Economic growth measure fails on green front

The UK economy shrank by 9% in 2020 but bounced back in 2021, growing by 7.5%. This year, it is expected to grow by 3.6%. These numbers matter a lot to the government, but there is increasing debate about how relevant they are to setting economic policies to tackle the climate and ecological emergencies.

That’s because our national prosperity is measured purely by the rise or fall in the market value of all the goods and services we produce (known as gross domestic product, or GDP). There is no consideration of anything that can’t be measured in price terms, including environmental and social matters. And that is a problem, according to climate focused economists called on to give evidence to the government’s Environmental Audit Committee earlier this year.

For example, the value of planting trees will only be measured if and when those trees are cut down and sold as timber. They are not valued for the shade they provide, the carbon they sequester, or the habitats they offer to wildlife. Even more perversely, the likelihood of more severe storms, floods, heatwaves and wildfires due to climate change will be good for economic growth because cleaning up after such events will add to GDP. There is no accounting for the loss of life, livelihoods, housing or infrastructure.  

Similarly, GDP, which was developed as a measuring tool in the 1930s, ignores both the environmental damage caused by extracting fossil fuels and the pollution and greenhouse gas emissions caused by burning them. And what doesn’t get measured doesn’t get managed, as the well-known saying goes.

Another critical aspect in tackling climate change is that of equity. Richer nations have caused the problem while poorer nations not only suffer most from the effects but are also less able to adapt. This is recognised in environmental treaties, with richer nations committing to help poorer ones develop and cope with adaptation. 

GDP also ignores distributional issues. This is most obvious when the government celebrates a rise in GDP whilst a majority of the population see a stagnation in their income and a drop in living standards. But it is also present when importing natural resources and value from poorer nations without properly compensating them.

Given these defects, the Environmental Audit Committee asked its five witnesses whether GDP is still up to the job of guiding economic targets. Only one declared support for GDP remaining a key metric, with perhaps some enhancement for environmental effects. The other four said it was no longer fit for purpose and we need to employ a range of measures, perhaps in the form of a dashboard, to record financial, social and environmental elements of prosperity or damage. 

Many such measures are readily available, including sustainable development goals, environmental and planetary boundaries and measures of social wellbeing, but few countries build them into their economic plans or give them any prominence.

Some witnesses also threw doubt on the goal of ever increasing economic growth in rich countries like the UK, with research quoted showing that the richer a nation becomes, the less beneficial is additional wealth. 

The ability to grow our economy whilst reducing carbon emissions, a process known as “decoupling”, was another topic of discussion. Witnesses criticised the government’s claim to have achieved significant decoupling, pointing out that the emissions embedded in our imports are not counted. We should also take account of our historic emissions and our material (non-carbon) footprint on the environment and planet, they said.

It will be hard to move away from the metric of economic growth as it is built into many of our social structures, and much work is needed to imagine how a post-growth society and economy would operate. But the consensus among the witnesses to the committee was that it needs to be done.

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