive by GDP. By contrast, a country that preserves nature by curbing exploitation and consumption may very well be classified as ‘underdeveloped’ and in need of drastic reform. Moreover, GDP only counts transactions that occur within the formal economy, hence disregarding all economic activities that are informal, voluntary in nature and are performed within the household, thus driving societies to commercialize social life, reduce leisure and free time and support large corporate-driven industrialization. As remarked on the website of the Organization for Economic Cooperation and Development, ‘If ever there was a controversial icon from the statistics world, GDP is it. It measures income, but not equality, it measures growth, but not destruction, and it ignores values like social cohesion and the environment. Yet governments, businesses and probably most people swear by it.’13
As a limited geospatial entity, with no capacity to externalize damage to the rest of the world, Nauru’s dramatic parable was an accelerated version of what is happening to our planet due to the convergence of social, economic and environmental crises. After a century of accelerated growth, the global economy has now become a closed-loop system, in which the externalities of GDP are stifling development itself, endangering not only prosperity in the long term but also the very survival of the human species. The financial crisis, rising inequality, the depletion of non-renewable energy and climate change deeply question the current model of economic globalization, demanding an urgent reorganization of our societies. As economic, political and ecological instabilities affect populations around the world, we see new waves of migration spanning the globe: desperate people who flee their homelands like Nauruans abandoned their sinking island. No matter how many fortresses some may try to build, it is becoming painfully clear that nothing can stop men, women and children running away from oppression and ecological disasters. At the same time, deprivation sits side by side with conspicuous consumption. As migrants desperately make their way across deserts, seas and armed border posts, millions of tourists leisurely criss-cross the sky and invade hitherto pristine natural ecosystems. As beggars scavenge through trash on the streets of the new shiny megacities, the super-rich have hardly any time to enjoy their sumptuous penthouses, busy as they are jetting across continents to follow their money. Never before has humanity enjoyed so much connectedness, technological advancements and longevity. Yet this has come with a huge cost not only in terms of ecological impacts, but also in terms of social cohesion and equitable development. Through a misleading set of development policies and incentives, we have built a system of social organization replete with contradictions, now threatening to push our civilization to the brink of collapse.
This book’s main argument is that changing the economic ‘rules of the game’ can lead to profound political and social transformation. While this may sound like a nightmare to the staunch defenders of the current industrial and economic model, there are many reasons to believe that we may be on the verge of an historic transition to a more equitable, sustainable and happy society. As I will discuss in the following chapters, the economy should be seen not as a separate societal sphere which exists on its own, as the idea of the ‘market’ seems to suggest. Rather, the economy is nothing other than a system of rules contributing to human coordination. As a consequence, the modification of its modus operandi is likely to activate a cascade effect throughout society, leading to a different social order. By focusing on pioneering research about alternative metrics of progress, governance innovation, institutional change, complex systems, collective action and international relations, the following chapters will take the reader through a thorough analysis of the many flaws of the current global order based on GDP growth and will describe the incredible potential for change made possible by the convergence of top-down reforms, bottom-up pressures and new distributed technologies.
I am completely aware that changing a number will not, per se, change the world. 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. As I will show in the book, however, dethroning GDP can trigger a cascade effect. Our entire development model rests on the way in which we measure prosperity, development and ultimately success. It is GDP that gives authority, influence and widespread social acceptability to the growth model that is intoxicating the planet. GDP sets the standards, the guidelines for policy as well as the corporate drive for consumption that virtually all societies are currently imitating and replicating. It drives a suicidal race to the cliff, which 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.
Not only does GDP set the rules of the ‘growth game’: it automatically disqualifies all alternative development approaches, which are routinely sidelined, ridiculed and dismissed by policy makers, business leaders and the media. In this context, eroding the power of GDP means more than just changing a statistic: it means re-inventing the ‘lens’ through which we define prosperity and the policy goals for achieving it. Classical economic analysis in the eighteenth century showed the unproductive nature of the ancient regime’s political order, dominated by hierarchies of kings, aristocrats and landlords. Coupled with innovative technologies that shifted energy away from horses and into factories, modern economic thinking paved the way for the affirmation of industrial capitalism and the resulting bourgeoisiedominated revolutions. Similarly, post-GDP measures demonstrate the fictitious nature of contemporary economic growth, questioning the alleged productivity and efficiency of the corporate-dominated market. Not only do they reinforce a policy shift towards climate-compatible development and greater equality, but they also embolden those social actors traditionally marginalized by mainstream economic thinking, from small businesses to households, civil society, local communities, environmental advocacy groups and alternative energy movements. Like at the dawn of capitalism, policy reforms and societal pressures are now being reinforced by a technological revolution, which is providing unprecedented opportunities to create value by collaborating across networks, thus augmenting the pressure for institutional transformation. I believe that a shift towards a post-GDP system of development is the glue that unites these factors in one coherent narrative, with the potential for a multiplying game-changing effect. Connecting top-down reforms, bottom-up pressures and technological innovation may thus facilitate a transition to a ‘horizontal’ economy, founded on localized forms of production and consumption, in which citizens rather than consumers will be the key driving force of human development. As I will argue throughout the book, the shift to a post-GDP economy may also have an impact on contemporary politics, affording new opportunities for participation. As GDP is the benchmark via which the global pecking order is defined, new global powers may emerge and a different international system may be forged.
In chapter 1, I will outline the theoretical underpinnings of this book’s thesis, showing how GDP is not just a number, but a powerful institution supporting the current economic system. This statistic guides preferences and behaviours and ensures predictable outcomes through a dominant logic of appropriateness and consequence. In many more ways than we often recognize, this number influences what we do, how we do it and why we do it. In this part of the book, I connect various theoretical approaches to institutional and social change to show the potential ramifications of a post-GDP system of governance. My intention is not to describe a utopian world: rather, it is to demonstrate how change can be achieved by harnessing the complex interconnectedness of governance processes, social pressures and technological evolutions.
In chapter 2, I will tell the story of GDP’s institutional evolution, from its inception before the Second World War to contemporary governance. In particular, the Bretton Woods Conference of 1944, which redesigned the world system and instituted international financial institutions such as the International Monetary Fund (IMF) and the World Bank, sealed GDP’s footprint on world politics by elevating it to the global parameter of success. Since the turn of the millennium, however, the critique of GDP has left academic circles to enter the global public debate. A loose ‘post-GDP’ movement has been triggered by researchers, intellectuals, commissions, task forces and popular campaigns.
In chapter 3, I will explore what types of change might be triggered if a post-GDP system of metrics were introduced in economic governance. By building on an institutionalist approach to collective action and highlighting the possibility of convergence for top-down reforms and bottom-up pressures (this is what I call the ‘sandwich’ model), the chapter will outline how alternative metrics of economic performance can generate different economic and/or reputational incentives, as well as galvanize alternative types of business activities which develop horizontally and ‘scale across’ society rather than vertically through traditional forms of corporate governance. The chapter will show how metrics that ‘internalize’ the externalities of economic activities are likely to affect the political and public perception of large companies (especially the most polluting ones) 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 contribution to wealth and progress amplified (as their contribution to societal well-being normally goes beyond the limited monetary impact captured by GDP), thus encouraging both policy makers and citizens to shift their preferences towards a new type of economic growth. The post-GDP production system is likely to operate like a ‘horizontal economy’ based on customization (as opposed to mass production and economies of scale), on producing what we need (as opposed to generating waste) and on local production cycles (as opposed to comparative advantages and globalized transportation). The new economy would be more likely to achieve full employment, as it will entirely re-invent the concept of work, and it would markedly increase social well-being by reconnecting people to their local needs and natural ecosystems. Importantly, the new economy would assign a crucial value to households and communities (which are entirely neglected by GDP), given that the post-GDP system of performance will portray this social ‘core’ as the precondition for a functioning and dynamic economy.
Chapter 4 will focus on political transformation. For the GDP ideology, all the activities we perform in our households, in our local communities and in the vast informal economy (including small-scale farming and the non-profit) are of no value. When we care for another, when we look after our common resources (from water to natural ecosystems) and when we participate in the public sphere, we are of no consequence for the GDP paradigm. Here, too, the interaction between new metrics and shifting popular demands may produce radical changes. Post-GDP indicators will indeed reveal that the social unpaid activities we perform every day not only constitute most of our waking time but are also the backbone sustaining the very existence of the formal economy, a fact confirmed by research conducted also by institutions such as the Organization for Economic Cooperation and Development and the International Monetary Fund. When global rankings are revised to account for social capital, community work and household activities, many allegedly poor countries appear quite wealthy, while many rich economies fall down the ranks. Post-GDP metrics are likely to affect the preferences and behaviours of policy makers, some of whom may simply use them to acquire global status, as Italy did, for instance, in the 1980s when it estimated the scale of its informal economy to surpass the United Kingdom as the world’s fifth-largest economy.14 Civil society would be able to exploit this too, advocating a shift away from the ‘growth’ society to the ‘well-being’ society. Just as the post-GDP economy will be based on the prosperity generated by collaborative ‘horizontal’ entrepreneurial initiatives, post-GDP politics will also promote sharing and cooperation in political processes. Representative forms of participation, such as traditional political parties, may change profoundly and ultimately give way to local governance structures based on direct participation. This shift will also contribute to eroding the primacy of the nationstate, with more powers devolved to the local level. Local governance systems may emerge as pioneers in post-GDP transitions, due to their proximity to citizens, and cross-border cooperation among institutional units (e.g. local administrations, provinces, etc.) may become more common.
Chapter 5 applies the same framework to world politics. In international affairs, power and status are intimately connected with the size of a country’s economy. No surprise, then, that GDP has colonized the very lexicon of global governance. International clubs such as the G7 or the G20 have been defined according to their members’ contribution to global economic output. The concepts of ‘emerging markets’ and ‘emerging powers’ are also dependent on a nation’s current and projected GDP growth, as well as the ambiguous distinction between the developed and the underdeveloped (or developing) world. This chapter will show how the shift to a post-GDP scenario, having contributed to economic and political change, may also result in a major reorganization of international relations.
The post-GDP system of performance does not happen in a vacuum but in an already battered global economy. Shrinking energy sources make a recovery of the globalized economy, in which one can shift production around the world searching for cheap labour, much less likely. The Sustainable Development Goals (SDGs) ratified by the United Nations in 2015 call for a more nuanced approach to economic success, making the case for a different set of metrics. Climate change demands a radical switch to renewable and less polluting forms of energy, which − unlike coal and oil − can be found anywhere but can hardly be transported, thus empowering local energy production. As new environmental regulations will be introduced to align with the SDGs, deal with climate change and shift the energy basis, globalized markets will become less profitable in the long run, which means that business activities may refocus from the global to the regional/local level to seek new profits. In the post-GDP system of performance, it will be much harder to show the economic benefits of a global trade agenda, due to the massive externalized costs. At the same time, such a transition to localized forms of production and consumption does not necessarily mean a resurgence in national protectionism. The post-GDP economy will indeed need to be embedded in the geographic, climatic and ecosystemic conditions of each territory: therefore, national borders will stay porous. As a matter of fact, regional cross-border exchanges may very well become more common than they are now. For instance, by exchanging energy locally, contiguous communities across national borders may push for further integration. Similarly, small businesses would find it attractive to pursue regional avenues for sustainable development, and local governments may establish partnerships with regional equivalents. This drive for regional integration may be particularly strong in large nations, where distances from the periphery to the centre are larger than those between cross-border peripheries. Territorial continuity will matter a great deal, which means that geographically homogenous areas will have an incentive to build common infrastructure, regardless of whether they reside within the same nation or cut across multiple countries. A new set of highly connected and ecological sustainable ‘bioregions’ may constitute an emergent form of polity, with nation-states transiting from being monopolists of regulation to being facilitators of bottom-up integration.
In the conclusion, I will reflect on a post-GDP world as a possibility. Current trends in accounting and policy planning are important factors but are unlikely to trigger systemic change unless the critique of GDP becomes a lens through which we frame the various malaises of our contemporary society and experiment with ways to innovate our political and economic order while building pressure from above and below. By discussing the power of numbers as institutional tools, this final section will argue in favour of a ‘democratization’ of accounting with a view to exploiting the opportunity presented by the SDGs to demand popular consultations on the definition of social progress. Indeed, for as long as societal performance systems are decided by specialists and technocrats, there is the risk of change being ‘hijacked’ by conservative forces. Ultimately, 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.