In global governance, a country’s status is intimately connected with
the size of its economy. In his influential book, The Rise and Fall of
the Great Powers, Yale historian Paul
Kennedy concludes that economic strength is more significant than
military might when it comes to determining the international pecking
order. This has certainly been the case during the 20th century, when
Gross Domestic Product (GDP) became the key parameter deciding which
countries should lead the institutions of global governance. Definitions
of “superpower,” “middle power,” or “emerging power” have all been
defined by GDP. The distinction between the “developed” and the
“developing” world is also a result of GDP. Powerful “clubs” like the
G7/G20, the OECD, and even the BRICS (Brazil, Russia, India, China, and
South Africa) are determined by actual or prospective estimates of GDP.
GDP is not just an economic policy tool: It is first and foremost the
leading parameter through which a nation can gain global clout and
access the top echelons of global governance.
In the past few years, however, there has been a growing debate about
the adequacy of GDP as an indicator of economic performance, let alone
as a benchmark for international relevance. Indeed, GDP is not a measure
of all gains and losses in an economy. While it counts the exploitation
of natural resources as profit, it does not consider the economic costs
of environmental degradation, and it completely disregards goods and
services exchanged outside the market (within households, in the
informal economies, through barter, etc.), which account for the bulk of
economic activity in many countries. Chopping and selling trees adds to
GDP but planting them doesn’t. As a consequence, the measure yields a
distorted perception of “wealth” and resulting global status: How rich
are emerging powers like China and India if, as the World Bank
estimates, most of their GDP will have to be spent to fix the
environmental destruction caused by its growth?
The concept of
the GDP was introduced in the 1930s, when the myths of industrialization
were uncontested and environmental and social concerns were less acute.
But it is an outmoded tool for a generation increasingly concerned with
social well-being and climate change. Against this backdrop, numerous
calls have been made — not only by experts, but also by leading policy
makers — to move beyond the GDP framework.
The French government
established a high-level commission in 2008 to define post-GDP
parameters of success, when both the OECD and the EU launched their
“Beyond GDP” campaigns. In 2012, the Rio+20 U.N. Summit proposed the
development of new measurements and targets, paving the way for the
adoption of the Sustainable Development Goals, the new international
benchmarks that will guide all countries’ economic policies as of 2015.
Even among the emerging powers, the influence of GDP has taken a knock.
For instance, Chinese President Xi Jinping announced in 2013 that GDP
will no longer be considered a parameter of success in China, ending the
Communist Party tradition of rewarding officials that maximize GDP
growth in their territory. A year later, over 70 Chinese cities ditched
GDP as an economic policy tool. As admitted by the U.N.
Secretary-General Ban Ki-moon, “[GDP] fails to take into account the
social and environmental costs of the so-called progress.… We need a new
economic paradigm that recognizes the parity between the three pillars
of sustainable development. Social, economic and environmental
well-being are indivisible.”
But given that GDP has determined
the leadership of global governance, how would international politics be
affected by the adoption of new measures of well-being, prosperity, and
sustainable development? Let’s simulate the results using four leading
alternative indicators: the Social Progress Index, the Legatum
Prosperity Index, the Environmental Performance Index, and Ecological
Footprint.
Using these measures, conventional powers — both in
the West and in the East — would rank far below countries that have been
more successful at building equitable and sustainable economies. The
only current G7 members to survive the shift would be Germany
(relatively high in its capacity to address basic needs and promote
well-being) and Canada (mostly thanks to its education and social
capital as factors of prosperity). By contrast, the world’s largest
economies (in terms of GDP) would slide sharply down the rankings.
Indeed, the United States ranks 10th in prosperity (mostly due to its
poor track record in safety and security), 36th in well-being, and at
the very bottom in sustainable development (due to its massive
ecological footprint). China is 51st in terms of overall prosperity,
mainly due to limited individual freedom and security, 92nd in
well-being, due to a shaky recognition of personal rights, and at the
very bottom in environmental performance (118th).
The new global
leaders would be countries that have been able to marry economic
progress with human and ecological well-being. Among them we find
dynamic economies with a high quality of life such as Costa Rica, New
Zealand, and South Korea (leaders in their respective regions) as well
as established social democracies such as Sweden, Norway, Denmark, and
Switzerland. We also find champions of good governance such as Botswana
in Africa and Uruguay in South America.
Things would change for
Southern Europe too. By including the value of the informal economy and
the variety of household and community services provided free of charge
(which are neglected by GDP), the income of many European economies
increases significantly. The infamous acronym PIGS, describing the
allegedly inefficient economies of Portugal, Italy, Greece, and Spain,
would also need some rethinking, as their economies are much more
prosperous — in non-GDP terms — than the current metrics reveal.
Logically, a post-GDP scenario should lead to a revision of the European
Union’s Stability and Growth Pact, which forces member states to anchor
their capacity to invest in welfare mechanisms to their GDP
performance.
Structural factors, too, are likely to accelerate
the end of the GDP world. According to the IMF, the global economy is
entering a “secular stagnation” — a prolonged phase of very low (if any)
economic growth. International trade, a key driver of global GDP
expansion, is also likely to contract, especially since fossil fuels
(which can be easily transported) are becoming scarcer and more
expensive, while renewable sources of energy (whose energy cannot travel
long distances) become dominant. Global regulations to curb climate
change will also make the resurgence of a GDP-fueled global economy very
unlikely, especially as they will impose restrictions on emissions and
environmental damage. But this will not mean a return to national
economic self-sufficiency. The post-GDP economy will be less global —
but more regional. Trade within regions and subcontinents will offer
opportunities for more inclusive and sustainable development, especially
where territorial continuity and shared energy sources provide new
opportunities for cross-border cooperation. (The photo above shows a
worker in a Japanese-operated car factory in Resende, Brazil.)
A
post-GDP world is just a possibility. But with the convergence of
economic, social, and environmental crises there appear to be no
reasonable alternatives. Ultimately, global governance is what states
want it to be. As we have seen, several countries have been able to
maximize human and environmental well-being, but the GDP model of
governance has relegated them to irrelevance. As the world gears up to
ratify the Sustainable Development Goals and embark on negotiations for a
new climate change agreement, these nations have an unprecedented
window of opportunity to present themselves as beacons of sustainable
development. A WE7 or WE20, that is, an alliance of leading “well-being
economies,” would be better suited to address global challenges such as
inequality and climate change than the current G7/G20, which is led by
highly unequal and polluting countries. Time is ripe for major change.
