Gross Domestic Problem: The Politics Behind the World’s Most Powerful Number (Book Review)

There is a problem with gross domestic product (GDP) as a concept, but there is no easy way to replace it with an equally simple and clear-cut indicator. That is the bottom line of Lorenzo Fioramonti‘s short and provocative book. Many readers of this journal [the Journal of Human Development and Capabilities] will probably ponder what could possibly be new about that message. I share their scepticism. Yet Fioramonti’s explicit and normative engagement with the problematic nature of GDP as an indicator of welfare in the light of the “crisis” that has plagued much of the world since 2008 provides a basis to rethink the theoretical and normative role of Human Development and Capabilities approaches worldwide.

After introducing GDP as “the world’s most powerful number”, the book is built around four core chapters. Chapter One lays out the history of GDP “from crisis to crisis” as the indicator was believed to be the key to overcome recurrent crises in economic life. Greater knowledge about the state of the economy would allow for better-informed fiscal management and taxation strategies (p. 28). The initial work of Simon Kuznets served to aggregate economic activity into a single number that worked with great beauty: it goes up when things go well, and it goes down when things go bad (pp. 25–26). Beyond the mere aestheticization of economics, GDP helped in forging the link between economists and policy-makers that is now commonplace (p. 26). The number also facilitated the US wartime economy from 1940 to 1945, as it helped define and maintain the balance between the military and internal consumer economy (p. 29). This has, however, meant that a strong link remains between military spending and economic growth, as can clearly be seen with the USA throughout the period 1945–1989.

Chapter Two signals the dangers of the incautious use of GDP as a measure and a tool in public debate and for public policy. Its approach is easy to grasp, rendering it an ideal measure for mediated political discourse (p. 78). Yet its simplicity may also be the basis of many problems. Fioramonti argues inter alia that Okun’s Law—a 3% increase in GDP generates a 1% increase in employment—is problematic at best, since only partial empirical observations exist to substantiate the claim. This “law” can thus hardly be called a sound theory (p. 51), which, in turn, undermines the role it can play in policy-making. Moreover, in spite of the incessant obsession with the indicator, its general relevance for human welfare has been questioned by Richard Easterlin, who claimed that “after a modest level of income is reached, perceived happiness does not increase with GDP” (p. 67). Fioramonti justifies the explicit parallel he draws between Mary Shelley’s epic Frankenstein and Kuznets’ powerful number: not unlike the literary character, the initial search for a reliable and benign welfare measure created a number that is known to be problematic, and quickly outgrew the control of its creator.

Chapter Three highlights a number of attempts in the “global quest to dethrone GDP” (pp. 82ff), among which UNDP’s Human Development Index is cited as “probably the best-known attempt to challenge [its] hegemony” (p. 98). Yet this chapter pays far greater attention to other indicators, such as those built on the idea of Gross National Happiness, with a focus on the key example of Bhutan, where the idea originated in 1972, and the more systematic attention it has received in recent years (pp. 93–94). In France, President Sarkozy set up a commission (consisting of Joseph Stiglitz, Amartya Sen, and Jean-Paul Fitoussi) to explore the evident contradiction in public debate that politicians are held to account to maximize GDP growth, but that the complexity of people’s daily struggles transcends this number (pp. 101–103). Yet resistance to real change became obvious when Dr Jim Yong Kim had to retract earlier criticism on the “comforting” but “wrong” discursive link between economic growth and well-being after President Obama nominated him for the presidency of the World Bank in 2012. In spite of numerous (and often genuine) attempts to “dethrone” GDP, the measure remains strikingly resilient.

Chapter Four explores “change from below” and illustrates this search with bottom-up initiatives that are largely centred on two ideas: “decroissance” (French, translates as “degrowth”; pp. 123ff) and rethinking money (pp. 135ff). Following local successes in “transition” movements to more fair and sustainable ways of living together, Fioramonti stresses the need to have both an active grassroots movement, and political leaders who react to such initiatives. Only when popular impetus is met with political willingness do the democratic acceptance and political ability to generate change exist. And crises such as the one we are living through right now are moments that can help in finding that critical conjunction. While this argument may be somewhat gratuitous, it does point to a critical contradiction in the way well-being is measured. Every measure builds on a normative framework, which influences the goals that are set. The debate should thus transgress the mere politics of measurement and engage with questions that should be more crucial: how do people want to live, and what kind of environment do we want to secure for ourselves and for future generations?

These are not new questions, and have been subject to fierce debate over the past decades. From Brundtland to Rio and from Kyoto to a post-2015 development agenda (that as of 2014 remains uncertain), sustainability remains a crucial concern. Not just as a fashionable way to “greenwash” business as usual, but to provide a normative guideline to “our common future”. Human Development and Capabilities started engaging more explicitly with this topic (most notably in the February 2013 special issue on ‘The Capability Approach and Sustainability’), yet the debate needs greater engagement.

While much of the history of and problems with GDP are old news to human development scholars, Gross Domestic Problem is a gentle reminder of all the good reasons we are looking beyond that seemingly magical number. More importantly, Fioramonti implicitly prompts provocative and somewhat radical questions for human development scholars: Why does GDP still account for one-third of the Human Development Index? How and when will sustainable development be included in the indicator? What will the post-2015 development agenda look like, and what kind of role will Human Development and Capabilities play in that global agenda?

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First published in the Journal of Human Development and Capabilities 15(2-3).