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5 March 2018updated 09 Sep 2021 4:57pm

The jokey nature The Growth Delusion is at odds with its serious economic arguments

Each chapter of David Pilling’s book begins with a wearily cheery anecdote.

By Howard Davies

It is not easy to think of many exports from Belarus that have fundamentally changed the way we look at the world. In Minsk there is a very good, old-fashioned chocolate factory, and elsewhere they make lots of guns, tractors and huge trucks that Arabs like to race in the desert, but those are rather niche products.

Only the concept of GDP might be counted as a significant Belarusian gift to the world. In the 1930s Simon Kuznets, an exile in America who was born in Pinsk, Belarus, but fled the Soviet Union with his family in 1922, developed a set of national income accounts while working for the US department of commerce. The first set was prepared in 1937, and in 1942 annual estimates of gross national product began to be published. They have been central to economic policymaking ever since.

The US economist Paul Samuelson described Kuznets’s achievements as “among the great inventions of the 20th century… GDP and related data are like beacons that help policymakers steer the economy”. Later, Kuznets won the Nobel prize.

David Pilling, the Africa editor of the Financial Times, takes a different view. He rejects the idea that Kuznets caused light to be shed on areas of darkness. He thinks that when we measure GDP we are looking into a fairground mirror, not at a true reflection of economic activity. GDP, he argues, “is good at counting”, but it counts in a peculiar way. It records activity, whatever its source. So it “likes crime because it is fond of large police forces and repairing broken windows… it likes Hurricane Katrina and is quite OK with wars”. As a result, in Pilling’s view it is a very poor aid to economic policymaking.

Some of the criticism he advances is valid, some is overstated, but some is a bit silly and beside the point. Pilling adopts a jokey style that is quite at odds with the nature of the arguments he is trying to advance. Each chapter begins with a cheery little anecdote. So a chapter on inequality begins, “Imagine for a moment two people, Bill and Ben.” A chapter on the informal economy starts, “In the summer of 2012 Janice, a 64-year-old former sales assistant living near Stamford in Connecticut, felt pains in her chest.” There may be people who like that sort of thing but I suspect that most of them don’t read books designed to challenge the prevailing economic wisdom.

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Still, buried in the wearyingly chirpy prose is a serious argument. GDP is indeed a curious construct that can mislead commentators and policymakers. Quite apart from its many measurement difficulties, and a propensity for being revised retrospectively from time to time, it does largely ignore voluntary work and the informal sector. It is neutral between worthwhile endeavour and damaging behaviour. It pays scant attention to sustainability, and it tells you little about who is benefiting from economic expansion. Highly skewed growth whose benefits accrue largely to the already super-rich is measured in the same way, and valued as much, as broad-based wealth creation.

Nonetheless, as Diane Coyle recently concluded in GDP: A Brief but Affectionate History – a rather better book that covers similar ground – GDP is “a bright light shining through the mist”. Her view is that it measures what it measures, and after 80 years still does so quite reliably. We would miss it if it left us, although it needs careful interpretation, and there is a risk that it becomes the only important thing if not carefully qualified. In fact, in spite of the hostile packaging designed to make a splash, I suppose, Pilling eventually reaches a similar conclusion. His proposals for change are surprisingly meek and mild after what comes before. We should focus more attention on GDP per head than aggregate GDP (never!); we should look at median income as well as mean; we should talk more about well-being – although most of the attempts to produce indices of happiness have had a limited impact so far; and we should also incorporate some measures of sustainability, especially in relation to CO2 emissions.

In fact, the accounting profession has done a lot of work on that already. The idea is that “integrated reporting” should capture the extent to which a company is using scarce and non-renewable inputs. The results of energy companies look rather different on that basis. But integrated reporting, which for corporations is where the action is, doesn’t merit a mention here.

So, if you enjoy a bit of knockabout fun at the expense of statisticians who can’t answer back, The Growth Delusion is for you, flowerpot men and all. Otherwise, dig out a paperback copy of Diane Coyle. 

Howard Davies is chairman of the Royal Bank of Scotland and a former chairman of the Financial Services Authority

The Growth Delusion
David Pilling
Bloomsbury, 352pp, £20

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This article appears in the 28 Feb 2018 issue of the New Statesman, The rise of the radical left