We are now at the point where I hopefully have laid out the case to demonstrate that any kind of significant growth in GDP is very unlikely for Scotland.
The geopolitical position dampens Scotland’s chance for GDP growth. The Scottish government doesn’t have the levers, and Holyrood and London are looking for growth in all the wrong places.
This week, I put that case that achieving significant GDP growth is not only an impossible dream, but it is actually damaging to our economy and society.
Most articles criticising GDP rely on the same references. Simon Kuznets, the creator of GDP, is always mentioned. He basically said, please don’t use this as a measure of wellbeing!
You will also undoubtedly see that wonderful passage from Robert Kennedy highlighting all the most important things in life that GDP does not include.
Many readers will be aware of these arguments. So, I will add a few layers to that justified and standard criticism of GDP as the main target for the economy.
We must stop concentrating on the flow
GDP is a flow. It is the value of a nation's annual output and a close approximation of the amount of stuff produced. As GDP rises, so does energy and resource use.
GDP = an increase in stuff. For some unknown and illogical reason, we assume that the nation as a whole needs more stuff this year than we did last year. And that this will always be the case.
It is from our natural resources that we pull all of our wealth. The salmon that we sell abroad comes from the stock in our rivers and seas. The furniture we make is from the trees in our forests. The machines we build are from the minerals we mine. The crops from the land.
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Every time we create a form of real wealth – not financial wealth that can be created without much energy or resource use at all – we pull it from the store of natural resources.
GDP hides all the information we need about our stores of wealth. The ecological economist Phil Lawn told me: “We must recognise that Scotland’s productive capacity is affected by the quantity and quality of its natural capital. Should it deplete its natural capital in the process of producing human-made goods for consumption purposes, it is undermining its capacity to produce goods for future consumption purposes.” We are well into the red.
The University of Leeds tracks “social and planetary boundaries” for over 150 nations. Scotland is included in the UK figures below. We have burst through the ecological ceiling for five areas where data is available.
And yet, we chase an increase in stuff.
A country’s overshoot day is the date on which Earth Overshoot Day would fall if all of humanity consumed like the people in that country. The UK’s overshoot day was the 3rd of June. Denmark’s was March16 , and Sweden's was April 21. Those nations are no template for Scotland, but yet we chase their GDP level.
Many financial crises can be traced to the desire for sharp rises in GDP. The 2007-2008 financial crisis was a debt-fuelled GDP race.
“Significant” GDP draws in external currency looking for a return on investment, and asset prices rise to above their true level. In capitalism’s boom and bust cycles, this creates a crisis.
A good example was the Asian financial crisis in the late 1990s. Foreign capital flooded the markets looking for a return. Local companies took on loans in dollars and found it impossible to meet those repayments when the economy contracted. The foreign capital left as fast as it had arrived.
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In chasing GDP growth, Scotland looks to attract foreign capital. The capital arrives, boosting short-term flows. However, the stock of wealth sits with those who own the capital, not with our state or our communities, and those flows are generated from our stock of resources. Under this GDP first strategy, more money leaves Scotland each year than arrives, which doesn’t appear in the GDP figures. GDP hides all manner of ills.
I am sure the current Scottish government has Scotland's best interests at heart. However, by chasing GDP growth, they are preventing the outcomes they wish to achieve.
Donella Meadows, one of the authors of the Club of Rome’s Limits to Growth, said in Leverage Points- Places to Intervene in a System: “The world’s leaders are correctly fixated on economic growth as the answer to virtually all problems, but they’re pushing with all their might in the wrong direction.”
The current Scottish government's Minister for Climate Action, Gillian Martin, said at our Festival of Economics in March: “In order to get a fairer, more equal society, where we eradicate poverty, there needs to be economic growth.”
The Scottish government is “pushing in the wrong direction”.
American institutionalist Economist Gregory Hayden wrote in 2006: “The selection of […] price as the appropriate measure means the analytical apparatus of the corporation becomes the dominant model for analysis. Financial accountants […] possess the expertise to dominate analysis and discussion in the policymaking process. How is it possible to argue for clean air to prevent asthma in children when limited to market prices and dollars as the criteria?”
In other words, GDP, that one measurement places a huge amount of power in the hands of one particular group.
Many people know that chasing GDP does not mean chasing wellbeing. But few can comprehend the damage to our economy and society caused by chasing GDP growth.
Every party fighting the UK election (besides a slightly watered-down version of the above from the Green Party) can trot out the same generally unchallenged nonsense that GDP growth benefits the nation. This highlights the deep and wide denial across Scotland. There is an alternative.
Join me on Monday at 7 pm as I examine how focusing on a resilient economy moves us naturally from increasing GDP.
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