There is something bizarre about the way that nations assess how they are doing economically. Many years ago I worked in accountancy. A company is required to produce two kinds of account at the end of each year, a balance sheet and a trading account. These accounts reveal, albeit in a somewhat rough and ready way, the value of the company and the profit or loss that it made in the preceding twelve months. The balance sheet is a measure of wealth. A profit and loss acount is a measure of how that wealth has changed over a period. Neither kind of account is available for nations, however.
A company that simply produced a total of what it had spent without any regard for what the money had been spent on would be regarded as remiss and the data from such a cash flow statement would not be regarded as being at all reliable as a guide to the wellbeing of the enterprise. However, it is precisely this latter kind of account that is used in the case of nations where it is called the gross national product. This leads to all manner of deception.
Let's consider some simple examples of the folly of the GNP approach to assessing national economic functioning. If we now spend twice as much on washing machines as we did ten years ago this is seen as a doubling of that element of GNP over the period. However, if it happens to be the case that washing machines nowadays only last a quarter as long as machines did then, the reality is that although the cash turnover has doubled, the actual wealth has halved. The extension of this principle means that the current system contains a built in tendency to encourage the production of shoddy goods with quick turnover rather than quality goods that last. This is because governments are, to an extent, judged on their ability to increase GNP. The simplest way to increase it is to substitute shoddy short term activity for quality production that lasts.
Countries that increase their GNP might be doing so because they are genuinely becoming more wealthy. However, it is just as likely that they are doing so by becoming lower quality. In large areas of our economic lives we no longer reward quality.
Again, an area of woodland may provide many benefits to the people who live in the viscinity but it adds very little to GNP. If we cut the forest down and replace it with a car park and charge people to use the car park, this will appear as a gain. But is this gain real? Has something not been lost in the process? What has been lost is invisible in GNP terms.
Again, if I employ you to look after my children so that I can go and work in a nursery looking after other people's children, including yours, this will appear as much better than us all looking after our own because money is changing hands at every stage.
All these movements of money say something, but they do not tell us much about the actual wealth of the nation and certainly nothing about whether it has increased or decreased. In fact, many of these cash flows are positively misleading if what we want to know is somehing about actual wealth.
This rather crazy state of affairs has led some people to argue that what is needed is a “no growth” approach. This is understandable, but is surely also a mistake. What we need is real growth, a growth in real wealth. Wealth means improvement, not a move towards more short term ends, increasingly shoddy output, and the substitution of money relations for ones based on real human sentiment. Improvement means that things of real lasting value come into being or are sustained.
It would be difficult to quantify what is of worth to a people and to assess whether there was more of it at a later date than at a former one or not, and any such account would, of necessity, be approximate. However, the measures that we use now are not that accurate either. It would surely be better to have an approximate measure of something real and important than an approximate measure of something that is misleading and tends to undermine real value.