Jeffrey Sachs has a outstanding new book out called The Price of Civilization. The title of the book refers to remarks made by US Supreme Court justice Oliver Wendell Holmes, who spoke of the need for citizens of a country, who enjoyed the benefits of living in that country, to pay the price to support that civilization.
Sachs provides a thoughtful, cogent analysis of challenges facing America, and how to address those challenges. The book has a clean straightforward jargon-free narrative that is balanced and has elements that will appeal to conservatives, independents and progressives alike – though each group will find things to disagree with, there is much that will be embraced.
Sachs looks at the nature of America, through the lens of democracy, fairness, civic virtue, compassion, and happiness, and asks the question “What is our role in the 21st century?”
Sachs is the Director of The Earth Institute, Quetelet Professor of Sustainable Development, and Professor of Health Policy and Management at Columbia University.
Here’s Sachs being interviewed by Charlie Rose, about The Price of Civilization.
Here’s Sachs in the middle of the Occupy Wall Street demonstrations, taking questions from reporters. Sachs is articulate, plain speaking and clearly frustrated with the faltering state of the nation and the cozy monied relationship between government and big business.
On a related note, Charles M. Blow had an excellent graphic from the Bertelsmann Stiftung foundation report “Social Justice in the OECD — How Do the Member States Compare?” It helps give some context to issues driving the Occupy Wall Street demonstrations and challenges facing America.
Keywords: growth, consumption, GDP, global economy, China, India, consumerism
Robert Reich wrote a thoughtful article on Why Growth is Good. Highlights of the article are below. In it, he differentiates between growth and consumption.
Growth is really about the capacity of a nation to produce everything that’s wanted and needed by its inhabitants. That includes better stewardship of the environment as well as improved public health and better schools.
For me, what Stiglitz is getting at is: We grow what we measure (GDP), and because we are measuring the wrong stuff, we are growing wrong. It seems to be in our DNA to want to “grow,” but like a garden, don’t we have a choice about what we grow? Are there ways we can grow our economy that restore abundance rather than consume it? What are the essential things to measure so that we are growing good things?
Using ecological footprint data from Global Footprint Network we can see the current state of consumption for North America and the rest of the world. American per capita consumption is legend. China and India are adopting their own versions of American-style consumerism. All nations are bumping up against the limits of the earth to provide what is needed for growth. We are collectively challenged to find new ways to grow, more lightly, in ways that restore rather than deplete.
N.B. The width of bar proportional to population in associated region. Ecological Footprint accounts estimate how many Earths were needed to meet the resource requirements of humanity for each year since 1961, when complete UN statistics became available. Resource demand (Ecological Footprint) for the world as a whole is the product of population times per capita consumption, and reflects both the level of consumption and the efficiency with which resources are turned into consumption products. Resource supply (biocapacity) varies each year with ecosystem management, agricultural practices (such as fertilizer use and irrigation), ecosystem degradation, and weather. This global assessment shows how the size of the human enterprise compared to the biosphere, and to what extent humanity is in ecological overshoot. Overshoot is possible in the short-term because humanity can liquidate its ecological capital rather than living off annual yields.
Highlights from Robert Reich’s Why Growth is Good
Economic growth is slowing in the United States. It’s also slowing in Japan, France, Britain, Italy, Spain, and Canada. It’s even slowing in China. And it’s likely to be slowing soon in Germany.
If governments keep hacking away at their budgets while consumers almost everywhere are becoming more cautious about spending, global demand will shrink to the point where a worldwide dip is inevitable.
You might ask yourself: So what? Why do we need more economic growth anyway? Aren’t we ruining the planet with all this growth — destroying forests, polluting oceans and rivers, and spewing carbon into the atmosphere at a rate that’s already causing climate chaos? Let’s just stop filling our homes with so much stuff.
The answer is economic growth isn’t just about more stuff. Growth is different from consumerism. Growth is really about the capacity of a nation to produce everything that’s wanted and needed by its inhabitants. That includes better stewardship of the environment as well as improved public health and better schools. (The Gross Domestic Product is a crude way of gauging this but it’s a guide. Nations with high and growing GDPs have more overall capacity; those with low or slowing GDPs have less.)
Poorer countries tend to be more polluted than richer ones because they don’t have the capacity both to keep their people fed and clothed and also to keep their land, air and water clean. Infant mortality is higher and life spans shorter because they don’t have enough to immunize against diseases, prevent them from spreading, and cure the sick.
In their quest for resources rich nations (and corporations) have too often devastated poor ones – destroying their forests, eroding their land, and fouling their water. This is intolerable, but it isn’t an indictment of growth itself. Growth doesn’t depend on plunder. Rich nations have the capacity to extract resources responsibly. That they don’t is a measure of their irresponsibility and the weakness of international law.
How a nation chooses to use its productive capacity – how it defines its needs and wants — is a different matter. As China becomes a richer nation it can devote more of its capacity to its environment and to its own consumers, for example.
The United States has the largest capacity in the world. But relative to other rich nations it chooses to devote a larger proportion of that capacity to consumer goods, health care, and the military. And it uses comparatively less to support people who are unemployed or destitute, pay for non-carbon fuels, keep people healthy, and provide aid to the rest of the world. Slower growth will mean even more competition among these goals.
Faster growth greases the way toward more equal opportunity and a wider distribution of gains. The wealthy more easily accept a smaller share of the gains because they can still come out ahead of where they were before. Simultaneously, the middle class more willingly pays taxes to support public improvements like a cleaner environment and stronger safety nets. It’s a virtuous cycle. We had one during the Great Prosperity the lasted from 1947 to the early 1970s.
Slower growth has the reverse effect. Because economic gains are small, the wealthy fight harder to maintain their share. The middle class, already burdened by high unemployment and flat or dropping wages, fights ever more furiously against any additional burdens, including tax increases to support public improvements. The poor are left worse off than before. It’s a vicious cycle. We’ve been in one most of the last thirty years.
No one should celebrate slow growth. If we’re entering into a period of even slower growth, the consequences could be worse.
For some excellent reading on this subject, check out the Recommended Reading section on Sustainable Business, Government, and Community. I especially found useful Lester Brown’s Plan B 4.0 and Jeffrey Sachs’ Common Wealth.
Lat year I posted an article (Nobel Laureate Joseph Stiglitz on Sustainability and Growth) about an interview with economics Nobel laureate Joseph Stiglitz at the Asia Society in New York City. Stiglitz talked about how “what we measure determines what we grow” and the dramatic negative side-effects a metric like GDP can have on societal well-being.
The quest for more plentiful and less expensive oil for fast-growing Asian economies has also brought a wave of offshore drilling from India and the Gulf of Thailand, to Vietnam and Bohai Bay, on the northeast coast of China.
In considering this risk and the increasing evidence of the toll that rapid economic development is already taking on Asia’s environment, economists and other experts in Asia have taken up the call to re-examine the prominence of economic growth as a measure of policy success, particularly the use of gross domestic product.
Asian governments have become particularly enthralled with gross domestic product (GDP) statistics for validation, becoming what Vishakha Desai, the president and chief executive of the Asia Society in New York, has called “G.D.P. junkies.”
For local officials in China, gross domestic product was, until recently, more than just a barometer for gauging policies, it was the measuring stick against which their futures in the ruling Communist Party were determined. Economic growth still ranks as one of the chief criteria for determining party promotions, according to Tan Kong Yam, an economics professor at Nanyang Technological University in Singapore who offers a course for mayors from China.
For such officials, “there is an enormous incentive to promote investments and industrial production,” he said. “This explains why there’s enormous pollution.”
Gross domestic product has come in for some particularly hard knocks since the global financial crisis, notably after a report last year whose co-author was Joseph E. Stiglitz, a Nobel laureate in economics, that said reliance on gross domestic product had blinded governments to the increasing risks in the world economy since 2004.
Overlooking that risk has possibly cost future economic growth, the report said, and has contributed to a looming environmental crisis.
“Market prices are distorted by the fact that there is no charge imposed on carbon emissions,” the report said. “Clearly, measures of economic performance that reflected these environmental costs might look markedly different from standard measures.”
Economists in Asia say the debate about gross domestic product misses the point. Gross domestic product as a statistic is sound, they say; what is wrong is the fascination in government with what it measures — the sum total of a nation’s annual production.
“The problem is not G.D.P.,” said Bhanoji Rao, a visiting economics professor at the Lee Kuan Yew School of Public Policy in Singapore. “The problem is the culture of consumption.”
Mr. Rao is part of a growing body of economists, largely in academia, who question whether rapid economic growth rates in Asia — from the 10.3 percent expansion in giant-but-poor China to an expected 15 percent growth this year in tiny-but-rich Singapore — are necessarily producing a happier, healthier Asia.
Some Asian governments, China’s included, have been trying to recalibrate gross domestic product to include the cost of growth to the environment, creating a green gross domestic product. Such efforts, said Mr. Tan, the Nanyang professor, have been frustrated by the difficulty in determining the future cost of environmental destruction.
What is needed instead, some economists say, is a wholesale re-examination of development’s goals. “There needs to be an internal debate within the developing countries about what is the path of development we want to have,” Mr. Rao said.
Andy Xie, a private economist in Shanghai, has long argued that the 1.3 billion people in China cannot realistically hope to live like Americans.
“That statement is truer than ever,” he said.
Beijing, at least, appears to have gotten the message, if its investments in green technology and public transportation are anything to go by. The Communist Party has also revised the promotion criteria for officials so that environmental conditions are included along with gross domestic product.
But economists like Mr. Xie and Mr. Rao warn that even with greener development, the result may still be the same if the goal remains an American-style standard of living. Asia may instead need to carve out a vastly different vision of prosperity that does not rely on ever-increasing levels of material consumption.
My wife and I live on an island in the Pacific Northwest. We are in a county that has the lowest working wages in the state. As you can imagine, there is a lot of belt tightening going on as the economy craters.
In a future blog post I’ll talk about how our community is finding ways to innovate in tough times, but for now, what I am thinking about is something Joseph Stiglitz said last year in an interview at the Asia Society in New York City. Stiglitz is a Nobel Laureate and professor of economics at Columbia University.
Toward the end of the interview, talking about GDP, he describes the dramatic negative side-effects a metric like GDP can have on societal well-being. In short, something as simple as a measurement can lift a society up, or crush it.
Here is what Professor Stiglitz said:
What We Measure Affects Our Behavior
Accounting frameworks affect behavior. More generally, information affects behavior. What we gather our information about, and how we describe success, affects what we strive for. If GDP is what we think is success, people will strive for growing GDP. Politicians, for example, will then describe how they increased GDP x%, creating a sense of importance to the measure. By doing that though, they focus policies on things that will increase GDP.
We have identified a lot of ways in which GDP is not a good measure of economic performance or societal well-being. So we are working with others to try and focus a global conversation about alternative measures, and also come up with some summary accounting frameworks and statistics that more effectively represent the economic realities on the ground.
Measuring the Middle Class
For example, GDP doesn’t tell you about what happens to the typical citizen. This is an increasing problem because when you have growing inequality in society, you can have GDP going up, as it has in the US, but most people are getting worse off. Not just poverty going up, but the median income – 50% or more of people getting worse off.
We ought to know what’s happening to the median person. It’s very hard to find statistics about that.
There needs to be a focus on what we call “Green GDP” – taking account of environmental degradation and resource depletion. This is particularly important in developing countries that may, for example, be growing by cutting down their forests. But once they cut down the forests, there’s nothing there. And so unless they do something, it’s not sustainable. GDP tells you nothing about sustainability. Another example – the IMF thought Argentina was doing great in the early 1990s. In looking at the data though, in a more fine grained way, we found that their growth was not sustainable. If you only looked at GDP, you would not have realized that.
There are ways that you can adjust for depletion of natural resources and degradation of the environment. If you do that, China’s growth, for example, gets significantly lowered. It’s still doing well, but it is much lower than it otherwise would have been.
Special Interests – The Invisible Hand
Here’s an interesting story about the role of special interests: When we tried to push for this (Green GDP), and people in the Department of Commerce were excited about doing this, the coal industry basically threatened to pass a proviso to take away funding for any research that would support these alternative measures. Because they new that Green GDP would not be good for the coal industry. That reinforced our belief on why it is important to measure these things.
GDP and GNP
Here’s another example… the difference between GDP and GNP. Those of you who are older may remember GNP and around 1990 they switched to GDP. Well, everybody said it’s just a little bit of difference. It turns out that it makes a great deal of difference for many countries. And I am sure somebody is going to write an article about whether there was a political context to the switch. GDP looks at the output within the country. GNP looks at the income of the people, in the country. When you started privatizing a great deal, you had economic activity within the country, but the income from that economic activity more and more was going to people outside the country. So you have a mine, for example, somebody taking [resources] out of the mine, leaving behind environmental degradation, getting royalties in some cases of 1 or 2 percent, so almost none for the income from the mine goes to people in the country. So GDP is going up, but any measure of Green GNP would show the country going down. There are some really dramatic examples like in Papua New Guinea, where this actually is true.
GDP, Prisons and Healthcare
Two dramatic examples – The US has about 10 times as many people per capita in prison as other advanced industrial countries. That contributes to our GDP, because we have to spend money incarcerating them. In some states, we are spending as much on building prisons as we are on universities. That’s good for GDP, but any measure of societal well-being says it’s not good to have so many people in prison. And it’s a symptom of something dysfunctional. We can have a long discussion about what it is that’s dysfunctional, but the point is, it’s not positive.
Another example – We spend more on healthcare than any other country, as a percentage of GDP, yet our health outcomes are much lower than in other advanced industrial countries, and actually, lower than many developing countries. Well, the extra money we spent on healthcare shows up as a contribution to GDP. If we got more efficient our GDP could go down. But that is clearly not… you don’t want to… You’re looking at the wrong thing.
END OF INTERVIEW
You can watch the GDP portion of the interview video here.
For me, what Stiglitz is getting at is: We grow what we measure (GDP), and because we are measuring the wrong stuff, we are growing wrong.
It seems to be in our DNA to want to “grow,” but like a garden, don’t we have a choice about what we grow? Are there ways we can grow our economy that restore abundance rather than consume it? What are the essential things to measure so that we are growing good things?
What do you think? What would you like to see grow? What should we be measuring?