The Invisible Handcuffs of Capitalism: How Market Tyranny Stifles the Economy by Stunting Workers (29 page)

What about traffic accidents that the commute might cause? In this case, the GDP will benefit. The work done in the body shop or the hospital will appear as an increase in the GDP.

Finally, the measurement of the GDP is more difficult than when Kuznets began his work. Then, the economy consisted largely of tangible products, such as machines, food, and housing. In the contemporary world, much of the economy is subjective. For example, intellectual property—a subject rarely considered in Kuznets’s era—has major economic effects, even though it cannot be measured. Accounting gimmicks and fictions and indirect measurements must be used to account for such things.

Yet, despite all this, economists and the business press often take the GDP as the agreed-upon measure of overall economic performance, although the even less informative Dow Jones average is reported more often.

Alternatives to the Gross Domestic Product

In recent years, a few economists have attempted to remedy some of the deficiencies of the GDP. Tobin and Nordhaus proposed in a 1972 study that the value of leisure and household work be included in the GDP, while some costs, such as commuting, be deducted. In 1988, Robert Eisner also made valuable suggestions about an improved system of accounts.
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His most incisive comments concerned the proper measurement of capital and investment. Anwar Shaikh and Ertugrul Ahmet Tonak reviewed some other efforts to refine the system of national accounts and then attempted to develop a calculation using insights from Marxist economics.
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Their measure purposely avoided the inclusion of “non-economic” activities, such as those carried out within the household.

More recently, a small think tank, Redefining Progress, has worked to create a more comprehensive measure called the Genuine Progress Indicator. The Genuine Progress Indicator includes many activities that the GDP neglects, such as housework and volunteer
work, while excluding many expenses that do not add to social welfare. This calculation also attempts to take into account the depreciation of natural resources.

The Genuine Progress Indicator calculations reported that the $11 trillion GDP of the time overestimated social welfare by $7 trillion.
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Without debating the fine points of the Genuine Progress Indicator, the disparity between its $4 trillion estimate and the $11 trillion GDP demonstrates the subjectivity of any statistical formula for estimating human welfare.

Remarkably, in China, where the environmental costs of the economy are obvious, the government calculates a parallel GDP number that deducts the effects of depletion and pollution, resulting in a 3 percent lower rate of growth.
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A 3 percent rate of growth is sufficient to double the size of the economy in less than twenty-five years.

By the 1960s and 1970s, the shortcomings of the GDP as a proxy for well-being were becoming especially obvious to economists who were studying the more impoverished regions of the world. Experts explored a number of alternatives that emphasized more direct measures of welfare, such as infant mortality and nutrition, rather than solely counting commercial activity.

Despite commendable efforts to make the calculation of the GDP more inclusive, one important factor has completely fallen from view: the conditions under which people work. Tobin and Nordhaus correctly included leisure in their calculations, but no economists have considered working conditions.

This oversight might make sense so long as the GDP is understood as just a measure of commercial activity. But the neglect of working conditions is unforgivable whenever people use the GDP as an indicator of social well-being. People devote a good part of their existence to work, especially if we include the long commutes that are a major part of the normal working day for millions of workers. Working conditions affect not only the quality of life for workers, but that of their families and friends.

An Alternative Approach: Eudaimonia

An earlier European tradition understood economics to be a much broader subject. This more expansive understanding of economics followed Aristotle, who regarded
eudaimonia,
often translated as “human flourishing,” as the highest objective of society, although such flourishing was to be the exclusive domain of those who were not intended to be ruled by others. The leaders of this European tradition enjoyed a classical education, the foundation for traditional intellectual training in Europe.
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Alongside this Aristotelian school of economics, a small group of French intellectuals, known as the Physiocrats, embarked on a course that largely anticipated the work of their younger contemporary, Adam Smith. Not surprisingly, the Anglo-Saxon economists who followed Smith tended to identify continental economics with the Physiocrats, while ignoring the Aristotelian approach.

Although the European tradition continued, especially in Germany and Italy, the Anglo-Saxon approach gained more and more influence in Europe. The influence of the United States, which had been a relative backwater in terms of economic theory before the First World War, grew along with the power of the postwar U.S. economy. Then, beginning in the 1920s, the Rockefeller Foundation began giving fellowships to young European social scientists. Economists and statisticians represented more than 35 percent of the researchers whose total grants between 1924 and 1934 came to more than $2 million.
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Soon thereafter, a massive exodus of economists from Europe increased the prestige of U.S. economics.

The English economists had good reason to reject Aristotle, who denigrated commercial relations. An anonymous writer published a pamphlet in 1686, “The Character and Qualifications of an Honest Loyal Merchant.” The thrust of this work was that a merchant’s activities created prosperity and culture in the kingdom, despite “whatever low conceits Aristotle or some other pedants may have had of merchandize in old times, when its dignity was not known, and when it was but huckstering and pedlary.”
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Although many European economists acknowledged that the British approach was more like a science, for a long time the continental economists refused to follow the British project of creating an economic theory that could emulate science. They realized that to do so would mean losing sight of too many important aspects of life. Luigino Bruni quotes both an Italian and a French author from 1829 and 1837 who explained their reluctance to adopt the British style. He then summarized their stance:

Therefore, these two authors agree in acknowledging that the English school was more scientific, but this target has been obtained thanks to the elimination of important dimensions from the field of political economy, such as the relationships between wealth and ethics, wealth and happiness.
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This Anglo-Saxon/European split also surfaced outside of economic theory. For example, about the same time that Taylor was about to begin his famous efforts to control the labor process, France and Germany became the center of a much broader study of the science of work. In Europe, where the Aristotelian tradition had taken hold, “the science of work was based on the premise that greater productivity would lead to social happiness—and not, as in the American, import Taylorism, or later Fordism, on the view that unhappiness had to be compensated through external, non-work-related material rewards.”
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In other words, the Europeans thought that a better understanding of work could improve everybody’s lot, even that of the workers.

At times the European approach to the science of work actually had positive effects in the workplace. For example, “In Germany on the eve of the First World War, railway maintenance shops provided couches for older workers to rest on, while Ford and General Motors were firing workers for sitting or even leaning against a machine when not working.”
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An American student of working class life recalled similar differences between working conditions in Germany and the United States:

When I was in Germany, Professor Roscher of Leipzig, told me of German workmen who, after living in America, returned to Germany, preferring
the long hours and low wages there rather than stand the strain at which they were required to work in America. When in Chicago, I found that some American workmen sympathized with this view. At the carpenters’ union headquarters, when I spoke warmly of the union victory in securing the eight hours’ day, I was surprised to have one of the carpenters remark, “Yes; but if we won seven hours, half of us would be dead.”
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Partially because economists lost sight of working conditions, what really makes an economy productive largely fell from view.

Measuring Eudaimonia

As the British tradition of political economy displaced the older European tradition, virtually all traces of eudaimonia disappeared from economics—at least until recently. Even so, you can still find remnants of the Aristotelian worldview in Smith and some later economists, but these traces of eudaimonia fall outside of the core of their writings, or at least what their followers took to be the core.

Recently, Nobel Laureate Amartya Sen took what seemed to be a novel approach to understanding economic measurements of human welfare. He showed how the GDP was uncorrelated with more direct measures of human welfare, such as life expectancy and child mortality. To make his point, Sen juxtaposed pairings of countries or regions in which the quality of life in supposedly poorer areas substantially exceeded that of their wealthier counterparts. For example, he observed:

Countries such as Sri Lanka, pre-reform China, Costa Rica, or the Indian state of Kerala … have had very rapid reductions in mortality rates, without much economic growth. This is a process that does not wait for dramatic increases in per-capita levels of real income, and it works through priority being given to providing social services (particularly health care and basic education) that reduce mortality and enhance the quality of life.
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Sen proposed a different dimension, what he called capabilities, as the real measure of human welfare. Sen’s capabilities defy easy definition. His explanations were necessarily vague, yet they pointed in an important direction that conventional economics overlooks. In his words, “Capability is … a kind of freedom: the substantive freedom to achieve alternative functioning combinations or, less formally put, the freedom to achieve various lifestyles.”
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One study described Sen’s approach more succinctly: “The focus … is on what people can do or become, not what they have.”
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In any case, for Sen, material goods were not an end in themselves, but rather a means to enhance capabilities. In conclusion, Sen is absolutely correct that the GDP is a poor indicator of society’s success in developing capabilities.

Sen’s approach seemed novel—at least within the Anglo-Saxon tradition of economics—but certainly not to those familiar with the literature concerning eudaimonia. Sen was ideally positioned to bring eudaimonia back into the conversation. Besides being an accomplished Cambridge economist, he had already devoted considerable attention to philosophy, a subject with little appeal for most economists. In addition, Sen enjoyed a classical Indian education. With the advantage of his broad background, he was able to see what should have been obvious—that traditionally measured economic growth is not the only way to improve the quality of life.

Drawing on the Physical Quality of Life Index proposed by economists David Morris and James Grant of the Overseas Development Council, a classmate of Sen’s at Cambridge, Mahbub ul Haq, developed the United Nations’ Human Development Index. The design of this index was intended to capture some of the elements of human welfare missing from the GDP. Although the World Bank publishes its World Development Indicators, it also ranks countries by their per capita GDP. In addition, the World Bank still retains the GDP as part of the calculation of its Human Development Index.

Signs of concern about eudaimonia are starting to pop up elsewhere. The tiny mountain kingdom of Bhutan, nestled between India and China, has embarked on the most ambitious study of all, attempting
to develop its measure of the Gross National Happiness. The fruits of this project will not appeal to many conventional economists, especially since nobody has yet dared to quantify this objective.
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More troubling for Bhutan’s efforts to improve its Gross National Happiness, the country has recently introduced television, which seems to have released a plague of anti-social behavior associated with efforts to achieve a more Western version of happiness.
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The idea that people are now considering how the organization of the economy contributes to or detracts from happiness is certainly a worthy project, especially in comparison to some of the arid economics that passes for important scholarship today. Although the efforts of Bhutan may lack what modern economists would consider scientific scholarship, they might remind the larger world about the disconnect between the conventional GDP and the quality of life—in effect, telling the world that the Patten perspective of working hard just to obtain more consumer goods is not rational.

The Politics of the Gross Domestic Product

The United States ranks relatively high according to the Human Development Index, but not nearly as high as one might expect. According to the 2004 Index, Norway ranked number one, followed by Sweden, Australia, Canada, the Netherlands, Belgium, and Iceland. The United States ranked a modest eighth.
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At a press conference following the publication of the World Bank’s 2001 edition of
World Development Indicators
on April 30, 2001, a questioner asked James Wolfensohn, then president of the bank: