Fioramonti gross domestic problem; the politics behind the worlds most powerful number (2013)

ECONOMIC CONTROVERSIES Innovative and thought-provoking, the Economic Controversies series strips back the often impenetrable facade of economic jargon to present bold new ways of looking at pressing issues, while explaining the hidden mechanics behind them Concise and accessible, the books bring a fresh, unorthodox approach to a variety of controversial subjects Also available in the Economic Controversies series: Robert R Locke and J.-C Spender, Confronting Managerialism: How the Business Elite and Their Schools Threw Our Lives Out of Balance Heikki Patomäki, The Great Eurozone Disaster: From Crisis to Global New Deal Yanis Varoufakis, The Global Minotaur: America, Europe and the Future of the Global Economy ABOUT THE AUTHOR LORENZO FIORAMONTI is Jean Monnet Chair in Regional Integration and Governance Studies and Associate Professor of Political Science at the University of Pretoria (South Africa), where he directs the Centre for the Study of Governance Innovation He is also Senior Fellow at the Centre for Social Investment of the University of Heidelberg and at the Hertie School of Governance (Germany) as well as Associate Fellow at the United Nations University He is the author of numerous books and articles about development policies, alternative economies and social progress indicators and the director of a short film documentary on GDP and climate change, which can be viewed at his blog, www.globalreboot.org GROSS DOMESTIC PROBLEM The politics behind the world’s most powerful number LORENZO FIORAMONTI Zed Books LONDON | NEW YORK To my wife, Janine, and my son, Damiano, who make my life worthwhile Gross Domestic Problem: The Politics behind the World’s Most Powerful Number was first published in 2013 by Zed Books Ltd, Cynthia Street, London N1 9JF, UK and Room 400, 175 Fifth Avenue, New York, NY 10010, USA This ebook edition was first published in 2013 www.zedbooks.co.uk Copyright © Lorenzo Fioramonti 2013 The right of Lorenzo Fioramonti to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act, 1988 Designed and typeset in Monotype Bulmer by illuminati, Grosmont Index: John Barker Cover design by www.reactor15.com All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior permission of Zed Books Ltd A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data available ISBN 978 78032 275 Contents ACKNOWLEDGEMENTS INTRODUCTION The world’s most powerful number CHAPTER The history of GDP: from crisis to crisis CHAPTER The Frankenstein syndrome CHAPTER The global quest to dethrone GDP CHAPTER Change from below CONCLUSION Supremacy and resistance NOTES BIBLIOGRAPHY INDEX Acknowledgements The idea for this book came a few years ago, when I was invited by the Italian National Institute of Statistics (ISTAT) to participate in a meeting on alternative measures to the gross domestic product (GDP) It was a gathering of esteemed progressive economists and statisticians, which laid the groundwork for a fruitful partnership with civil society groups that continues to this day As the only political scientist involved in the proceedings, I immediately realized that something was missing While the discussion was all focused on how to improve statistical research, I felt that some analysis of the history and politics of GDP was also necessary to understand this number’s powerful grip on our societies So my first thanks go to ISTAT for inviting me, especially Tommaso Rondinella and the institute’s president Enrico Giovannini, who have dedicated their careers to rethinking GDP The research that went into this book would not have been possible without the support of the Centre for Social Investment (CSI) at the University of Heidelberg, Germany They offered me a generous fellowship, supported through a donation of the Compagnia di San Paolo, to conduct research on ‘whatever subject’ I fancied This fellowship was a real luxury, especially in today’s world, where academic freedom is ever more influenced by top-down imposed priorities and trapped into tight schedules of productivity My gratitude, then, goes to the CSI management and, especially, to Georg Mildenberger for reading and commenting on each and every page of the manuscript As always, I owe an intellectual debt to a long list of people, which – no matter how crowded – could never be exhaustive Among these I wish to mention Mario Pianta of the University of Urbino, Italy, who is also one of the promoters of the alternative economy web forum Sbilanciamoni.info; Helmut K Anheier, who is the dean of the Hertie School of Governance, Berlin, Germany; and my South African colleagues, in particular Maxi Schoeman, Mzukisi Qobo and Prince Mashele of the University of Pretoria Moreover, I would like to thank my editor, Ken Barlow, and the whole team at Zed Books for their support and magnificent assistance I completed the manuscript while sitting in my home office in Berlin, where I lived with my wife and son for most of 2012 It was the perfect location to work on a book about GDP, as the German capital provides a wealth of cultural resources amid an extremely laid-back atmosphere Despite the inevitable aberrations of any urban settlement, the proximity of nature and the abundance of public spaces, playgrounds and other areas for leisure free of charge make Berlin one of the few ‘big cities’ in the world where some type of alternative life is still possible Lorenzo Fioramonti Berlin, October 2012 INTRODUCTION The world’s most powerful number We are stealing the future, selling it in the present, and calling it GDP Paul Hawken What we measure affects what we do; and if our measurements are flawed, decisions may be distorted Commission on the Measurement of Economic Performance and Social Progress Roughly eighty years after the Great Depression of the 1930s, the world has known another catastrophic financial and economic collapse The Great Recession that began in 2008 has by no means been the only crisis that globalized capitalism has known in the past few years Yet it has been the largest in scale Exports have plummeted, jobs have been lost throughout the world and investment has fallen Home foreclosures have become a daily routine, especially in the United States and in Southern Europe, where personal and public debt has reached unprecedented levels Even an economic giant such as the European Union (the largest market on earth) has been taken on a financial roller coaster, spurring divisions among member states and rehashing old resentments across European peoples Over the past decades, not only social and economic inequalities but also the planet’s natural resources have been depleted at a pace that, for the first time in history, has raised concerns among environmental groups and policymakers alike Climate change, the epitome of all environmental degradation problems, has become part and parcel of the public debate the world over According to the UN-sponsored Intergovernmental Panel on Climate Change, the emissions of greenhouse gases in the atmosphere due to human activities have vertiginously multiplied since the Industrial Revolution, and in particular since the mid-1900s Unless major precautions are taken, the Panel forecasts serious risks for the global climate, with disastrous repercussions on those ecosystems that make biological and human life possible.1 Although media attention is almost exclusively focused on the world’s treacherous ‘road to economic recovery’, the turmoil triggered by the economic crisis and the preoccupations with climate degradation seem to suggest that a business-as-usual solution to the world’s problems is no longer feasible As part of this process, an important – albeit still marginal – debate on the sustainability of the current economic system based on infinite economic growth has commenced Such a critique is not only focusing on the inherent instability of market dynamics, but also on the more long-term impact that growth processes exert on the planet’s limited natural resources and societal well-being at large Does our quality of life improve when the economy grows by or per cent? Can we sacrifice our ecosystems to safeguard an economic framework marred by internal inconsistencies and imbalances? For the first time, the gross domestic product, which is the popular icon of economic growth, is being called into question Even a defender of economic conservatism such as The Economist hosted an online debate on the issue in 2010 and concluded that ‘GDP is a poor measure of improving living standards.’2 The Organisation for Economic Co-operation and Development (OECD), another bastion of economic traditionalism, has also been casting doubts on the dogma of GDP growth It recognizes that for a good portion of the 20th century there was an implicit assumption that economic growth was synonymous with progress: an assumption that a growing GDP meant life must be getting better But now the world recognizes that it isn’t quite as simple as that Despite high levels of economic growth in many countries, we are no more satisfied with our life (or happier) than we were 50 years ago [and] increased income has come at the expense of increased insecurity, longer working hours and greater complexity in our lives.3 For decades, the GDP mantra has dominated public debate and the media Countries are ranked according to GDP, the global definition of ‘power’ is based on GDP (e.g superpowers, emerging powers, etc.), access to global governance institutions is also granted on GDP performance (e.g the G8 or G20 members are selected according to their GDP) and development policies are driven by the GDP formula Currently, governments striving to come of out of the Great Recession largely design their policies and strategic choices following the diktat of GDP growth, and even global efforts to curb climate change and greenhouse gas emissions are being opposed by many countries because they may exert a negative impact on global GDP growth This book traces the history of GDP, discusses how its formula was developed and why it became so popular In doing so, it analyses the key political and economic interests supporting GDP and the type of society it contributed to building It also provides the first comprehensive review of the most important criticisms against GDP and the alternatives developed by experts, activists and civil society movements From a political perspective, the current critique of GDP is becoming a catalyst for people’s struggle to rethink our society and fight its long-standing inequalities and injustices What is GDP? The measurement of wealth has a long tradition in modern economic thought In the 1600s, the British political economist William Petty conducted the first ever survey of national wealth by systematically analysing the value of the land conquered by Oliver Cromwell in Ireland Throughout the years, Petty tried to devise a host of mathematical formulae to measure not only the value of property but also that of labour, with a view to creating an account system that could be of service to government (especially for taxation purposes) while strengthening economic growth in modern Britain For many reasons, including his sophisticated conceptualization and methodology, he was far ahead of his time Back then, indeed, mainstream political economy was largely influenced by mercantilism, which considered the overall endowment owned by the king as the best indicator of a country’s wealth Based on this principle, Jean Baptiste Colbert, the powerful finance minister under French King Louis XIV, designed a strong top-down ( dirigiste) institutional structure to ensure that commerce ... can be viewed at his blog, www.globalreboot.org GROSS DOMESTIC PROBLEM The politics behind the world’s most powerful number LORENZO FIORAMONTI Zed Books LONDON | NEW YORK To my wife,... wife, Janine, and my son, Damiano, who make my life worthwhile Gross Domestic Problem: The Politics behind the World’s Most Powerful Number was first published in 2013 by Zed Books Ltd, Cynthia... the profound rivalry between the two ‘blocs’ just as much as the arms race This magical number was invented in the 1930s to help America come out of the Great Depression The then president, the