TYRANNY OF THE NUMBERS GAME
Professor of Accounting
University of Essex
, 14 May 2004, pp. 18-19)
"Never mind the quality, feel the numbers" has become the dominant mentality
of any discussions about economic and social welfare. This is highly evident
in discussions about the Gross Domestic Product (GDP) and economic growth
International reports from the World Bank and the Organisation for
Economic co-operation and Development (OECD) suggest that Britain is likley
to achieve economic growth of around 3%-3.5% for the next year. In the now
customary fashion such estimates have been queried by the oppostion parties
and various think tanks. None ask any questions about the quality of
the data or whether economic growth is an adequate indicator of social welfare.
GDP is a total of monetary estimates of consumption, investment, government
expenditures, and exports minus imports. It makes no distinction between
whether any of the underlying activities are good or bad, positive or negative,
for the present or the long-term well being of society. In true accounting
fashion, apples, bananas and pears are all added up to give answer in lemons.
Millions of people are suffering from endowment mortgage and pensions
mis-selling, mutual funds and accounting scandals. It is bad news for all
concerned and many innocent people have lost their savings, investments,
pensions, jobs and homes. But such tragedies provide a double boost to economic
growth and GDP figures. Fleeced citizens have already spent the money on
dodgy financial products and investments and now will be spending even more
on lawyers, court cases, lobbying, postal campaigns and marches.
Environmental disasters like the oil spill from the Prestige or Exxon
Valdez kill marine life, birds and deprive many of their livelihoods, but
are considered to be a fillip for GDP and growth rates because millions will
be spent on cleaning the beaches, the seas and on battles for compensation.
Hours spent sitting in traffic jams belching out cancer and asthma inducing
fumes are good for GDP because it makes us spend more on cars, petrol and
medicine. Depletion of forests, fossil fuels, minerals and seas generate
economic growth and GDP, but are also storing up ecological and environmental
problems for future generations.
Fees paid to accountants, lawyers and bankers to dream up aggressive
tax avoidance schemes boost GDP and economic growth. Yet the outcomes are
a curtailment of social investment in healthcare and pain and misery for
those caught up in longer queues for hospital treatment. Lack of government
expenditure on higher education has forced many to take out loans to pay
fees and also reduce their chances of joining the property ladder. Yet the
social consequences of such practices and policies form no part of any GDP
calculation or growth rates.
People are concerned about the increase in muggings, burglaries and
street crime. This creates insecurity, fear and wholesale abandonment of
city centres at night. But this too is considered to be good for GDP and
economic growth as it leads to more expenditure on home security, locks,
burglar alarms, CCTV, counselling, police, insurance, prisons, prison warders,
legal fees and compensation.
Divorces can be traumatic for the parties involved. Children can be
torn between their parents and may be scarred for life. Yet the GDP regards
this as positive as spouses sell matrimonial home and search for separate
homes, spend money on matrimonial disputes, child care and legal fees.
If parents look after the children, families take care of the elderly and
people do voluntary work for neighbourhood watch, local schools, or hospices,
it plays no role in the economic calculation even though it improves the
quality of life. On the other hand, if children are abandoned, placed in
care and the elderly are sent to nursing homes, they boost the GDP and economic
growth figures because it involves expenditure. So any destruction of family
and community is good news for growth and GDP.
No doubt some will claim that higher GDP and growth rates mean that
we are all economically better off. Well, this is not true either. Certainly,
the fat cats are getting fatter, but wealth is not percolating down. The
gap between the highest-paid and the lowest-paid workers is greater than
it has been for at least fifty years. Even the government acknowledges that
the "proportion of people on low incomes in absolute terms has remained roughly
constant since 1979 despite average income growth of over 40 per cent". Women
receive less than 80% of the wages received by men for equivalent work. Despite
having the world's fourth largest economy, some 12.5 million Britons, including
3.8 million children and 2.2 million pensioners, live below the poverty line.
Just to make ends meet, some individuals work long hours, give-up leisure
time and cannot spend enough time with their families. The negative effect
of these is ignored by the GDP and growth rate figures, which mask institutionalised
inequalities and tell us nothing about poverty, social exclusion, or discrimination.
Progressive societies cannot live by GDP and economic growth alone.
At the very least, there are four things that matter to all of us. These
are satisfaction, happiness, the future of the human race and the very survival
of planet earth. Yet none of these are captured by the GDP or growth rates
and not surprisngly despite considerable economic growth people do not always
feel better off.
It is time to for the government to produce a qualitative index, the Genuine
Progress Index (GPI) or Human Progress Index (HPI). This would adjust the
GDP figures for crime, ecological problems, inequalities in income, pollution,
leisure time, discrimination, community work, and all other things that affect
the quality of life. The net effect may well be that despite higher GDP,
due to inequalities, frauds, rip-offs, crime, discrimination and ecological
disasters; we are actually worse off and need to consider alternative social
and economic policies.