Time to think beyond the economy – is GDP the right target?

Policy should focus on wellbeing, opportunity and sustainability.

This week David Cameron launched the Big Society bank and sparked a new round of debate on whether "money makes the world go round" or "the best things in life are free". The Big Society is seen by some as a political cover story for cuts to public services but the idea behind it questions whether there is more to society than just the bottom line? Whether the pursuit of happiness is about more than money? Whether doing you bit, gives your life its meaning, rather than the job you do or the things your own?

Given Britain’s gloomy economic climate, the worst unemployment since 1995 and further cuts to public spending in the pipeline, our ‘age of austerity’ seems all encompassing. But back in 1968, Robert Kennedy famously questions whether GDP was the right measure of a healthy economy and of a good society:

The Gross National Product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile.

More than forty years on, politicians are still asking those questions.  A new report published by IPPR today report suggests policy should focus directly on wellbeing and range of the opportunities that people have. It concludes that every effort to rethink economic policy should be motivated by a consideration not only of "what works" but also of "to what ends".

Clearly there are reasons why GDP has remained for so long the primary measure of economic success. Governments have long taken the view that by promoting GDP growth they help a majority of the population achieve better lives. Historically a strong correlation existed between GDP, disposable income and employment. This provided greater access to material wealth; more desirable cars, houses, clothes, and the latest household and personal gadgets. But despite the advances brought about by GDP growth, there is a growing consensus among politicians that GDP on its own is no longer sufficient and our wellbeing does not just come from income, but from a wide range of sources.

On the other side of the pond, significant headway in measuring national wellbeing has been made in Canada with the Canadian Index of Wellbeing. It is an attempt to capture the quality of life experienced by Canadians. Here in the UK, the ONS launched a consultation exercise to find out what really matters to people from the people themselves. This found that family, friends, health, financial security, equality and fairness are fundamental in determining wellbeing. These initiatives should be encouraged and continued so we can identify what matters to people and how best we can directly support these areas.

By targeting wellbeing and opportunity we speak to the wider concerns of the population. We ask how people are doing before we ask how the economy doing? We recognise that there is "life beyond the bottom line" and that worthwhile lives extend beyond what we earn and consume. The big question that remains, is how to conclude a political consensus around wellbeing, opportunity and sustainability?

Amna Silim is a Researcher at IPPR

David Cameron launches The Big Society Capital fund at The London Stock Exchange. Photograph: Getty Images.
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BHS is Theresa May’s big chance to reform capitalism – she’d better take it

Almost everyone is disgusted by the tale of BHS. 

Back in 2013, Theresa May gave a speech that might yet prove significant. In it, she declared: “Believing in free markets doesn’t mean we believe that anything goes.”

Capitalism wasn’t perfect, she continued: 

“Where it’s manifestly failing, where it’s losing public support, where it’s not helping to provide opportunity for all, we have to reform it.”

Three years on and just days into her premiership, May has the chance to be a reformist, thanks to one hell of an example of failing capitalism – BHS. 

The report from the Work and Pensions select committee was damning. Philip Green, the business tycoon, bought BHS and took more out than he put in. In a difficult environment, and without new investment, it began to bleed money. Green’s prize became a liability, and by 2014 he was desperate to get rid of it. He found a willing buyer, Paul Sutton, but the buyer had previously been convicted of fraud. So he sold it to Sutton’s former driver instead, for a quid. Yes, you read that right. He sold it to a crook’s driver for a quid.

This might all sound like a ludicrous but entertaining deal, if it wasn’t for the thousands of hapless BHS workers involved. One year later, the business collapsed, along with their job prospects. Not only that, but Green’s lack of attention to the pension fund meant their dreams of a comfortable retirement were now in jeopardy. 

The report called BHS “the unacceptable face of capitalism”. It concluded: 

"The truth is that a large proportion of those who have got rich or richer off the back of BHS are to blame. Sir Philip Green, Dominic Chappell and their respective directors, advisers and hangers-on are all culpable. 

“The tragedy is that those who have lost out are the ordinary employees and pensioners.”

May appears to agree. Her spokeswoman told journalists the PM would “look carefully” at policies to tackle “corporate irresponsibility”. 

She should take the opportunity.

Attempts to reshape capitalism are almost always blunted in practice. Corporations can make threats of their own. Think of Google’s sweetheart tax deals, banks’ excessive pay. Each time politicians tried to clamp down, there were threats of moving overseas. If the economy weakens in response to Brexit, the power to call the shots should tip more towards these companies. 

But this time, there will be few defenders of the BHS approach.

Firstly, the report's revelations about corporate governance damage many well-known brands, which are tarnished by association. Financial services firms will be just as keen as the public to avoid another BHS. Simon Walker, director general of the Institute of Directors, said that the circumstances of the collapse of BHS were “a blight on the reputation of British business”.

Secondly, the pensions issue will not go away. Neglected by Green until it was too late, the £571m hole in the BHS pension finances is extreme. But Tom McPhail from pensions firm Hargreaves Lansdown has warned there are thousands of other defined benefit schemes struggling with deficits. In the light of BHS, May has an opportunity to take an otherwise dusty issue – protections for workplace pensions - and place it top of the agenda. 

Thirdly, the BHS scandal is wreathed in the kind of opaque company structures loathed by voters on the left and right alike. The report found the Green family used private, offshore companies to direct the flow of money away from BHS, which made it in turn hard to investigate. The report stated: “These arrangements were designed to reduce tax bills. They have also had the effect of reducing levels of corporate transparency.”

BHS may have failed as a company, but its demise has succeeded in uniting the left and right. Trade unionists want more protection for workers; City boys are worried about their reputation; patriots mourn the death of a proud British company. May has a mandate to clean up capitalism - she should seize it.