GDP is not fit for purpose any more. To save democracy, we need new economic metrics

Chancellor Philip Hammond, who gives his first budget today. Image: Getty.

In 2008, the world missed a huge opportunity to transform how we think about the economy. This culminated in two political earthquakes eight years later that have rocked the global order to its core.

There is every chance Brexit and a Donald Trump presidency could have been avoided, had politicians and “experts” capitalised on the opening provided by the Great Recession. We should have re-written the rules governing our economies and global capitalism.

Failing to reform the most basic one – how we measure economic success – fuelled the growing wedge between what the experts were telling us (there’s been a recovery) and what ordinary people were actually experiencing (there hadn’t). Decision-makers continued to privilege the former while only paying lip service to the latter, helping to trigger a populist backlash. 

Politicians knew this could have been avoided, because they almost came up with a solution. In 2008, right-wing French president Nickolas Sarkozy commissioned heavyweight economist Joseph Stiglitz to run a Commission that would give us the tools to assess our economies in new ways – on the grounds that GDP could not tell us anything useful about how well economic output was being converted into better lives and livelihoods for people.

GDP may have been a somewhat useful proxy for welfare in the age of mass production and full employment, but not so in an era of globalisation, service-based economies and labour market turbulence. The UK government under David Cameron responded by looking for the right answer in the wrong direction, developing the Gross Domestic Happiness and subjective wellbeing initiatives. But these indicators have sat in the shadow of mainstream statistics, rarely shaping serious economic analyses.

The lens through which our political leaders saw and made decisions about the economy changed very little. Three things have generally been used to vindicate the British Government’s “long term economic plan”: financial savings (austerity), GDP growth, and dropping unemployment rates.

But this narrow diagnostic has only served to disguise structural economic problems (such as chronically low productivity), stagnating or dropping living standards for many people and places, and a sharp rise in low pay and economic insecurity. Sure, we have been getting some growth and record employment: but families haven’t been getting better off, not least because these jobs haven't been providing enough to make ends meet.


This is why, as the Final Report of the Inclusive Growth Commission published this week argues, “business as usual” is no longer good enough. We need to define and measure economic success in a new way, looking not just at the quantity of growth but also its quality. This, in our assessment, forms one of the five cornerstone principles of inclusive growth: we must track the human experience of growth, not just its rate. 

There are three key things wrong with the way we design, collect, report and apply economic statistics. First, as GDP critics have argued, the indicators that shape our policymaking and public debate are unjustifiably narrow. As a result, they lead to conflation on an industrial scale. Growth in output is conflated with growth in productivity and economic dynamism; growth in employment is conflated with growth in family incomes; and extremely narrow economic indicators (such as GDP) are conflated with broad improvements in human and societal wellbeing.

It is in our cities where much of this conflation has its most perverse effects. Our report reinforces the evidence that cities are the hubs of economic growth, but also where inequality and deprivation tend to reach their peak. The disparities within London tell their own story. 

Second, we too often deal in aggregates, national aggregates in particular. These aggregates – whether it is GDP, employment rates or household incomes – conceal the significant variations that exist between different places and different groups of people.

This is what Bank of England’s chief economist Andrew Haldane discovered when he toured Britain to understand why so many people claimed not to have felt the post-recession recovery despite GDP growth, a jobs boom and growing market confidence. He found that, when you cut up and disaggregated the data, things became much clearer: this was a recovery “which for most has been slow and low, for many partial and patchy and for some invisible and incomplete”.

Just look at the employment gap for disabled people: it has actually grown from 30 to 32 percentage points since 2010. There has been no jobs miracle for most of the 7m working age disabled people in the UK. Similarly, if you studied the job creation statistics in the US you would have seen an important precursor to the grievances that propelled Trump into power: a lot of good quality jobs have been created since 2008, but nearly all of them have gone to college graduates. Those with less formal education, who had already lost out from the “adjustment costs” of globalisation, did not see a recovery.

Estimated average household income (after housing costs) by middle layer super output area, England and Wales (2014), with proportions of neighbourhoods in selected city regions in top and bottom 20 per cent of income distribution (2014). Click to expand. Source: RSA Visual Analysis of ONS (2016).

Thirdly, privileging a small set of economic indicators has had a distortive effect on our decision-making. Everything from our infrastructure choices and public investment decisions through to our inward investment strategies has become a narrow numbers game: evaluated against GVA uplift or numbers of jobs created, but not on the quality and inclusiveness of the output and employment. It is little wonder, then, that state investment too often reinforces inequality instead of tackling it. 

So what can we do about it? Most crucially, we need genuine parity between GDP and other important, distributional indicators. This is why we argue that the quarterly GDP statistics should be published alongside other measures such as mean and median wage growth and employment statistics, as part of the same release. GDP should no longer be seen as the gold standard for health-checking our economy.

Similarly, rather than making public investment decisions on the basis of GVA impact, they should explicitly be made according the wider “quality GVA” they create. The same should apply to the money being channelled through devolution deals and any post-Brexit substitute programmes for EU funds. Clearly, this also means we will need to collect granular statistics (regional, neighbourhood and below) much more thoroughly and comprehensively and increasingly – with technological and data advances – in real time. 

Our towns and cities must also show leadership in mainstreaming new ways of measuring and evaluating economic success. Through the course of our Commission we encountered examples of this happening already: from Glasgow’s tools to “poverty proof” its budgets and policies through to Greater Manchester and other city regions’ work on tracking inclusive growth and ensuring investment decisions can support “quality job” creation. As the Commission argues in its final report, places should tailor what they measure to suit local circumstances and the priorities set by their citizens.

Examples of the type of data that local leaders could draw on to track inclusive growth. Click to expand. Source: RSA Inclusive Growth Commission (2017).

Internationally, cities are spearheading real innovation in redefining economic success and how to measure and track it. They have the potential to develop 21st century tools for measuring what counts, helped by advancements in big data and machine learning (which can, for example, enable real-time tracking of social outcomes without the lag of conventional public data).

So what might this new approach to measurement and application of economic statistics achieve? At the very least, it would force us to have a different sort of conversation about growth. Importantly, this would not be confined to temporary debates that follow crises. The publication of quarterly inclusive growth statistics would keep the agenda live and mainstream.

It would also ensure that as a society the criteria through which we judge ourselves (and our politicians, public services and businesses) have a real connection to the lived experiences of people. Decision-making could potentially be radically transformed, as could the trust between policymakers and citizens. It could reconnect people to their communities, economy and democracies.

In 2008 we let a huge social moment slip. Despite the Great Recession ripping to shreds our core economic dogmas, we reverted to type in the period that followed. We cannot afford to do the same again in our current social moment. We must begin to measure what counts. 

Atif Shafique is Lead Researcher for the RSA Inclusive Growth Commission. You can find him on Twitter @Atif_Shafique.

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A nation that doesn’t officially exist: on Somaliland’s campaign to build a national library in Hargeisa

The Somaliland National Library, Hargeisa. Image: Ahmed Elmi.

For seven years now, there’s been a fundraising campaign underway to build a new national library in a nation that doesn’t officially exist. 

Since 2010, the Somali diaspora have been sending money, to pay for construction of the new building in the capital, Hargeisa. In a video promoting the project, the British journalist Rageeh Omar, who was born in Mogadishu to a Hargeisa family, said it would be... 

“...one of the most important institutions and reference points for all Somalilanders. I hope it sets a benchmark in terms of when a country decides to do something for itself, for the greater good, for learning and for progress – that anything can be achieved.”

Now the first storey of the Somaliland National Library is largely complete. The next step is to fill it with books. The diaspora has been sending those, too.

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Some background is necessary here to explain the “country that doesn’t exist” part. During the Scramble for Africa of the 1880s, at the height of European imperialism, several different empires established protectorates in the Somali territories on the Horn of Africa. In 1883, the French took the port of Djibouti; the following year, the British grabbed the north coast, which looks out onto the Gulf of Aden. Five years after that, the Italians took the east coast, which faces the Indian Ocean.

And, excepting some uproar during World War II, so things remained for the next 70 years or so.

The Somali territories in 1890. Image: Ingoman/Wikimedia Commons.

When the winds of change arrived in 1960, the British and Italian portions agreed to unite as the Somali Republic: a hair-pin shaped territory, hugging the coast and surrounding Ethiopia on two sides. But British Somaliland gained its independence first: for just five days, at the end of June 1960, it was effectively an independent country. This will become important later.

(In case you are wondering what happened to the French bit, it voted to remain with France in a distinctly dodgy referendum. It later became independent as Djibouti in 1977.)

The new country, informally known as Somalia, had a difficult history: nine years of democracy ended in a coup, and were followed by the 22 year military dictatorship under the presidency of General Siad Barre. In 1991, under pressure from rebel groups including the Hargeisa-based Somali National Movement (SNM), Barre fled, and his government finally collapsed. So, in effect, did the country.

For one thing, it split in two, along the old colonial boundaries: the local authorities in the British portion, backed by the SNM, made a unilateral declaration of independence. In the formerly Italian south, though, things collapsed in a rather more literal sense: the territory centred on Mogadishu was devastated by the Somali civil war, which has killed around 500,000, displaced more than twice that, and is still officially going on.

Somalia (blue) and Somaliland (yellow) in 2016. Image: Nicolay Sidorov/Wikimedia Commons.

The north, meanwhile, got off relatively lightly: today it’s the democratic and moderately prosperous Republic of Somaliland. It claims to be the successor to the independent state of Somaliland, which existed for those five days in June 1960.

This hasn’t persuaded anybody, though, and today it’s the only de facto sovereign state that has never been recognised by a single UN member. Reading about it, one gets the distinct sense that this is because it’s basically doing okay, so its lack of diplomatic recognition has never risen up anyone’s priority list.

Neither has its library.

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Rageeh Omar described the site of the new library in his fundraising video. It occupies 6,000m2 in the middle of Hargeisa, two minutes from the city’s main hospital, 10 from the presidential palace. In one sequence he stands on the half-completed building’s roof and points out the neighbours: the city’s main high street, with the country’s largest shopping mall; the Ministry of Telecoms that lies right next door.

This spiel, in a video produced by the project’s promoters, suggests something about the new library: that part of its job is to be another in this list of landmarks, more evidence that Hargeisa, a city of 1.5m, should be recognised as the proper capital of a real country.

But it isn’t just that: the description of the library’s function, in the government’s Strategic Plan 2013-2023, makes clear it’s also meant to be a real educational facility. NGOS, the report notes, have focused their resources on primary schools first, secondary schools second and other educational facilities not at all. (This makes sense, given that they want most bang for their buck.)

And so, the new building will provide “the normal functions of public library, but also... additional services that are intentionally aimed at solving the unique education problems of a post conflict society”. It’ll provide books for a network of library trucks, providing “book services” to the regions outside Hargeisa, and a “book dispersal and exchange system”, to provide books for schools and other educational facilities. There’ll even be a “Camel Library Caravan that will specifically aim at accessing the nomadic pastoralists in remote areas”.

All this, it’s hoped, will raise literacy levels, in English as well as the local languages of Arabic and Somali, and so boost the economy too.

As described. Image courtesy of Nimko Ali.

Ahmed Elmi, the London-based Somali who’s founder and director of the library campaign, says that the Somaliland government has invested $192,000 in the library. A further $97,000 came from individual and business donors in both Hargeisa and in the disaspora. “We had higher ambitions,” Elmi tells me, “but we had to humble our approach, since the last three years the country has been suffering from a large drought.”

Now the scheme is moving to its second phase: books, computers and printers, plus landscaping the gardens. This will cost another $175,000. “We are also open to donations of books, furniture and technology,” Emli says. “Or even someone with technical expertise who can help up set-up the librarian system instead of a contemporary donation of a cash sum.” The Czech government, in fact, has helped with the latter: it’s not offered financial support, but has offered to spend four weeks training two librarians.  

Inside the library.

On internet forums frequented by the Somali diaspora, a number of people have left comments about the best way to do this. One said he’d “donated all my old science and maths schoolbooks last year”. And then there’s this:

“At least 16 thousand landers get back to home every year, if everyone bring one book our children will have plenty of books to read. But we should make sure to not bring useless books such celebrity biography books or romantic novels. the kids should have plenty of science,maths and vocational books.”

Which is good advice for all of us, really.


Perhaps the pithiest description of the project comes from its Facebook page: “Africa always suffers food shortage, diseases, civil wars, corruption etc. – but the Somaliland people need a modern library to build a better place for the generations to come.”

The building doesn’t look like much: a squat concrete block, one storey-high. But there’s something about the idea of a country coming together like this to build something that’s rather moving. Books are better than sovereignty anyway.

Jonn Elledge is the editor of CityMetric. He is on Twitter as @jonnelledge and also has a Facebook page now for some reason. 

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