 You are listening to Make Change Happen, the podcast from the International Institute for Environment and Development, IIED. In this episode, The Trouble with Growth, Andrew Norton, director of IIED, and a panel of our senior researchers help us to understand what current methods for measuring economic growth include, and importantly, what they leave out. They discuss what this means in the context of global sustainable development. I'm Andrew Norton, so I'm here with two economists and two non-economists. I'm one of the non-economists to discuss what is the trouble with growth and how can we fix it. So I'll ask my colleagues to introduce themselves now. Hi, I'm Claire Sack here, and I'm not an economist. I'm the director of the Climate Change Group here at IIED. Hi, I'm Paul Steele. I'm a chief economist at IIED. Hi, I'm Asim Asim Mohamed, and I'm a recovering economist and head of the economy at IIED. Thanks very much. So, Paul, let's kick off with you. What is economic growth? So economic growth has a fairly straightforward definition in economics. It's the increase in the value of goods and services produced by an economy over a course of a specific time period, normally a year. So if economic growth is 3%, it means the value of goods and services in the economy are growing by 3% that year. Economic growth is normally measured by gross domestic product or GDP, as it's called. And despite its shortcomings, growth is important because it is a good indicator of other variables like jobs and livelihoods and in many cases reductions in poverty. Thanks, Paul. Now, you were mentioning there are shortcomings. There are things that aren't within the boundary of GDP. What kinds of things? Well, a number of things. Environment is not faxed in in many cases into growth. So CO2 emissions are not measured. The services provided by the care economy, often primarily by women and people who look after sick relatives. And then inequality is not particularly well captured because growth doesn't pick that up as I'm sure we're going to discuss. Growth is an aggregate. Correct. And if you do GDP by capital, it doesn't tell you anything about the two ends, the really rich people or the poor people and how it's distributed between. Correct. Well, it's an average. That's the other point. So it doesn't pick up the actual distribution. Any thoughts, Claire, from you about greenhouse gas emissions and the damage that it does that they're not included within GDP or the way we think about growth? Well, there are two sides of it. One is that carbon is not constrained by a national border. So one country emitting a lot will affect all countries. And because there isn't a price on carbon in most countries and where it is, it's very partial in terms of where it actually plays. You're not counting the cost to the vulnerable countries by not counting carbon. But also when you have a climate shock, actually, the recovery from that climate shock is counted as GDP growth rather than being seen as a cost to the economy. So Australia at the moment is probably growing brilliantly because they're having to rebuild masses of houses from the fires there. But that actually should be seen as a cost, not true growth, not growth in terms of increase in well-being. You're just getting back up to the previous level of well-being. So things which, objectively speaking, are bad can look like they're good because they cause growth in the economy. So any thoughts on natural capital in relation to that as well? Yes, just before I do so perhaps, well, it's very linked to the natural capital as well, but also the point that Paul made about how we define GDP or growth, which is sort of the value of goods and services. Then the question, the very fundamental question is what's value? How does one value it? So there are market and non-market values, of course. So there are conventional markets that put a monetary figure on the number of goods and services that we produce, and there are a lot of other goods and services that we usually value, but the conventional market that we know today doesn't put any price tag on it. And as a result, it gets left out, essentially, which is a very important point to make about the point value. In terms of the natural capital accounting, it's one of the remedies for all these ill effects of the pursuit to GDP, if you like, because we try to growth at the expense of the natural environment. As Claire rightly said, if a natural disaster hits a certain area and then there's a very high chance that following that the economy's going to grow, or if you explore your natural resources, then there's a very high chance that you can grow economically as well. Then as a remedy to that is the point is that, okay, what if we put a value to those goods and services? Let's talk about coral reefs, or forests, or wetland ecosystems. What if we were to put a monetary value to that and see them as whether we have a surplus or deficit, and that's reflected in how we measure our economy as well. And the natural capital approach is trying to remedy that, trying to fix that problematic issue about value and the way we value our economy as well. We'll come back, I think, to how we could adjust things so that these measures work better. The point you are making about what's counted and what's not, that's essentially the point about the care economy, which Paul mentioned. If you pay someone or somebody is paid to look after children, it appears in GDP, whereas if someone, typically a woman or mother, does it and there's no monetary payment, then it doesn't appear in GDP. So, again, there's a sense there that it doesn't fairly measure a lot of women's work in particular, which is gender biased. So, on the inequality point, the next thing to do in the list or the areas where there are issues with, if you like, directing policy purely according to growth, there's this famous result, Paul, that at a certain level, up to a certain level, well-being kind of increases. Things like longevity, happiness, and health. I think it's between 10,000 and 20,000 a year in terms of gross national income average. And above that, inequality actually is a bigger determinant. Countries with lower inequality have more of the good stuff, the health, the longevity, and the happiness. So that's one of the areas where growth sometimes is seen as not the best measure of what we should be prioritising in terms of policy. Would you agree with that? Well, yes, the challenge here is that neoclassical economics, which is behind the measure of GDP, always assumes that more stuff is better. So we're always trying to increase the amount of consumption and production that happens in the economy. The point you're making is when you actually look at real people and how they behave, it's not necessarily consistent with neoclassical economics and that you get issues like mental health issues. You get issues around how you relate yourself to other people and your perception of others, which may be more important than just consumption for its own sake. I think it's really important to emphasise that this isn't just a question of theory, that these are mental models that drive the way governments run stuff, in particular governments, maybe local governments and also national governments. Just to give it a sense of moving from theory to practice, can any of you give me examples of where you've seen bad policies or policies that effectively are damaging, that were driven by a concern with growth and not enough concern with other stuff? Yes, there are plenty of examples out there. One classic example is, for instance, how governments channel down resources towards more distractive activities from an ecological point of view, but that looks good on balance sheets when we calculate our growth or GDP for instance. A classic example of that is the billions of dollars that governments give for capacity enhancing subsidies to fishing fleets, essentially enabling these fleets to go hundreds or thousands of miles away from the coast to hover up the fish and come back and that would still make economic sense. Now when you look at that purely from an economic point of view it makes absolute sense because it will look good in terms of demonstrating growth to your economy because it's an economic activity, someone is getting paid and therefore your economy will grow but the expense of the natural resource which is the fisheries here. So this is a very, very classic example where the pursuit for GDP or economic growth can be extremely destructive for nature. There are a few on the climate side. Many in fact, I suppose, not unexpectedly. I mean one example is China sort of pushed to continue it being the manufacturer of the world. We now have levels of air pollution. They're killing 4,000 people a day in China and that's compared to 30,000 people a year in the UK. So strong focus on energy security through coal and on manufacturing has led to these very poor levels of air quality. Another example, Pakistan has had a very strong focus on export of agricultural products and effectively it's a very water scarce environment and yet it's exporting grains that are full of water. So effectively it's exporting water at a huge rate at a time when really it should be looking at shifting to crops that are less water hungry. And on that front I guess agricultural subsidies more generally have focused on the rice and maize products rather than on one's crops that are more drought resilient or even higher in nutrition. So the comparison of nutrition coming from rice to say millet is quite clear that millet is actually a better crop both in terms of its climate resilience but also in terms of nutrition. So the sort of perverse outcomes of many of the export driven policies are bad for the climate as well as bad for basic human welfare. But if again coming back to the other side of the coin for the poorest countries there does tend to be a correlation between increased growth and various kinds of measures that we would value longevity and human development measures. Yeah I think I mean as we've said growth has many shortcomings but it very much depends on what kind of growth is being pursued. I mean if you're focused on pro-poor growth the point Claire was making where you're looking at what would actually benefit the population and the majority of the population then it's quite different. So it's legitimate for many of the least developed countries like Sierra Leone or Uganda which desperately need growth to focus on it but to do it in a way that's pro-poor and climate resilience. Let's move now to one of the key issues facing the world at the moment. It's this question of the really dramatic reductions in greenhouse gas emissions that will be required on a global scale to meet the goals of the Paris Agreement either 1.5 degrees or 2 degrees. So for example a recent UN report estimated that to get us on a track to stand a reasonable chance of limiting global warming to 1.5 degrees above pre-industrial levels the world would have to reduce greenhouse gas emissions by 7.6% per year which is an enormous amount and that implies in richer countries which would have to do the heavy lifting maybe 10% a year. So that's a big big challenge. Do we see that as something that is theoretically possible to achieve while still having economic growth as classically measured? What would you say on that point? Yeah well as I said at the beginning growth measures the value of goods and services produced by an economy so it's quite legitimate for us to shift from producing and consuming fossil fuel produced goods to shifting to renewables, energy efficiency, clean cars and so on so it's the nature of the growth as opposed to growth per se which is the issue at hand. I have to admit though for me when you start thinking about that scale of reduction 10% per year it's a stretch for me to think that you could do that and not be experiencing reductions in this kind of classically measured economic activity and at least sort of significant areas of rich country economies. So Claire, that question of is it possible to achieve really dramatic emissions reductions in wealthy countries 10% per year while still having classically measured economic growth? What do you think the evidence says on that? So yes we can decouple growth from emissions and the carbon brief did a great review recently which found 35 countries had decoupled emissions from while still growing between 2000 and 2014 and that's quite a short period so some countries have failed to sustain that decoupling. China for example has seen an increase in their emissions with their growth more recently but other countries have done it in a way that is more structural and could therefore persist so it's worth getting under the bonnet of how these different countries are doing it but we also have to distinguish between decoupling emissions and decoupling resource use and we need an absolute decoupling of resource use to protect our ecosystems while increasing the amount of goods and services available and that we haven't hickled and callested a paper last year that suggests that there is no empirical evidence of being able to decouple from resource use so there needs to be fundamental structural changes to how we're growing our economies if we're seeking to grow them or at least growing the benefit and wellbeing from more activity. The parallel question then is about the poorer countries where we wouldn't be asking for 7.6% per annum reductions but the question there really is can they have prosperity can they grow their economies, grow wellbeing for their populations without growing their greenhouse gas emissions? Well it's interesting in comparison to the richest countries they actually are starting in a much better place because they've got so much less infrastructure and at least half of the infrastructure that they need to provide the human development outcomes that they're looking to achieve has yet to been built and they've actually got less emissions baked in but have yet to lock in to the type of sprawling cities or vehicle based transport that makes it so hard for the richest countries to begin to shift but we don't have any precedent so there's a lot of countries in the world thinking about how to shift from a past way of developing to a new way of incentivising their economies but no countries really out there to show us how to reimagine a development pathway that is entirely low carbon and climate resilient so the biggest challenge I think is the need for a massive amount of public investment to really understand how to do this well where countries are not being disadvantaged and wanting to move to a much more progressive way of developing because there aren't any models to follow. I think if we start with this idea of the wisdom of producing and consuming more and whether that's right or not right so in my personal opinion I'm trying to say it's from a developing country perspective here and I think consuming and producing more may not be a bad idea but it's what sort of more are we talking about here so essentially something that contributes to the well-being of the people in terms of providing them with reliable and good health services for instance and education and etc etc access to nutrition to food etc so whatever that enables that to happen access to services and market systems etc all these are very very important then that sort of in that sort of more that delivers that sort of benefit to the people will be extremely important then the question then how can they get there what sort of trajectory are they going to follow I think there is a very good opportunity at this point in time that I don't think developing countries would be very keen to follow the same trajectories as the West for instance where they had to burn coal for instance to grow their industries or to build in transportation infrastructure etc there is an opportunity for them the technology allows the knowledge allows them to choose a separate trajectory in terms of how they want to achieve a certain economic and social transformation to their society however I see a challenge here where I call it the culture of hoarding when it comes to technologies for instance if under the pretext of intellectual property rights or trade regimes etc if these countries that have the technological and the knowledge and technology at hand and they keep on hoarding on that they are not properly transferred to those countries we are not enabling these developing countries to go through the right path to achieve their aspiration in terms of achieving social and economic transformation so I think the change needs to come from both sides the conviction from these developing countries to follow on that route which is sort of the environmentally sustainable way of bringing about that change but at the same time that sense of solidarity from the global players to have the technological know-how in particular to be able willingly to transfer that to those countries to enable them to do so and what about the kind of policy communities within the countries my experience ministries of finance have a deep attachment to this that sort of talismanic significance of economic growth do you see countries where that is breaking down or do you think it's more a broader change happening within societies which hasn't reached the halls of the ministry of finance yet I think that's partly true in my opinion and of course this stems in the local context of course where there's that drive to prove that this line of ministry or that development agent has done very well in terms of achieving social and economic transformation which is usually measured by output or by GDP etc and I think that some change that's needed there but at the same time it's not critical here but we also have a global economic and political order that rewards that sort of destructive behavior destructive pursuit to growth for instance you have I can start from sort of an individual level when you look at the people's ability to travel across countries for instance it depends on what sort of level of economic and for instance personally I've experienced this carrying every train and passport and the way I'm treated now as a bridge passport holder is completely different that definitely rewards that sort of pursuit to economic growth of course everyone would aspire to become like one and the other one is look at the clubs of the G7 and G20 etc etc also somehow structurally put there to encourage that sort of pursuit endless pursuit for growth to incentivize the practice that we see on the ground as well so unless we address those challenges at both levels I think I find it very challenging to bring up that change I think one of the interesting things in recent years is evidence in richer countries that again maybe not policymakers but citizens are starting to have different values there's an interesting analysis of the recent election in Ireland which other government going in was very confident because they had good economic growth but there's real evidence that ordinary people were feeling the pinch particularly in terms of rents younger people who didn't own their own properties where although incomes had risen rents had risen just vastly more and the same issue about health services as well so there is this sense I think that there's a change in the way citizens view these things maybe valuing other things whether it's a natural world or inequality Claire any thoughts about that I guess what's clear with climate change is that all economies are going to be fundamentally undermined if we don't take action and you know there's good analysis beginning to come out of what this means if we took if we don't act on climate change whether the countries are rich or poor hot or cold those economies are going to shrink and these are things that people want to see action on and care about but it's also interestingly some analysis done a couple of years ago now showed that the usual story the cost of action isn't that great half a trillion was the Marshall Berks analysis from Stanford but actually if you act you're saving 30 trillion dollars globally but at the same time reducing global inequality so by acting on climate we're actually restructuring the economy in ways that more people can benefit from and that analysis was done without looking at air pollution without looking at the protection of ecosystems so just imagine how much greater the benefits are when you begin to factor those elements in so those sorts of you know living in a different way is part I think of this narrative that we're beginning to see from younger people coming out that's less about consuming stuff and more about choosing not to work so many long hours or living in you know more locally in more connected ways with their local communities and those things have real traction and yet they're also really good action for more climate friendly economy but they're not ones where we have a clear pathway they're not particularly well understood but if we started looking at the sort of policy by policy what you would need to do I don't think it's rocket science it's really quite clear so basically economic growth based on GDP works great but it's not very good at looking at environmental damage isn't gendered and ignores inequality so which is not great so what's the way forward I think there are various things you could look at here in terms of modification or using other measures or maybe changing it all together so I'll get pulled the last word because he started but how would you take this forward from this point SM what would you do I think there's desperate need to change the way we measure our goods and services and that takes into account the gains or losses in the environmental goods and services for instance in our ecosystems and similarly in our greenhouse emissions as well so all these factors if they are taken into account I think we can do much much better but it's just that willingness to introduce that change and I am very hopeful that because GDP the history of GDP doesn't span more than 70 or 80 years so I think I don't know why we should be fixated to how we measure our economy using GDP but I'm sure we can come up with a much more intelligent way and the number of other initiatives that are out there which are trying to fix GDP in such a way that it captures all the loss and gains in those that cannot be measured in conventional market systems Claire how would you go forward well I know that people have tried to come up with alternatives to GDP over and over again and we've had a little traction on the ministries of finance of the world but the reality is unless we're using a different way of measuring and thinking about our planetary boundaries and about how people in their real lives are measuring well-being we're still a way off from really understanding what impact a policy measure would have so I would love to see a revolution of how we measure it I think we need to engage ministers of finance in this conversation because things coming from outside have failed to have traction but I think the other opportunity is to recognize that all countries are now developing countries no one country has a blueprint of how to do this well and this is an opportunity for the poorest countries who are actually perhaps closer to a sort of good development outcome in terms of their planetary footprint as well as in terms of their well-being to start to shape this narrative and is the climate crisis the sort of leading edge for that change well, working on climate change of course I see this as an existential threat right now if we don't begin to measure things in more meaningful ways then we're allowing countries who have had the most massive climate shock to talk about the massive GDP growth in the last year so it'll be very interesting to see how countries begin to make sense of that until we begin to see the costs of climate action as real costs we will never win the narrative so this is this is vital right now Thanks, so Paul where would you go with this debate right now? So I would echo Claire's words I think it's about not being obsessed with growth but thinking about these more general focus on well-being which some people have started to look at so taking a broader understanding of picking up the kind of populist mood which you alluded to that people aren't satisfied with many aspects of the global economy and then that's reflected in their own personal lives which in other words in their well-being so if we can get a broader understanding of how people really feel about the way their life is going and how that's reflected in the economy then things could improve Great, thanks very much to all of you so economic growth still has a powerful hold on the way policymakers see the world but things are clearly changing they're changing in the way citizens think about prosperity and progress and if we want to value social justice and preserve a liveable planet then policymakers will need to catch up with the changing mood and fast If you're interested in following up on the discussion we will provide some key references for thinking about the trouble with growth from Kate Rayworth and Mariana Takatu for critiques of GDP to Richard Wilkinson and Kate Pickett for their seminal work on inequality and well-being Many thanks for being with us On our podcast web page you will also find links to further research that's informed today's discussion We greatly value our listeners' opinions so please leave us comments and feedback and feel free to share this podcast with your colleagues You have been listening to Make Change Happen the podcast from the International Institute for Environment and Development The podcast is produced by our in-house communications team You can find out more about IIED's work on our website www.iied.org