Forget GDP – there’s more to Britain’s wealth than its bank balance

A nation’s cash value is still a go-to measure of wealth. But the quality of housing, healthcare and access to technology are the indicators we should focus on.

The idea that GDP growth is the wrong measure of a nation’s progress has become so widely accepted as to be the new common sense. Yet it is still the go-to number for lack of a credible alternative. Measuring happiness or wellbeing is fraught for numerous reasons, not least of which is that such indices make questionable assumptions about what it means to live a good life.

Bhutan’s much-lauded Gross National Happiness (GNH) questionnaire, for instance, asks how spiritual people consider themselves to be, how often they recite prayers, whether they consider karma in the course of daily life and if any type of alcohol has been consumed during the past 12 months. Answers which I may think positive for my wellbeing would lower the national GNH.

Governments should be concerned with more than wealth, but they should steer clear of making subjective measurements of their citizens’ welfare. The only happiness that need concern the government is the electorate’s satisfaction with how it is performing.

Rather than seek an alternative focus of measurement to wealth, we should instead seek to measure wealth better. The problem with GDP is that it doesn’t measure real wealth at all, only the total cash value of the economy. It is a truism that money has no value in itself, only in what it allows you to buy. Money is only a proxy for wealth, and a deeply imperfect one at that. Real wealth consists in what we are able to own or consume, not in the size of our bank balances. Real wealth therefore grows when we can have more of, or better of, the things that enable us to live well. We are truly enriched by warmer houses, better medical care, healthier food.

An increase in wealth proxies such as cash and assets is only of benefit if it provides for more of these things. It is usually assumed that under normal circumstances that is what growth, a proxy for wealth, does – but this is not necessarily the case. If the price of essentials rises faster than that of other goods, then even if income growth keeps pace with general inflation, anyone on a low income is likely to see a decrease in real wealth. Perhaps the clearest example of this is housing.

House price inflation has run far ahead of wage inflation in the UK for decades, so although – a few years of recession excepting – proxy wealth has tended to rise, real wealth for many has not, because housing has eaten up more than the increase.

Economists rightly celebrate the growth in prosperity that has marked the modern era. But ordinary working people are much better off than their Victorian forebears because they have better homes, better food, free education and healthcare, not because they have more money. The connection between the two is not inextricable, as recent experiences in Japan bear out.

Japan has experienced years of what economists see as the “nightmare of stagnation”. And yet the country is still a safe and affluent nation. David Pilling, the Financial Times’s former Tokyo bureau chief, has argued that “the standard of living, particularly in big cities like Tokyo, has improved significantly in the so-called lost decades. The city’s skyline has been transformed; the quality of restaurants and services improved greatly.”

How is this possible? Because “a lot of improvements in standard of living come not through what we normally consider as growth, but through technological improvements”. This is a concrete example of real growth without what is normally understood by economic growth.

If we can grasp this, we can see why the argument about whether indefinite growth is environmentally sustainable is bogus. Orthodox economics says that it is essential if the world’s worst-off are to escape their poverty. Critics argue for zero or even negative growth, claiming that this is the only way to ensure we don’t deplete the planet’s resources. Both are wrong. Real wealth is created not just by exploiting more resources and increasing society’s cash pot but by exploiting the same or fewer resources better. The whole question of GDP growth is a red herring if we are interested in real wealth. What matters is that we do more with the resources we have.

Building a better future depends on seeing this clearly. Take the need to reduce inequality, which many now accept is urgent. To do this it is assumed we need to reduce the income gap between rich and poor. But real equality is increased simply by making it possible for the less well-off to do more with the money they have. Social housing was, and could again be, an example of that. Take two people, one of whom earns £30k a year and the other £15k. To close the real wealth gap between the two does not necessarily require increasing the income of the latter. Providing them with a decent council flat at low rent effectively allows their disposable income to equalise.

The basic principle here is that what matters most is giving people the resources they need to live better, which doesn’t necessarily require giving them more cash. This has in effect been the principle behind all sorts of socially levelling initiatives. Local authorities didn’t give local people free books, they gave them the use of libraries. They didn’t give them cars, they gave them bus passes. We need to relearn the wisdom of these policies, and update them for the modern age. In an era where car ownership is not rare, what about low-cost car clubs? Why shouldn’t more people be able to borrow laptops and tablets from libraries as well as books and DVDs?

This move would chime with the ethos of the “sharing economy”, in which people appreciate that what matters is access to a good, not ownership. This has been prompted by the IT revolution. Younger generations don’t care about owning albums or films, they just want to be able to play or watch them when they like. This same mindset is crossing over to concrete goods. “Millennials couldn’t care less about owning a car,” says the economist Jeremy Rifkin. “They prefer access over ownership.” Rifkin believes that within a few decades, car ownership will be the preserve of collectors and enthusiasts.

Refocusing attention on real wealth would be helped by developing robust measures of it. Such measures would also provide incentives to focus on what really makes lives better, rather than on increasing headline figures such as GDP and incomes. This would also radically reframe the debate around inequality.

A progressive politics that took real wealth equality seriously could be far more radical and transformative than one that continued to focus almost exclusively on the problem of wealth proxy inequality. It would challenge the assumption that a leftwing agenda inevitably requires ever higher taxation, spending and redistribution of money. It would help present a compelling narrative in which government intervention really is about improving quality of life, rather than robbing the rich to pay the poor.

And perhaps most importantly of all, it provides a way of escaping the destructive imperative to grow GDP without giving up on the importance of the kind of growth that really matters. It’s obvious, really, which is perhaps precisely why we’ve stopped noticing its truth.

The author: Margareta STROOT

Margareta Stroot, a multi-talented individual, calls Brussels her home. With a unique blend of careers, she balances her time as a part-time journalist and a part-time real estate agent. Margareta's deep-rooted knowledge of the city of Brussels, where she resides, has proven invaluable in both of her roles. Her journalism captures the essence of the city, while her real estate expertise helps others find their perfect homes in the vibrant Belgian capital.

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