Moving #BeyondGDP - Q&A with Martine Durand
On 9 January 2019, the Green Economy Coalition, the Green Growth Knowledge Platform and the Partnership for Action on Green Economy held a High-Level Media Debate on the question, "What makes your country wealthy?" In the lead up to the event, we asked thought leaders to share their insight on new approaches to wealth accounting and the challenges of moving beyond GDP. Here we hear from Martine Durand, Chief Statistician and Director of Organisation for Economic Co-operation and Development (OECD) Statistics and Data Directorate.
1) Why does how we measure wealth matter?
Sustaining well-being over time requires that a number of critical resources are preserved for the benefit of future generations. You can think of these resources as types of capital (i.e. wealth), whose benefits accrue over an extended period of time but that are affected by current decisions - i.e. how much to invest in them, how to limit their depletion and depreciation, how to take into consideration the risks and uncertainties that might affect their evolution. While conventional economic theory and national economic accounts focus on a narrow set of ‘capital goods’ (i.e. stores of value that are privately owned and deliver economic benefits to their owners) the range of assets that are relevant for the sustainability of well-being extends well beyond market assets, to include ecosystems, human and social capital. Many of these assets are not exchanged through markets, and even when ‘market prices’ exist (e.g. for housing) they may reflect ‘bubbles’ or ‘rent extraction’, unrelated to the well-being benefits that they generate. Technical issues about how you measure these assets will affect one’s assessment of the sustainability of economic development.
2) What are the benefits and risks of putting a dollar value on nature?
Some types of natural resources (e.g. crude oil) contribute to economic production and are exchanged through markets, implying that they have a dollar value. However, neither the depletion of these assets through extraction, nor the externalities associated with their use, are reflected in national economic accounts as a negative contribution to the value added generated. Other types of natural resources (e.g. ecosystems and the services they produce, such as carbon sequestration, flood regulation, and habitat for biodiversity) fall “beyond the market”, and do not have any market prices. By treating them as “free”, economic decisions will tend to make excessive use of them at a given point in time, while technological change will be directed towards reducing the use of the expensive resources and increasing use of free ones. Putting a dollar value on these resources will provide incentives to reduce their use, but may also validate their consumption (once you are ready to pay the price). For this reason, both physical and monetary measures of natural resources need to play a role in orienting decision making, with the choice between the two depending on the range of benefits that they deliver, and on the extent to which natural resources can be substituted with each other and with economic assets.
3) What do you consider to be the main barriers to moving beyond GDP?
The barriers are technical, political, and ideological. Technical, because measures of important aspects of people’s lives, such as their economic insecurity or their trust in public institutions, or of critical resources for the future, such as biodiversity and ecosystems, still lack a solid methodological and statistical foundation; even measures that are routinely produced by statistical offices are often not up-to-date, lack granularity, or are affected by measurement problems that reduce their usefulness. Political, as having good measures of various aspects of people’s lives does not, in itself, mean that those measures will be used to help shape decisions: measures alone cannot tell you which interventions will be most effective in improving those outcomes, and special interest groups always seek to ensure that their interest come first. But also ideological, as our attachment to existing knowledge and belief systems can often stand in the way of getting a better appreciation of how the world works; only when major crises occur, or when a generation of decision-makers is replaced by a new one, do people recognise the need to use new lenses for “reading” the world around them.
4) How could moving beyond GDP impact policy, people, and how we do business?
At the policy level, the ‘Beyond GDP’ agenda implies recognising the importance of focusing on people’s well-being and sustainability, rather than on the size of the ‘economic pie’ only, as a gauge for all policies and programmes. This message has resonated strongly at the OECD which has moved from considering GDP growth as the ultimate objective of policies and the single yardstick of countries’ performance, to being a key partner in the well-being agenda, as well expressed in our motto (“Better Policies for Better Lives”). Moving beyond GDP is also important for firms, as it implies recognising the limits of the shareholder-value maximisation model, and the importance of assessing all business operations in terms of their impacts on the environment, consumers, workers, and society at large, both in the country where business operates and throughout its supply chain. Delivering more sustainable, inclusive forms of growth requires a societal shift, not just a change in how governments operate.
5) Are there specific countries, companies, or people in this space that you recommend taking a closer look at?
In terms of countries making greater use of well-being metrics, we recently published a series of case studies. The New Zealand government announced that in 2019 it will introduce its first “well-being” budget, and the Treasury is developing systematic methods for using well-being evidence to improve the depth, breadth, and quality of their economic advice to the Government. The OECD’s 2019 Economic Survey of New Zealand will include a strong well-being focus, including on measurement and policy application. Several other countries are starting to introduce well-being indicators in budget deliberations (e.g. France, Italy, Sweden) or National Development Strategies and performance frameworks (e.g. Slovenia, Scotland, Paraguay), while others have created new institutional structures to champion well-being or support the development of the evidence base (e.g. in Ecuador, Wales, the United Arab Emirates, the United Kingdom). When it comes to environmental accounting, countries like Australia, Canada, the Netherlands and EU countries more generally are those with the longest experience.
In terms of people, we work with a large number of partners from the academic, policy, and business communities – and the speakers at our recent 6th World Forum on Knowledge, Statistics and Policy include some key “ones to watch”. I do also hope that the report by Joe Stiglitz, Jean-Paul Fitoussi, and myself, published last November by the OECD, will provide direction to the ‘beyond GDP agenda’ in the same way as the 2009 report of the Stiglitz-Sen-Fitoussi Commission did. In terms of companies, the OECD’s new Business for Inclusive Growth Platform will provide a space for exchange and new thinking about how this agenda translates into concrete change in the private sector.
6) How does your work fit into this larger goal/discussion of moving beyond GDP?
The OECD has played a leading role in the follow-up of the recommendations of the report of the Stiglitz-Sen-Fitoussi Commission in 2009. This follow-up has initially taken the form of a range of statistical activities, under the banner of the OECD Better Life Initiative, but it is now extending to the policy arena, as witnessed by our Framework for Policy Action on Inclusive Growth launched in May 2018. We are at the forefront of efforts to develop better measures of economic inequalities, to integrate these into our macro-economic statistics (to assess who benefits from GDP growth), to measure other aspects of people’s life (such as their health, their competencies). We are also at the forefront of efforts to design accounting frameworks that better capture well-being and sustainability, among which are developing measures of production that include the value of unpaid household activities, and helping countries to implement the new System of Environmental-Economic Accounting (SEEA).
But we are not throwing the baby out with the bathwater. Robust estimates of GDP growth and of its drivers still matter, not least because productivity remains a key driver of people’s material conditions. We are leading efforts to better capture the role of intangibles and intellectual property products, and to better understand how GDP measures are affected by global production arrangements and digitalisation. We have also kept up our efforts to remain the standard bearers in developing new indicators, frameworks, and measures that highlight, for example, the importance of granularity at the firm level, e.g. by differentiating between small firms and MNEs, their use of capital, including human, their engagement in global value chains, and facilitating the design of policies that can make globalisation work for the many and not just the few.
The opinions expressed herein are solely those of the authors and do not necessarily reflect the official views of the GGKP or its Partners.