How should a country grow?

We should be constantly reappraising what we value and why, says David Hall.

If you’re a national economy, growth typically means GDP, or gross domestic product. To put it crudely, you add up all the goods and services produced over a certain period, and if the sum is greater than the last time you measured them, then the economy is growing.

In this sense, the New Zealand economy grew by 1 per cent in the June 2018 quarter. The Government was obviously pleased – and shouldn’t we all be? Isn’t a lift in economic activity, on balance, a good thing?

Yet that ‘‘on balance’’ hides a lot of mischief. What if higher GDP comes at the expense of environmental degradation? For example, if excessive fertiliser use spoils a waterway, GDP doesn’t directly capture that loss of public and private value.

What it captures instead is the fertiliser sales, agricultural revenue, and any money spent trying to clean up the mess (if indeed any money is spent at all).

This is a basic complaint about GDP: that it includes things that undermine public value, such as pollutive industries, but excludes things that create public value, such as healthy ecosystems, household work, and more.

This is also why some people call for no-growth or de-growth. To make the world a better place, they argue, we need to stage a retreat from economic growth.

But this is like asking politicians to sell an amputation: ‘‘Dear voters, please support us in removing large chunks from what you know as the national economy.’’

It is also pretty unimaginative. After all, why treat growth as identical to GDP? If GDP is the problem, then why not define growth as something else? No-growthers give the game away too easily. So how might we reimagine economic growth? Let’s return to the question of what we actually mean when we tell someone to ‘‘grow up’’. We aren’t telling someone to grow larger. On the contrary, we’re usually saying that they’re as large as they’re going to get, but it’s time for them to act their age. In this sense, growing means maturing. It means becoming wiser, more sensible, more considerate.

It means accounting for the consequences of our actions, as well as our responsibilities to others. It means more than just economic ‘‘development’’ along set stages; rather, a never-ending reappraisal of what we value and why.

The American philosopher John Dewey argued that learning is life. We grow through education, through ever deeper and more meaningful experiences. In this sense, many so-called ‘‘developed’’ nations – New Zealand included – still have some growing up to do. Issues like poor water quality, housing unaffordability and climate change are a sign that, despite everything we know, there is much to learn.

The Living Standards Framework is an alternative approach to tracking national value. Currently under development by the New Zealand Treasury, it will introduce a suite of indicators that capture wider aspects of financial, social and environmental wellbeing. GDP remains, but only as one among many notes in a richer symphony, which different governments might play in different ways.

This framework isn’t without its pitfalls. It would be easy for policy-makers to repeat the mistake often made of GDP, by assuming that more is always better.

Take, for example, the proposed indicator of forest cover, as a measure of natural capital. There are good reasons to favour more trees than fewer, such as carbon sequestration, erosion control, and biodiversity. But perpetual forest expansion would be absurd, because it would encroach on other vital land uses, such as agriculture and horticulture.

So too ‘‘trust in Parliament’’ as a measure of social capital. Of course, trust is generally a good thing, but does that mean that 100 per cent trust of politicians is something to strive for? At the very least, this could be a sign of public naivety; at worst, of tyranny.

The Living Standards Framework shouldn’t be about turning up every dial to 11. It should be about finding harmonies among indicators. It should deliver the signals that policymakers need to make wise judgments, especially by striking the right balance between competing aspects of public value.

If successful, then New Zealand might grow up to be a nation that genuinely lifts the wellbeing of present and future peoples.

A basic complaint about GDP is that it includes things that undermine public value, such as pollutive industries, but excludes things that create public value, such as healthy ecosystems and household work.