Reframing the economic problem
Maybe many are familiar with The Economist’s Big Mac Index. According to The Economist itself, the Big Mac Index “offers a light-hearted guide to whether currencies are at their correct levels, according to the notion of purchasing-power parity”. We now have Doughnut Economics.
The idea was created by Kate Raworth of Oxford University’s Environmental Change Institute, in her book, Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist. Raworth reminds us in her book that economic growth was not, at first, intended to signify well-being. This explains the title of this week’s contribution. Do we need to reframe the fundamental economic problem?
Simon Kuznets, the receiver of the Nobel Memorial Prize in Economic Sciences and the person who standardised the measurement of growth, did actually state that: “The welfare of a nation can scarcely be inferred from a measure of national income.”
Economic growth, he pointed out, measured only annual flow rather than stocks of wealth and their distribution.
Students of economics know that, although we have grown accustomed to measure standard of living through growth in national income, there are a number of points to consider.
These include: distribution of income; the social wage (such as expenditure on health and education); the range of goods and services produced; social costs such as environmental effects; leisure time available to the population; the level of economic dependence; the size of the population; and the rate of inflation.
Some may wonder what point I am seeking to drive home. My point is that I really doubt whether the economic models that have served us in the past (whether well or not, is a judgement each one of us would have to make) are still useful to solve the current economic problems that countries are facing. Putting it bluntly, we are trying to use those same models that caused a severe economic crisis in many countries to solve them. Does not this call for a different approach?
The helplessness of several governments is best exemplified by the fact that they fallen prey to lobbyists and those we look to for leadership do not seem to have shown that they have their solutions in hand. Some may not have the courage to act while those that do may not know what needs to be done.
The recipe that has been proposed since 2008, when the crisis first hit with a vengeance, is more economic growth.
Several countries have not yet returned to the levels of national income which they had pre-2008. Structural unemployment, especially among youth, is still a major concern while economic inequality has soared. In certain countries, the economic growth that has been generated has been grabbed by the top one per cent of the population.
So it would be very right to ask whether the primary economic goal should remain growth in national income and whether such growth is to be equated with a better standard of living, since such an approach seems only to have advantaged the few.
There can no longer be this dramatic gap between those who have everything and those who have none, between who has discards and who is discarded.
There are some who are promoting globalisation in order to impose their own rules for a global market for their own profit and not to promote more sharing among people, which is what globalisation is all about. Having said this, the answer cannot be looking inwards and taking on a nationalistic approach.
As values, principles and moral purpose are lost, we are using money as an excuse for everything. All that seems to count is the rate at which we turn natural wealth into cash. If this destroys our prosperity and the wonders that surround us, very few seem to care.
Reframing the economic problem means that instead of having an economy that needs to grow, irrespective of whether people thrive or not, we need an economy that makes us improve our quality of life and our well-being, irrespective of whether it grows or not.