Hello and welcome! This session is about Gross Domestic Product. We’re going to look at the following points. The GDP is the indicator used to measure a country’s economic growth. But this indicator is partial. It says nothing about the quality of human life, nothing about the distribution of wealth, nothing about natural resources or the environment. In France, for example, the state has begun to consider supplementing the GDP indicator. Alain, could you remind us what GDP is? Gross Domestic Product, or GDP, as it’s often called, is the total value, measured in monetary units, of the goods and services produced inside a country over a given period. In general the GPD is calculated per year. What one person spends another person earns, so the GDP can be measured in two ways: either by adding up all revenues received by economic actors – salaries, capital gains, property income, etc. – or by adding up the other side, all the spending of economic actors, their consumption, investments, public spending. Net exports are taken from imports to account for foreign trade. The big advantage of the GDP is that it’s a simple indicator. It’s available in just about all countries in the world, based on their national accounts, even if they’re not very developed. And it’s so rooted in our minds that the growth of a country’s GDP from one year to the next has become that country’s growth. Instead of “GDP growth”, we talk about a “country’s growth”. And what’s more, it’s become the barometer of a country’s good health. More precisely, a country’s growth has become the barometer of its good health. It’s used, for example, in our economies, which are very financialised, very monetised, by private investors and public investors as a quantitative criterion, as one of the numbers, to decide whether it’s a good idea to lend to that country. But really, in my opinion, this is wrong. Wrong? Why wrong? Didn’t you just say that the GDP measures all the wealth produced in a country? Yes, but the GDP measures only what it measures, i.e., the monetary flows in an economy over a given period, as I just said. There are many things that it doesn’t measure. The GDP doesn’t measure non-monetised activities. For example, it ignores domestic production. If you take care of kids at home, if you take care of elderly parents at home, this doesn’t increase the GDP, whereas if the kids are sent to day care, if the elderly are put in a retirement home, or agree to go into a retirement home, to be more accurate, then the GDP increases. A second example is activity in a voluntary or unpaid role: it is ignored by the GDP. Everything that individuals produce for themselves and their families amounts to around 30% or 40% of the classic GDP in our countries, which we call “developed.” In emerging countries, the least developed countries, in the economic sense of the term, since the economy is less monetised, there’s more bartering, and currently those activities are not counted in the GDP. That also means that the GDP increases when an activity goes from the non-commercial sector to the commercial sector, even though general well-being is not a consequence of this accounting change. Education, quality of life, the level of health, the quality of state and government services, cultural goods, the beauty of a place, of a heritage site, are non-monetised elements that count for a lot in our well-being, but which aren’t a part of the GDP calculation. Economists have made a graph, as you can see, it shows that the GDP per capita is not really a good indicator of well-being. We see that beyond a certain level of well-being, a certain level of monetary wealth, even if this monetary wealth increases, that doesn’t mean satisfaction increases. It flattens out considerably. So that means that a higher GDP doesn’t mean more satisfaction. I see. If I’ve understood you correctly, with GDP you can compare countries to one another, but can’t measure inequality within a country. Is that right, Alain Grandjean? Well, that’s a second point. In other words, what we have just seen is that increasing the GDP isn’t the same as increasing satisfaction of well-being. And what’s more, a country’s GDP can increase to the benefit of a minority, while a growing number of households see their living standards fall and poverty expand. That’s not always the case, of course, but we can see situations where there’s an increase in the GDP along with an increase in poverty and insecurity. This change, furthermore – GDP growth that’s not accompanied by a reduction in inequality – characterises, to somewhat varying degrees, all large developed countries since the 1970s, as we saw in a previous session. Beyond the distribution of income and capital, the GDP also doesn’t show inequalities in access to public services, to education, to health and culture, even though these play a very important role in the current and future well-being of the population. And as for resources, or for the climate, what information can the GDP give us? There’s really a basic principle. And that is that the GDP is not a stock indicator but a flow indicator. Yet natural capital is a stock. It’s the set of resources we have available. The GDP tells us nothing about how this capital changes, because it’s not a capital indicator. And if we look over the history of economics and the GDP, the GDP was thought up at a time when natural resources were implicitly assumed to be unlimited. So the GDP for construction ignores the loss of natural capital involved in using finite resources. Likewise, of course, the GDP ignores the concept of biodiversity. It also disregards pollution, damage to the environment, and especially an issue that will occupy us for several sessions: climate change, because none of the economic actors involved pays any monetised cost. Whatever is not monetised is not included in the Gross Domestic Product. By contrast, and this is what’s really shocking, and the subject of much criticism, because it’s rather paradoxical, activities that seek to remedy damage to the environment, whether in the medical realm, treatment of illnesses following pollution, whether in public works, if an entire area is rebuilt after a massive climate event, or after an industrial accident, all that spending actually increases the GDP because it involves commercial factors. Another example: the GPD doesn’t take into account greenhouse gas emissions except in a very marginal way through the markets for CO2 emission quotas in Europe, and the carbon taxes in certain countries. But that’s very marginal compared to the economic impact of greenhouse gases on our activities. So we can say, in a sense, that the GDP growth measured today is fictitious, in a way, or in part, since it doesn’t take into account the future costs that greenhouse gas emissions will impose on future generations. Yet as we’ll see, growth is essentially tied to energy, and the overwhelming majority, over 80% of energy, is from carbon and based on fossil fuels, which, when burned, emit greenhouse gases and CO2. To a certain extent, as long as growth is not decoupled from its carbon content every point of growth created today corresponds to a future decline due to the negative impacts of global warming in the decades to come. It’s not new. The report by the Club of Rome, the Meadows report, which was published in 1972, entitled “The Limits to Growth,” highlighted this, saying: “Careful. If we don’t account for all these externalities, we’re heading towards decline, or even towards a collapse.” So then this sacrosanct GDP growth can be very dangerous. Are there studies underway to find a better economic objective than the GDP? In France, the Economic, Social, and Environmental Council (CESE), which advises the government on public policy – it’s the third assembly – published, in June 2015, after a significant process of consultation, this isn’t just the brainchild of some expert, some recommendations for a new economic “dashboard”, which we’re going to explain. The idea isn’t to get rid of GDP but to supplement it. A law was approved in France in April 2015 that requires the government, to present to parliament once a year, in the autumn, a series of indicators that are supplementary to the GDP on the basis of the recommendations of the CESE. Where do these studies and this movement, which is significant and exists worldwide, come from? These studies are inspired by the Commission for Measuring Economic Performance and Social Progress, which was created in France in early 2008. This was during a summit of high-level environmental talks around three economists, two of them Nobel Prize winners, Joseph Stiglitz and Amartya Sen, who both won the Nobel Prize, and Jean-Paul Fitoussi, an economist who headed the OFCE. Public statistic systems should intensify the production of data in fields that are complementary to the ones covered by the GDP, that is to say, social and environmental realms. They should use indicators that are compatible worldwide. We can’t be alone here in our French village. But they should also be provided at a local level, in order to link the supranational level, the European level, for example, to the local level and the national level. Citizens should be involved in the choice of indicators and in evaluating their changes. That’s the reason for the consultation process. Many economists, in fact, such as Robert Salais, have emphasised that the quality and reliability of the steering indicators of an economy and its parts go hand in hand with their degree of proximity to the populations involved. An indicator that’s tacked onto a social body, or an economy, may provide bad information. That’s also well known in business. Moreover, indicators should be accessible for free and as easily as possible. These indicators should also be available quickly enough to make it possible to take action. That’s not the case today, with carbon footprint data, greenhouse gas emissions data, that come out too late. What this means, of course since none of this is free, is that public statistics systems should be endowed with corresponding budgetary funds. And as for the GDP itself, what, exactly, did the French government decide? That a dashboard approach, with ten indicators, is preferable to a single number, the GPD, for understanding all the major problems posed by what is called sustainable development. Monitoring could put more emphasis on the distribution of wealth and take into account non-commercial activities. For example, health status, education levels, the level of social cohesion, insecurity, should all be measured by numeric indicators, in order to guide public policy in this realm. The natural capital stock and its variation should also be accounted for. Physical indicators of stability should be worked out. And a monetary index of sustainability could measure its economic aspects. The process is just beginning. The indicators, and how they're interpreted, need to be tested and, if necessary, improved in the context of European and international cooperation. Thank you, Alain Grandjean! We’ve learned that the GDP is just an indicator of monetised flows and that increasing it cannot be the main objective of a political economy in the service of well-being and development. To conclude, we now invite you to view the ten beacon indicators proposed in France to supplement the GDP on an economic dashboard. Thank you, and see you next time!
