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Time to put away the league tables Samuel Brittan Financial Times 24/02/06 According to a popular saying, “It is better to travel hopefully than to arrive.” As against this there are the lines of the British gypsy poet, W.H.Davies: “What is this life if full of care, we have no time to stand and stare?” In recent years, British and US leaders have wanted to travel hopefully while the countries of “old Europe”, such as France and Germany, have sided with the poet, preferring to keep their relatively high living standards and social protection without the strain of going ever faster and farther. On conventional league tables of gross domestic product growth, the US and Britain have come higher than France and Germany since 1992, whether the computation is of total GDP growth or of real GDP per capita. From this point of view, Spain counts as an honorary Anglo-Saxon country as it has a faster growth rate than the US or the UK, powered by a comparable housing boom and accompanied by an even larger, but easily financed, balance of payments deficit. It adds a little perspective to reflect that this obsession with GDP growth is among the most frequent grumbles of the educated public against the whole economic policy world. There is a strongly embedded view that, without our continuing striving for more and more, the economic machine would collapse. This position is, in fact, wrong. It is a feature not of genuine political economy but of what I call lumpeneconomics. There is no reason why entrepreneurial ingenuity should not focus on producing similar total quantities of goods with shorter working hours or more congenial working conditions. In the early 1930s, John Maynard Keynes looked forward to a time when western humanity could turn to the enjoyment of leisure, the arts and civilised intercourse because the progress of science and compound interest growth would have produced enough material goods to satisfy all but a minority. It pays to look at the origin of the preoccupation with growth league tables. It began with the postwar observation that, while continental countries were concentrating on rebuilding their economies after the second world war, Britain was mainly preoccupied with creating a welfare state and transforming an empire into a Commonwealth. When in opposition, Harold Wilson, leader of the UK Labour party, rarely missed a chance to emphasise these tables. The Kennedy Democrats, when the US national income was by any measure far ahead of the rest of the world, raised the alarm because continental Europe and Japan were experiencing large catch-up rates of change. More recently the tables have been turned and it is the core European countries that are being urged to emulate the “Anglo-Saxon” model. It is still not clear who will have the last laugh. Private sector analysts are now beginning to forecast a recovery in Old Europe, differing among themselves on how fast it will be. This upturn, if it occurs, will be at least partly cyclical and will not mean that European Union countries have overcome the problems of their social model. Meanwhile, the US Federal Reserve and the Bank of England remain determinedly optimistic on growth prospects for their respective countries. They may get a surprise. Sooner or later the housing booms of the two countries, which now seem to have nine lives, will come to an end and the Anglo-American consumer will no longer be able to come to the rescue. When this happens there will be a more receptive English-speaking audience for downplaying the obsession with GDP league tables. A recent publication by the Organisation for Economic Co-operation and Development has a welcome chapter on the limitations of GDP as a measure of welfare. For instance, the most frequently cited GDP growth figures do not make allowance for leisure. The authors’ rough adjustments for this reduce, and in some cases eliminate, much of the gap between the US and other countries. Moreover, there is an extremely loose connection between income and reported life satisfaction. Nevertheless, the mass of governmental and international statistical publications and academic and private sector analysis concentrates not only on crude GDP, but on rates of change rather than absolute levels. On such analysis, rich countries are regarded as performing badly if real GDP merely rises slowly for a few quarters. In spite of all the problems, the authors clearly regard GDP growth as an imperfect but good enough measure. May I end with a modest proposal? This is to concentrate more on absolute levels rather than rates of change. This will make life more difficult for the statisticians who find it harder to compare, say, the Portuguese and Norwegian national income than to agree on their comparative growth rates. But making life easier for statisticians should not be the main goal of policy. We should occasionally let the vehicle slow down and ask where we are rather than how fast we are traveling.
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