Published on 23 August 2022
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How can we move into a world beyond GDP, delivering greater impact on places?

“Good growth – how do we look beyond GDP to support the charge to net zero?” Owen Garling reflects on the discussions around this important question during a recent Institute of Economic Development webinar.

One of the key questions for looking beyond GDP (Gross Domestic Product) to support the charge to net zero is to ask “how can policymakers ensure that they understand the consequences of their decisions – both intended and unintended?”

For example, if you make the decision to build more housing, what is the impact on the wider area? How does it affect the natural surroundings of the place? Are there ways you can actually improve it? And how can you think as broadly as possible about both the intended and unintended consequences of growth? Ensuring you consider everything that is happening and understand all of the required trade-offs is key to moving to a world beyond GDP.

To address the webinar’s fundamental question, there were three areas of consideration that I wanted to highlight. 

Measurement beyond GDP

People are becoming more aware that GDP measures only one aspect of the economy. At the Bennett Institute for Public Policy, we talk about how, in effect, it measures the size of the economic pie. It tells you how big your pie can be, but nothing about the assets that are used to make the pie in the first place: your store cupboard or the equipment you need to cook the pie or the staff you have to make it. How can a baker ever hope to continue baking pies if the oven is broken, all of the ingredients have been used up, and the staff are not properly trained to do their jobs?

Our Wealth Economy programme aims to understand and measure the wide range of assets required for sustainable prosperity. We argue that forward-looking economic policy requires the active management of the portfolio of assets that a country possesses, or can access, to ensure that citizens enjoy a clear flow of benefits into a resilient and sustainable future. And this is how we can move to a world beyond GDP. The Wealth Economy framework identifies six capitals – physical, financial, intangible, human, natural and social – and sets out both how these can be measured as well as how the connections and relationships between them can support their creation and growth. This is about the relationships between them, and how they flow and work together. So, for example, how does natural capital support human capital? The benefits of access to outdoor spaces for people’s mental health is well-documented, as is the increase in house prices that are seen for properties located closer to parks and trees.

This approach shifts decision-makers’ focus. Rather than acting as budget holders looking after a pot of money for a short period of time, it helps them to think about the assets that are available to them. It enables a sense of stewardship: how to make the best use of the things available during the time they are looking after them before passing them on to the next generation.

Recognising economic complexity

Another important element of moving beyond GDP is to understand that all local economies differ from one another, and that there is no ‘one size fits all’ model that can work for local economic development. One way of looking at local economic structures is through the lens of economic complexity. Instead of saying that all economies are the same – and should aspire to the same goals – it is about understanding how places are structured differently and all have strengths in different sectors.

As an example, colleagues of mine have carried out research that looked at the economic complexity of four places: Manchester, Oldham, Cambridge and Peterborough. Interestingly, when they mapped the different economies, they found Cambridge and Manchester to be more similar to each other than the economies of Manchester and Oldham or Cambridge and Peterborough. It is not always the closest places that have the best fit.

Any economic development strategy needs to identify this and understand, again, what are the assets that can be built on. For example, what are the sectors that places currently specialise in? And what are the sectors of the green economy that are most similar and therefore achievable in those places? It is about seeing a steady evolution rather than a race to all become the next Silicon Valley. This approach also helps to see how different places can collaborate more effectively. For example, if the economies of Oldham and Peterborough are similar, how can they cross-share what they are doing, what is working and what are the changes happening? Organisations like the Institute for Economic Development can play an important role in this.

Impact on communities

Finally, how does this impact on people? In many ways we are still working through the consequences of the last economic transformation to post-industrial world. There are lots of problems still arising because of how that transition was handled, as can be seen from the government’s Levelling Up White Paper. Understanding local impact is key.

History can help us to see what should and shouldn’t be done. I recently wrote an article about Durham’s Category D villages. To try to manage the demise of the Durham coalfields, County Durham had a policy in the 1950s to grade all of the communities according to their economic potential. This led to one third of their communities being rated as Category D and seen by policymakers as having no future and therefore ineligible for any funding from the local council for 25 years. Look at a map of left-behind places in the North-East and these communities figure strongly.

Another, perhaps more pressing problem, was set out in a report published by the Tyndell Centre at the University of East Anglia which looked at the impact of sea level rises. The report highlighted that by 2050 some 200,000 homes and businesses are at risk of abandonment. Some really important decisions need to be made now for these types of places for the future. How can policymakers involve the communities affected in the decisions that are being taken about their futures?

Finally, the breadth of thinking about this is encouraging – there are lots of people thinking and in diverse ways – about how to move beyond GDP. But the link between net zero and inequality, and the fact that both need to be tackled at the same time, is a critical one.

Owen Garling was a panellist on the Institute of Economic Development webinar, “Good growth – how do we look beyond GDP to support the charge to net zero?”, in summer 2022. Watch again


Original source: Institute of Economic Development
Image: Sookio

Authors

Owen Garling

Knowledge Transfer Facilitator

Owen Garling is the Bennett Institute’s Knowledge Transfer Facilitator and he provides an important conduit between our own researchers and policymakers in the UK and internationally. His work helps to...

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