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24 October 2019

Why and how the US, China and the EU should abandon economic growth

In the ten years since the final report of the (Stiglitz) Commission on the Measurement of Economic Performance and Social Progress, we have witnessed the publication of hundreds of reports and indicators on the subject. But according to Eloi Laurent, who spoke at the ETUI Monthly Forum on 17 October, there are now two imperative issues. First, a consistent framework linking wellbeing and sustainability needs to be built, with health as a central element. Secondly, the alternative indicators need to be made operational.

Why is GDP not the right indicator? Eloi Laurent shows that it actually represents only a very small part of economic, human, social and sustainable wellbeing, and as such it is dependent on the effective functioning of all other parts in this system. “Wealth creates growth and not the other way around,” said Laurent. “Factors such as health and education are much more important than income.” To illustrate his point, he talked about the illusion of economic progress in the US and the myths about the growth of China.

The US is one of the richest nations in the world but there are persistently huge inequalities in American society which are not visible in the GDP indicator. In ten years, from 2000 to 2010, jobs in the US were destroyed instead of created, and purchasing power and income stagnated. But GDP hides these realities and even “reverses the picture, as the US is experiencing regression at the moment”. Wealth is concentrated in the top 10% of the population; if you take out this 10% then the US drops a great deal below countries such as Germany, France, Italy and the UK in terms of real income. What is even more striking is that it is the country performing worst on life expectancy, health expenditure and deaths caused by social despair when compared with peer nations. Another important issue which is not measured by GDP is the poor state of infrastructure in the US, leaving millions of people without protection from floods which are expected to increase with global warming. “Everything that matters is going wrong, except GDP,” concluded Laurent. GDP is a US invention, but the country of growth has become the country of the illusion of growth.

China, meanwhile, is today one of the most unequal countries in the world despite the steep economic growth in the country. While the reduction of poverty is undeniable, it does not correlate with economic growth. Furthermore, according to Laurent, the very strong growth has in fact led to a decline in happiness because the “old solidarities and ties which are a major factor for happiness” have “fractured”. China also disproves the myth that economic growth fuelled by economic liberalism breeds political liberalism. The Chinese model has not only stayed as authoritarian as ever, but it has managed to become even more efficient, with many countries admiring its “strong state”. Last but not least, China is an “environmental monster, consuming more material than all industrial countries combined”. Chinese leaders have, however, taken measures to reverse this disastrous trend, and in their 13th five-year plan announced in 2015, they decided to cut economic growth by half, hoping that this will increase the wellbeing of the population.

Closer to home,  in the EU, the “original sin” of the Maastricht Treaty to include budgetary discipline as a percentage of growth in the Stability and Growth Pact has made the Union miss the opportunity “to become a new kind of power” that puts cooperation and wellbeing at the forefront of its politics. Instead, a stubborn insistence on discipline and growth led to the “Greek tragedy” and to a more encompassing “atrophy of cooperation and mutilation of prosperity” in the EU. According to Laurent, the Green New Deal can only be useful if it does not depend on financial discipline but rather prioritises justice and cooperation. He also argued that the European Semester needs to be rethought and based on wellbeing and sustainability indicators.

Ludovic Voet, the Confederal Secretary at the ETUC responsible for sustainability policies, welcomed Laurent’s plea for new indicators to measure wellbeing. The ETUC demands that the economy should serve the people and not the other way around and questions the viability of the Stability and Growth Pact. “Stability and growth for whom and for what?” Voet asked, when the compensation of workers has continuously diminished as a share of GDP and the required budgetary discipline prevents many countries from investing. The middle class has been eroded, people have suffered from austerity, and there has been a reduction of public services across the continent. Child poverty in Brussels is the same as in Romania, he said, despite Brussels being the fifth richest region in the EU, and this shows that “another indicator is needed”. Voet also insisted that “working people should not be blamed for the environment. They are rather the victim in terms of air pollution, lack of health services, etc.”

In his conclusion, Voet stressed that it cannot be denied that growth periods have allowed unions to obtain wage increases and they have never had any other tools to do that. There are also sustainable sectors in which one should invest and make them grow, and others which are unsustainable and should thus be reduced. In order to address these questions, we need to continue the discussion on what kind of economy we want and need, and what indicators we should use to measure progress.

Download here the presentation by Eloi Laurent

You can also watch the video of the event on the Facebook page of the ETUI here

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