GDPs Hold over the World

Rama Gopal

story of a measuring tool taking

on a life of its own and eventually
controlling the minds of people
around the world to do its bidding
and bringing in its wake unimaginable
damage to human civilisation may sound
like a plot for a dystopian science fiction
story. But according to the book under
review, there is such an entity, which
grew from a narrow tool to global rule.
Anyone daring to expose this tool for what
it is risks cultural sanction. The evil
tool is the gross domestic product (GDP).
Standing up to this globally endorsed
little number is a challenge and in this
book Philipsen takes up the gauntlet.
The book can be divided into three
sections: the history of GDP, more specifically how it came to dominate the world
(Chapters 1 to 6); the social and environmental costs of its hold on our world
view (Chapters 7 to 9); and the alternatives available (Chapters 10 and 11).
Paradise Lost
Philipsens story goes like this. A long,
long time ago, before money was the
measure of value and before the industrial revolution, people worked to satisfy
their basic needs. The term unemployment was not in anyones dictionary. It
did not exist since everyone had a role to
play, defined by custom and tradition.
We moderns, beholden to accumulation
of things, contemptuously think of these
pre-industrial people as being poor,
when a more accurate description would
be that their life was generally slow and
simple with material conditions and
cultural norms creating a kind of permanence that defies many of our deeply
ingrained beliefs about how economic
life is supposed to function (p 21).
Enter industrial capitalism and money
as the yardstick of life and this paradise
was lost. Wage labour, unheard of earlier,
resulted in the separation of work from
its immediate purpose of meeting basic

28

book reviews
The Little Big Number: How GDP Came to
Rule the World and What to Do About It by Dirk
Philipsen, Princeton and Oxford: Princeton University Press,
2015; pp viii+398, 19.95.

needs. Instead, people began to work

for an abstraction: money, using money
to meet their needs or using the money
to acquire goods in order to make more
money (this is, of course, Marxs M-C-M
framework. Surprisingly, Marx, who is
quoted elsewhere, is not acknowledged
for this insight).
As long as wealth was measured in
physical objects, like buildings or land,
there was a limit to accumulation. Once
wealth was measured in money, an
abstraction, the desire to amass wealth
became insatiable since, theoretically,
there was now no limit to the quantity of
wealth one could own (pp 22 and 23).
Further, the worth of people began to be
measured in terms of how much money
they earned. Once money was accepted
as the yardstick of value, the seeds for
national income accounting were sown.
The author does not reflect on whether
or not the pre-industrial customs and
traditions which dictated what people
should do were equitable. He is also silent
on whether measuring the worth of people
in money was an improvement over
measuring their worth with reference to
caste, tribe or family lineage, which was
probably the case before money took
over as the predominant measure of
value. Fast forward 1664. William Petty
pioneers the concept of national accounts
for the explicit purpose of [using it for]
exploitation and oppression of the Irish
(p 25). Philipsen faults other accounts of
GDP history for overlooking this aspect as
also the way Petty, misusing his position
as Irish Land Commissioner, enriched
himself enormously. Philipsens point
appears to be that GDP had sinister origins.

Nevertheless, the notion that the goal of

economic activity is to satisfy basic needs
survives in the work of the classical
economists. Alfred Marshall repudiated
this vision of what an economy is about
and replaced it with the vision which is
upheld to this day: the goal of economic
activity is to produce goods and services
which have market value, whether or not
they are productive in the classical economic sense, thereby laying the essential
groundwork for a shift in Western thought
toward defining national income as an indiscriminate total of net services and commodities produced and consumed (p 39).
Birth of National Accounts
The birth of national accounts as we know
it had to wait for the Great Depression.
US President Franklin Roosevelts New
Deal policies required data about the state
of Americas macroeconomy. Philipsen
provides a detailed and fascinating
account of how, amidst the economic
calamity of the 1930s, Kuznets, invited to
work for the then newly-formed National
Bureau of Economic Research, just thirty
one years of age, understaffed, and
resented by his Commerce administrators, and confronted by paucity of data,
went about the task of designing the GDP
as the tool for measuring the national
economy, and how this tool proved central
to Americas wartime production.
The author emphasises that from the
start Kuznets explicitly cautioned against
misusing the GDP as a measure of welfare
(p 99) and later in his published and
unpublished writings argued that goods
produced should not be treated as ends
but as the means for enhancing human
welfare. He was so dismayed by the way
economists confused means and ends,
and never addressed the most important
question: growth for what? that he
eventually ceased to work on national
accounting (pp 23233).
As early as 1938, Roosevelt affirmed that
all the energies of the Government and
business must be directed to increasing
the national income (p 107). In 1953, this
mindset was imposed on other countries
by the United Nations through a document
which laid down what was essentially

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BOOK REVIEW

the British and American system of

national accounts for all the members.
There was no public dialogue. Only a
few experts like Kuznets expressed their
disapproval and they were ignored.
Soon the debate over what should be
measured ended before the public even
knew it had started (p 130).
The World Bank and the International
Monetary Fund further reinforced GDPs
global rule. The global domination of
the GDP continues to this day. The author
comments that it is an invention that
stands alone. Few if any can match its
reach (p 1). The book is worth the price
just for its captivating narrative of how
this came about.
The global domination of an idea is by
itself not necessarily undesirable. In
fact, concern is expressed in progressive
quarters that ideas like democracy, rule
of law, gender equity, and gay and lesbian
rights are not universally endorsed. The
problem with GDPs global rule is the
enormous damage resulting from it.
Outcome of GDP Obsession
Philipsens critique is largely about the
social and ecological devastation resulting
from obsession with economic growth.
His polemics are also methodological. GDP
is not like the consumer price index or
the index of industrial production which
measure, respectively, inflation and industrial output. We decide what they measure
and which components should constitute
the indices. And these indices do not
affect the way we perceive the world.
The indicator called GDP is also a human artifice and so we should decide what
it ought to measure. Instead it determines
our world view deciding for us what is
worthy of measurement instead of measuring what we value. GDP virtually dictates what kind of knowledge is worth
obtaining that which boosts value in
monetary termsand the way we perceive
reality, rendering us to blind to anything
which is outside the domain of the market,
such as quality, justice, ecology, and the
lives outside of the cash nexus, so that
what counts [is]therapy, not health,
the nanny, but not the mother (p 156).
Policymakers the world over are
obsessed with boosting GDP. Since GDP is
not something which exists out there in
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september 12, 2015

the material world, there is no limit on its

size. Unfortunately, there are limits to
growth of the objects it measures, namely,
the output of a nation. But the GDP world
view prevents us from perceiving these
limits. Obsession with growth in monetary terms, going hand-in-hand with neglect of the limits to growth in physical
output, is imposing unconscionable costs
on human communities everywhere.
Victim without Knowledge
Philipsens criticisms of GDP as a measure
of well-being are not novel. They were
well articulated by Peter Bauer in the
1950s and the 1960s. The GNP is not a
reliable indicator of the quality of life.
Comment. was a regular examination
question even when grey-haired people
like this reviewer were students. The
novelty of Philipsens polemic lies in
the emphasis on the way the world,
unbeknownst to itself, has been made a
prisoner of a harmful paradigm, the
irony being that those who question this
paradigm are branded enemies of human
progress! Finding an alternative is challenging because, in the famous words of
Keynes, the difficulty lies in escaping
from old, discredited ideas, in this case
repudiating the GDP world view. Things
are made more complex because those
who matter are not aware that an indicator
is setting the rules by which economies
function and defining global economic
realities. The outcome: we are sailing
west because the weatherman tells us
the wind is blowing west (p 275).
In the penultimate chapter Philipsen
provides, with his characteristic lucidness,
a survey of some of the alternatives
available. For him the most important
criterion of a good indicator is that it
should measure what we want (p 265),
in particular the human wants outside
of the economic realm, like love, meaning and feeling of self-worth, because
these are what most individuals long
for (p 31). Further, a good indicator
should place a high value on sustainable
development. More fundamentally, the
alternative should call for a redefinition
of economic activity, from quantity to
quality, growth to development, depletion
to conservation, dominating nature to
learning from it (p 245).
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In the last chapter we look forward eagerly to Philipsens alternative indicator,

a smart metric based on sustainability
and human dignity rather than volume
or profit around which the central goals
of the economy will be built (p 253).
Sadly, he has none to offer other than
what he labels a daring vision, a basic
income guarantee which, he says, will
provide basic dignity to all in western
countries, capitalist growth having
made this possible (p 251). A guaranteed
minimum income, we are told, will
change the dynamics of the market with
essential services like those of teachers
and sustainable farmers becoming more
glamorous (sic!) than those of entertainers, financial consultants and ad
agents, because their services will be
recognised as being unessential.
This raises some queries the author does
not address. Where will resources come
from to sustain a guaranteed income?
Should the poor economies promote
capitalist growth now, irrespective of
the costs, so that in future they too can
provide a minimum income for all their
people? And most important: what has a
guaranteed income to do with finding
an alternative to GDP?
Disappointing Suggestions
A policymaker, freed from the destructive
GDP paradigm and keen to adopt a more
humane alternative, will be disappointed
with this important part of the book.
Merely noting that many alternatives
are now available, none of which are
satisfactory (p 242), is less than helpful.
A book which started with a bang ends
with a whimper.
What one expected from an erudite
scholar like Philipsen is a smart metric
satisfying his criterion for such a metric.
Apparently he has invested plenty of intellectual resources into understanding,
in the words of the subtitle, how GDP
came to rule the world but little into
what to do about it. Perhaps the book
is not meant for policymakers but for
educating the general public about the
dangers of promoting growth without
taking into account the costs. On this
count the author does a commendable
job and while intended for a Western
audience, the book should be widely read
29

BOOK REVIEW

in India too, what with the all-too evident

attempts to dilute environmental legislation for the sake of boosting GDP.
Sustainable Development
Unfortunately, readers are given the simplistic impression that the choice between
the evil GDP paradigm and the humane
sustainable development paradigm is
simple and straightforward. Sustainable
development is not a monolithic concept
but has been conceptualised in different
ways, from the techno-centric view that
human-made capital can be a perfect
substitute for natural capital and the
deep-green view that no substitution is
possible, with several interpretations
falling between these two extremes. So
merely talking about sustainable development without spelling out what one
means by it will not do.
While it is obvious he rejects the technocentric viewpoint, it is frustratingly difficult
to infer what other version of sustainable development Philipsen advocates. In
the section where he glorifies pre-industrial life the author sounds almost like
an advocate of a deep-green viewpoint.
But deep-green environmentalists would
be scandalised by the suggestion that

the resources of past capitalist growth

can be put to good use, as also by his approval of what undergraduate environmental economics textbooks call marketbased instruments to control pollution,
like taxes, subsidies and artificially created markets intended to cut carbon
emissions, by which he probably refers
to carbon credits (p 173). He does affirm
the priority of conservation over depletion, but this does not tell us whether he
prefers zero depletion or acknowledges
the need to accept some trade-off between
conservation and depletion.
It was noted earlier that Philipsen
approves of market-based instruments for
environmental protection. He also calls
for internalizing hidden costs in order
to create the necessary market incentives
against environmentally destructive activities and also for full accounting of costs
of resource extraction (p 265). There is
no explanation of how to do all this, but
if one is provided it may have to be in a
neoclassical framework, that is derided
in the book. Designing socially desirable
incentives is a quintessential neoclassical
idea (mechanism design) and at present
only neoclassical environmental theory
provides a coherent way to think about

environmental valuation. Of course,

ecological economics also provides a
fruitful way of thinking about environmental issues, but as of now neoclassical
theory cannot be completely discarded.
So eager is the author to belittle economic reasoning that he brushes aside
opportunity costs as a spectre raised
by economists just to scare people who
would like to repudiate GDP growth as
the sole goal of policy (p 248). If only this
were so. We are asked to choose between
conservation on the one hand and extraction and depletion on the other. The
readers are not informed that while conservation has benefits, it also has opportunity costs of foregone economic activity
which at times can be so high that some
depletion is preferable. The author also
needs to explore why if higher GDP does
not mean more happiness, a small decline
in GDP considerably reduces the happiness of people (Coyle 2014: 111). Maybe
material goods are more important for
happiness than the author makes out?
Or is there some other explanation?
It will be noted that the reservations
expressed are about the final two chapters concerned with alternatives to GDP.
One hopes the author will fill the gaps in

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BOOK REVIEW

a future edition, in particular, the ones

pertaining to an alternate measure, a
more coherent presentation of how he
conceives of sustainable development,
and the methodology he has in mind for
estimating costs to the environment, if it
differs from the neoclassical one. Overall the book is well-written. Teachers
will find in it material to keep otherwise

Economic & Political Weekly

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september 12, 2015

drowsy, post-lunch classes alert. The author writes with passion and the emotional narrative will not to be to everyones taste. Those who want a more sober work, and one more sympathetic to
GDP, should read Diane Coyles 2014 volume which was also more succinctly
written. Most will enjoy it and it should
help in stimulating interest in the history

vol l no 37

of GDP and what its global rule means

for human civilisation.
Rama Gopal (adamsmithjmkeynes@gmail.com)
teaches Economics at Annamalai University,
Tamil Nadu.

Reference
Coyle, Diane (2014): GDP: A Brief but Affectionate
History, Princeton, NJ: Princeton University Press.

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