Beyond GDP, beyond capitalism?

February 5, 2020

Corrado Passera's editorial

CEO in illimity

A few days ago, I was lucky enough to take part in a conference organised by Bocconi University's GREEN research centre. The panellists included Lorenzo Fioramonti, Rossella Muroni, Mario Antonio Scino and Enrico Giovannini and the topic was "The World After GDP", which explored the weight and importance we give to the super-indicator, GDP.  
In recent years, #GDP has come in for a lot of criticism, much of which is justified. The issue has been around for decades, with Robert Kennedy having launched a famous tirade against GDP fifty years ago.
Perhaps the really interesting question is why, given the heap of criticism, is GDP still alive and kicking today? Every quarter, for example, even fractional changes spark a whole host of discussions in political and financial circles. Various attempts have been made to replace GDP with something else, but nothing has managed to shove it into retirement. No other better super-indicator has been found and none of the baskets of indicators proposed down the years has taken its place (often because they are overly complex and lacking in robust historical series that could be compared internationally).
Personally, I think GDP should be kept, but corrected and added to. GDP should be kept, albeit in a corrected format, because it is a difficult indicator to replace for #growth. And growth is necessary for sustainability, especially social sustainability. Let me put this another way: negative growth would have a devastating impact on the latter.
GDP needs to be corrected. Unlike the suggestions from many parties, I wouldn't include unpaid work and the gift economy (third sector) in the calculation of GDP because it would produce results that are hard to use and compare. Rather, I'd be in favour of removing the informal sector and criminal economy from GDP. It's absurd to see GDP as positive because of growth in such aspects.
GDP needs to be integrated, with indicators that can represent the other dimensions of #sustainability. But, to make such indicators relevant and universal, we need to make sure there are only a few of them, and that they are simple and can be calculated across the globe. To factor in social sustainability, for example, we could include a poverty indicator (that, for absolute poverty, aims at 0 percent in the long run), while for environmental sustainability we could add an indicator of the percentage of renewable energy out of the total (in this case, the long-term goal should be 100 percent). For financial sustainability, you need an indicator of debt levels, while to measure actual productivity of factors in the world of new technologies, you need nothing short of a Nobel prize winner because of the inadequacy of current measuring approaches.
These are merely a few examples, with other, better solutions clearly out there, but these do show the direction we need to go in. Public opinion and the media can have a major impact on pushing things in this direction and then, using such indicators, on selecting a ruling class that we genuinely expect to be committed on this front.
GDP is the flag-bearer of the capitalist system we live in and, as such, any debate about GDP ultimately has an underlying question: is capitalism an economic system we should improve or get rid of? This is a question we really need to ask objectively because we live in the age of capitalism and the social malaise that pervades our countries is growing, partly because growth and jobs are insufficient, and social inequality is becoming unsustainable.
In the West, we have seen various forms of capitalism spread over time, with the neo-liberal approach rising to the top in recent decades. But this version of capitalism has exasperated even the most extreme features of capitalism itself and its dogma - the market is always right - was only partially swept away by the 2008/2009 crisis.
My theory is that, if we understand capitalism as the economic system that promotes and protects free business and a free market, by protecting private ownership and imposing the same rules for everyone, then capitalism can be corrected and it doesn't need to be set aside.
The problems in our societies have deep roots that cannot all simply be ascribed to the economic system. The fear and uncertainty that lurks particularly in the most socially at risk categories are also tied to the economic conflicts between great nations that threaten peace, the impact of new technologies on employment, the pressure placed on the welfare system by an ageing population and, of course, the climate changes that are endangering the very existence of our planet. The development of our economic system must proceed according to what I call Responsible Capitalism, which means an economic system able to turn its enormous potential into positive energy and externalities:
·      socially responsible and able to reduce the inequality and malaise referred to above;
·      environmentally responsible and focused on avoiding the senseless consumption of our planet's resources;
·      financially responsible and aware of not promoting growth based on uncontrolled increases in debt.
Examples of such Responsible Capitalism are not hard to find. And illimity has adopted this as its motto. We provide loans for SMEs that have unexpressed potential, that have run into hard times but can return to prosperity, or that are on the brink of failure but still have some value. Enlightened entrepreneurs abound, but their good will isn't sufficient. Profound change is required that reconciles this vision of the system with the demands of society as a whole. To kick start such change, suitable rules, with effective mechanisms to ensure compliance, are needed. The aberrations of the current system are clear for all to see, and getting rid of them would probably have an immediate, structural impact. Think about the antitrust regulations (which should prevent dangerous concentrations of power, especially in the hands of technology mega-companies) or privacy laws (which should prevent the daily intrusions into our lives that influence the thoughts and conduct of billions of people.) Then, there is that thorny issue of legal tax havens, which create fertile grounds for crime and increase tax evasion considerably.
Responsible Capitalism needs economic policies that can guarantee sustainable growth or reignite it, when it stagnates like now. Extended periods of stagnation or recession have a devastating impact on the welfare system, which is already grappling with an ageing population and growing numbers of unemployed. Austerity alone isn't the complete recipe. History teaches us that helpful monetary policies are needed, but also - and more importantly - bold investment policies that focus on innovation, training and infrastructure.
Responsible Capitalism presents us with a genuine cultural challenge about the meaning and elements of common good. We have to stop thinking about the common good as some sort of automatic effect of contrasting personal interests, as a trivial reading of Adam Smith's theories would seem to suggest. Common good can only come from the shared responsibility of the entire ruling class. The common good cannot be pursued within closed systems. Could a nation alone prevent global warming? Or defeat international criminal networks? The common good cannot be trivialised or reduced to a single enemy who is responsible for all our problems. The common good requires a long-term vision for the aforementioned structural investments in innovation, training and infrastructure. This is the complete opposite of the short-termism that characterises practically all economic and political behaviour.
So, going beyond GDP is necessary, but as we've already seen, it is only one piece in a larger puzzle of change. It is one step on a long, but necessary journey - a journey that won't be easy and has no short-cuts.