This story didn’t get any big headlines. This story slipped by almost completely under the radar. But it’s a very important story. Much more important for New Zealand’s development than the smoke and mirrors of the do-nothing budget. Because, here’s the thing. If you’re headed in the wrong direction, it doesn’t matter how much “progress” you make. You’re still headed in the wrong direction.
New Zealand has been heading in the wrong direction for as long as I can remember. Almost all of the policy, debate, and commentary, is about “growing the economy”. The crucial measure is GDP – Gross Domestic Product. When it goes up everything is supposedly rosy. When it goes down things are seen to be going badly.
But GDP is a flawed measure. It doesn’t count anything that isn’t bought and sold, things like volunteers, clean air, the cost of crime and so on. It doesn’t measure how much wealth is destroyed in making new stuff, or whether the economic activity is for good stuff (education) or bad (dirty polluting coal power stations). In the classic example, paying someone to dig a ditch increases GDP, as does paying them to fill it in again. In short it’s a measure of activity or churn, rather than a measure of progress.
There are alternatives to GDP. One is the GPI – Genuine Progress Indicator. Rather than just measuring economic activity, the GPI takes into account costs such as resource depletion, crime, and environmental damage, and benefits like unpaid labour. As Marty G put it, “GDP could be seen as like a company’s revenue. GPI is the net profit”. We’ve pushed the advantages of a GPI like approach to measuring progress several times here at The Standard.
Now it turns out (and you could knock me over with a hummingbird’s feather) that Treasury actually seems to be working itself up to try and think beyond the narrow minded square of GDP. Scoop reports:
Whitehead’s swansong shifts Treasury advice beyond dollars and cents
Outgoing Treasury Secretary John Whitehead has expanded the boundaries of advice to ministers beyond the mere dollars and cents of policy in an all-of-government approach.
The government’s fiscal adviser has introduced a framework to include other, less tangible measures when weighing up the benefits of policy in a bid to meet its target of lifting the nation’s living standards, Whitehead said in notes for what is his last speech as head of department. …
The department hopes the new framework will capture this in acknowledging the causes of living standards beyond income and gross domestic product; freedom, rights and capabilities; the long-term sustainability of policy; and subjective measures of well-being.
This will measure society’s skills and health, social institutions and general trust and the environment.
Parting gift from Treasury head a game changer
The outgoing head of Treasury, John Whitehead, has left New Zealand with one of the best parting gifts ever — the groundwork for an alternative set of measures to define ‘progress’.
This is one of the best news stories in my living memory. Why? Simply put, the way we define and measure progress goes to the very core of how we run our economy. Our singular focus on growing GDP has concealed the related decline in other measures of our prosperity, like the rapidly declining quality of water in our rivers and lakes, or the record growth in inequality within New Zealand. If we change the measure, we’re likely to change the outcome.
The draft Treasury paper, Working Towards Higher Living Standards for New Zealanders, is a good start and, if adopted, will help the Government make far better, longer-term policy decisions. However …
And yes there is plenty of “however”, but even so, I can’t help but share Graham’s optimism. This initiative offers us the chance to stop our blind dash in the wrong direction. A chance to climb a tree, have a look around, and a bit of a think about where it is that we really want to be going. Given all the challenges that we face right now, and given the mess that we’ve been making of it with our blinkered focus on GDP churn, this can only be good news.