GDP: the default target for government policy

It’s about two years since I started this blog. In that time I haven’t detected much movement toward outcome-based policy. Instead, we are seeing the ascendancy of a political caste; people who are politicians first and foremost and always have been. Their concerns are not those of ordinary people, and their definitions of success or failure are entirely removed from those of the populations they are supposed to represent.

Take this example, from a 2005 statement by the New Zealand Prime Minister, Helen Clark:

Treasury estimates that our GDP per capita would rise by 5.1 per cent if we lifted our participation rates overall to the average of the top five OECD nations. That’s a worthwhile objective and at this time of labour shortage, it’s a good time to be pursuing it. In last year’s Statement I highlighted the need to increase women’s participation in the workforce, and a number of steps have been taken to do that.

In other words, an increase in GDP per capita has become an objective in itself. Anybody who has always lived and breathed politics is going to think like that: the things that matter to such a person are aggregated quantifiable data. The flaw is that such data do not accurately measure the well being of society. Devised primarily to measure the output of manufacturing economies, GDP does not take into account changes in the quality of the physical environment, nor the distribution of income, nor social problems such as crime and homelessness. It ignores human capital (the education and skills that are embodied in the work force) and it fails to account for leisure time or the unpaid work of parents or family members. It cannot account for these things because they do not generate a flow of money. When GDP becomes a target these failings become more important than a measurement error. They underlie policymakers’ favouring of the big and measurable.

Statistics like GDP should never have assumed the authority they have nowadays, but they have done so by default, because we have failed explicitly to target outcomes that are actually meaningful, whose quantifiable measures are correlated with societal well being, at least at the lower ends of their ranges. We should, for instance, be targeting such measures as infant mortality, basic numeracy and literacy, basic levels of education and housing, employment levels. At a global level meaningful targets would be the spread of nuclear weapons, violent political conflict, and critical environmental indicators, such as climate stability.

But politicians, especially career politicians, find it hard to think in this way. They are not ordinary people. Their identification of success with GDP per capita is exactly analogous to a corporation’s appetite for profits: an end in itself. Nothing else matters. So Ms Clark for all her ambition may well see a small tick upwards in the New Zealand GDP. It’s the children whose mothers join the workforce who will bear the consequences.