Speaker 1: A G, A D in a P three letters quite
Speaker 1: a lot of impact, formally standing for gross domestic product
Speaker 1: the sum value, and will get back to that word
Speaker 1: value in a second of all goods and services produced
Speaker 1: in an economy, usually a nation state like the US,
Speaker 1: Great Britain, China, and so on. It's been the yardstick
Speaker 1: by which we've measured what a country's economic output basically
Speaker 1: is ever since World War Two, and perhaps just a
Speaker 1: little before that. Our guest will give us a history
Speaker 1: lesson momentarily, but does it really deserve its pedestal Well not,
Speaker 1: According to our guest, it might as well stand for
Speaker 1: gross dumb product or grossest dumb product, responsible for all
Speaker 1: manner of sins, ranging from the pillaging of a South
Speaker 1: Pacific island paradise to an instrument of oppression used by
Speaker 1: austerity craven Northern Europeans to hammer poor, innocent little grease.
Speaker 1: This is Bloombook benchmark. I'm Daniel Moss, executive editor for
Speaker 1: Global Economics in New York, and I'm Scott Landman and
Speaker 1: Economics editor with Bloomberg in Washington. Today. Lorenzo Fiora Monty,
Speaker 1: a professor at the University of Pretoria in South Africa
Speaker 1: is joining us. He's the author of the World After
Speaker 1: g d P and before that, Gross Domestic Problem. He's
Speaker 1: calling for more than just taking down g d P.
Speaker 1: In the process, he's offering a revolution, not just in economics,
Speaker 1: but in how we determine our happiness or place in life,
Speaker 1: the universe and all that stuff. So Lorenzo, welcome to Benchmark.
Speaker 1: It's a pleasure to be with you. Now. You're not
Speaker 1: actually in South Africa right now? Where are you? And
Speaker 1: what are you doing on Skype? I am connecting from Italy.
Speaker 1: Were unpromoting the Italian edition of Gross Domestic Problem when
Speaker 1: my first book published in English in and I'll be
Speaker 1: soon traveling across Europe to promote the new book, The
Speaker 1: World After a GDP, which you have just mentioned. And
Speaker 1: does your travel budget include lots of austerity? My troubled
Speaker 1: budget includes a lot of meetings and meeting people and
Speaker 1: talking to communities, talking to students at universities, talking to
Speaker 1: small businesses and so on and so forth. I don't
Speaker 1: think that's austerity. That's actually a lot of flunt, although
Speaker 1: it may not necessarily reflecting our GDP accounts well. Federal
Speaker 1: Reserve Chair Janet Yellen this month called GDP a noisy number,
Speaker 1: But your concerns go way beyond that. What is it
Speaker 1: that bothers you most well? GDP has become much more
Speaker 1: than a statistic. It's become the benchmark of success across
Speaker 1: the world for economies, for companies, for societies at large.
Speaker 1: And I wouldn't be too bothered if it was just
Speaker 1: a noisy number. What bothers me is the fact that
Speaker 1: it's a system of perverse incentives. It's it's become basically
Speaker 1: a guideline for policymaking, and that's very problematic because their
Speaker 1: politicians will take certain decisions because they increase GDP and
Speaker 1: they want to be you know, you know, like graded
Speaker 1: on their GDP credentials and economic growth, and there's going
Speaker 1: to be a skate effect, as we have seen in
Speaker 1: the past, you know, eighty years across society, everybody's playing
Speaker 1: a game to increase GDP and economic growth as a result,
Speaker 1: even though when those decisions are very detrimental to society.
Speaker 1: I was teasing you about the austerity on your travel budget,
Speaker 1: but you make a serious point in your book, which
Speaker 1: is that GDP and projections of GDP can be used
Speaker 1: as a political bludgeon in policy debates. Absolutely. I mean, like,
Speaker 1: you know, I want to make this point very strong.
Speaker 1: If GDP was just a flowed number or imperfect number,
Speaker 1: I wouldn't have written two books about it. I believe
Speaker 1: it's basically a skeleton of what soci I T really
Speaker 1: wants to achieve. And in a sense, you know, like
Speaker 1: it creates those incentives and rewards that you know, make
Speaker 1: people take the wrong decisions. And this is happening every day.
Speaker 1: I mean, governments around the world try whatever they can
Speaker 1: to increase GDP because this has a positive effect in
Speaker 1: terms of public image and probably may increase foreign direct investments,
Speaker 1: and it pleases the World Bank and the IMP and
Speaker 1: all of that, or the European Union if you're in Europe,
Speaker 1: even though these decisions may lead to cutting social welfare,
Speaker 1: may lead to destroying the environment and and creating social inequality,
Speaker 1: all the things that we prepared to care about when
Speaker 1: we talk about sustainable and equitable developments and the SDGs.
Speaker 1: So basically we are in this schizophrenic situation in which
Speaker 1: we follow certain rules to please the GDP ideology, but
Speaker 1: at the same time we seem to recognize that those
Speaker 1: decisions are wrong and we should do differently, and yet
Speaker 1: we can't because when we try to do differently, we
Speaker 1: get punished. So you mentioned Greece. I mean, I don't
Speaker 1: think the Greek you know, the Greek population is completely
Speaker 1: you know, like unguilty for for what they've done. They're
Speaker 1: not completely irresponsible for that, but at the same time,
Speaker 1: punishing the society because it has decided to develop itself
Speaker 1: in a different way. It's also a short sighted because
Speaker 1: that is part of you know, like a bigger process
Speaker 1: of creating creating economic interactions and by doing that, so
Speaker 1: you are destroying the future of Europe. And Greece is
Speaker 1: just the first step in a long in a long journey.
Speaker 1: Now let's go back in time for a second, take
Speaker 1: a step back. It's hard to believe in today's world,
Speaker 1: but there once was a time when there was when
Speaker 1: there was no such thing as GDP. Just under a
Speaker 1: hundred years ago. It actually grew out of the need
Speaker 1: to measure the U S economy during the Great Depression,
Speaker 1: even helped the United States calibrate economic policy to win
Speaker 1: World War Two. And now we're at a time when
Speaker 1: it's become a scorecard of economies against each other, a
Speaker 1: quarterly uh yardstick of how each economy is doing, a
Speaker 1: measure of a country's public image. As you just said,
Speaker 1: how did we get to this point from its origins? Well, initially,
Speaker 1: as you said, GDP was invented as an attempt as
Speaker 1: an attempt to deal with the Great Depression. Right at
Speaker 1: the time, government didn't really have any way, any reliable
Speaker 1: measurement of economic transactions in the market, and people were
Speaker 1: not being as as excited about economic transactions anymore. So
Speaker 1: they needed a bit of a thermometer, and they came
Speaker 1: up with the best they could get. Right. The team
Speaker 1: that invented GDP was not completely satisfied by what they
Speaker 1: had done, but they thought, you know, this is probably
Speaker 1: the best tool we can put together at this point
Speaker 1: in time, and and that's how it started. It's a
Speaker 1: sum of market transactions, and I think it was pretty
Speaker 1: okay at the time in which the government really wanted.
Speaker 1: All they wanted was to basically reactivate flows of money
Speaker 1: in the economy. But you know very well that what
Speaker 1: is good in a time of crisis may not necessarily
Speaker 1: be good in a time of you know, normalcy and
Speaker 1: normal economic activities. Just like you wouldn't give a patient
Speaker 1: was healthy medicines necessarily, medicines may be good if you're sick,
Speaker 1: but not if you're healthy. They can make you sick
Speaker 1: if you're healthy in many different ways. And you know,
Speaker 1: it was then used as a tool to plan the
Speaker 1: Second World War, once again not necessarily a time of
Speaker 1: economic normality. Um So it may be very useful to
Speaker 1: measure production regardless of its utility, because you're building bombs
Speaker 1: and aircrafts and tags, and all you need to know
Speaker 1: is how many you can build. The more you can build,
Speaker 1: the better. But this is very different in normal times,
Speaker 1: you know, normal times. You want to make sure that
Speaker 1: you distinguish between the quantity of transactions and the quality
Speaker 1: of transductions. Noble transactions are actually strengthening our economies. If
Speaker 1: I get sick, GDP goes up because I have to
Speaker 1: use medicines and I have to go to the hospital
Speaker 1: and somebody has to be paid to look after me.
Speaker 1: But if I stay healthy, GDP doesn't go up. So
Speaker 1: in a sense, if we want GDP to grow, our
Speaker 1: policies have to be designed to make people sick. And
Speaker 1: if I get stuck in a traffic if I'm involved
Speaker 1: in a car accidents, if I get killed. All these
Speaker 1: transactions increase GDP create economic growth, but they did not
Speaker 1: necessarily contribute positively to our economic performance. The problem is that, interestingly,
Speaker 1: ever since the nineteen seventies, the late nineteen time and seventies,
Speaker 1: we have done the study the studies in the book
Speaker 1: as well, we showed that the so called negative transactions
Speaker 1: that are counting the GDP far way the positive transactions.
Speaker 1: So most of the growth of the nineteen eighties and
Speaker 1: the nineteen nineties was due basically to pharmaceuticals, took accidents,
Speaker 1: to divorces, to military expenditure, all expenses that GDP counts
Speaker 1: as positive, but often they are not seen as positive
Speaker 1: by economists or by citizens at large. So we were
Speaker 1: celebrating an economic boom when it was in reality and
Speaker 1: economic disaster. But GDP gave us the wrong information and
Speaker 1: the policies. The wrong policies were decided upon because of
Speaker 1: that system of perverse and centers that have mentioned. All right, well,
Speaker 1: let's go to the South Pacific and the island nation
Speaker 1: of Naru. You begin your book there almost as a
Speaker 1: kind of morality tale. Now you even link GDP to
Speaker 1: the island sinking literally prospects of survival as well as diabetes, drought,
Speaker 1: and a bunch of other bad things. Talk about Nauru
Speaker 1: and why you think this illustrates your point? Most authors
Speaker 1: started books with celebrating empires and big countries, and I've
Speaker 1: decided to the opposite, celebrating one of the smallest states
Speaker 1: in in in our global economic community, and that's the
Speaker 1: island of Nauru, which is the third smallest states in
Speaker 1: the world after them, after Monaco and Vatican. So the
Speaker 1: story of Nara is very important because Nara was in
Speaker 1: the nineties had the highest GDP per capita in the world.
Speaker 1: So in many ways, it was the perfect example of
Speaker 1: what happens when you follow the GDP ideology blindly. So
Speaker 1: this country invested massively in propping up economic growth by
Speaker 1: exploiting the minds of phosphates that the country had. It
Speaker 1: was a very small island but basically had a lot
Speaker 1: of very good quality buzz bates that was used as
Speaker 1: part of fertilizers and other agricultural products in many parts
Speaker 1: of the world, especially in Southeast Asia and the Pacific.
Speaker 1: Long story short, they basically exploited it to the point
Speaker 1: of sitting with a huge environmental disaster that has been
Speaker 1: threatening a cultural production, has been threatening the population. With
Speaker 1: the money that they collected, because they had some money,
Speaker 1: most of the money fled to Australia and New Zealand,
Speaker 1: where it was captured by banks, as it happens often
Speaker 1: with the vast GDP growth in many so called developing countries,
Speaker 1: but some of the money stayed in the country. And
Speaker 1: what happened is that with that cash, the governments decided
Speaker 1: to listen to many economic advisors and invested in vanity objects,
Speaker 1: as it happens in many countries, infrastructure that wasn't needed,
Speaker 1: and in importing a lot of food because the culture
Speaker 1: locally had been damaged to the point of being useless,
Speaker 1: importing a lot of food that was very poor quality food.
Speaker 1: And guess what. From the environmental crisis, they moved on
Speaker 1: to a health crisis. They became the capital of the
Speaker 1: global capital of diabetes, with one of the largest the
Speaker 1: highest levels of obesity in the world, and and and
Speaker 1: and some of the health conditions related to death. And
Speaker 1: nowadays it's basically a failed economy of failed states, and
Speaker 1: the only option left to Nurans is migrating Caustralian needs
Speaker 1: and to get a better to get a better life.
Speaker 1: So this is in a nutshell, it's a concentrated metaphor
Speaker 1: of what seems to be happening to the entire planet.
Speaker 1: We have decided to embark on a production and consumption
Speaker 1: process that is ultimately destroying us. But we celebrated as
Speaker 1: if this was the beacon, the you know, like the
Speaker 1: the pinnacle of civilization. Because GDP tells us that this
Speaker 1: is what development is all about, and it's giving us
Speaker 1: the wrong information it should go. We should be you know,
Speaker 1: like doing deffe. We should be doing differently. We should
Speaker 1: be distinguishing between transactions that we want, transactions we don't want,
Speaker 1: production that is useful, production that is not useful, consumption
Speaker 1: that is useful, and consumption that consumption that is not useful.
Speaker 1: And GDP doesn't do that, and by not doing that,
Speaker 1: it gives us a very very plot piece of information
Speaker 1: which then imformed policy and say, you know, like has
Speaker 1: you know impacts across society. Well, let's go to South
Speaker 1: Africa where you spend most of your working year. Now
Speaker 1: after immediately after the transition to democracy in the early nineties,
Speaker 1: there was a surge in say, for example, foreign investment
Speaker 1: GDP looked pretty good, but still huge sways of the
Speaker 1: population had their aspirations un met. Now has that influenced
Speaker 1: you're thinking as well terms of our GDP um curves
Speaker 1: or GDP trands SI so worth. After the end of
Speaker 1: apart type, there was a sense that the country could
Speaker 1: have embarked on a social justice program. The idea was
Speaker 1: about that time had come for a distribution of wealth
Speaker 1: because of apartheide, because of the enormous inequality of the
Speaker 1: country had experienced. None of that happened. You know why,
Speaker 1: because the government was told that the best way um
Speaker 1: to deal with such inequality wasn't about redistributing resources and
Speaker 1: promoting social offer. It was about growing. It was about
Speaker 1: embarking on a mass you know, a mass scale economic growth,
Speaker 1: accelerated growth that would have increased the pie. Everybody would
Speaker 1: have enjoyed a bigger share, and everybody would have been happy. Now,
Speaker 1: not only didn't it happen, it didn't happen at all.
Speaker 1: I mean like, we had significant growth, but most of
Speaker 1: the growth was captured by those that control the economic leverages.
Speaker 1: So the rich became richer in many cases, and many
Speaker 1: poor people may have become slightly less poor, but still
Speaker 1: significantly worse off than than than the elite. And at
Speaker 1: the same time, you know, the series interventions in in
Speaker 1: in adjusting those economic differentials were not We're not taken.
Speaker 1: In example, for many years the country delayed intervening in
Speaker 1: the HIV eighth pandemic, and the reason was that rather
Speaker 1: than spending money on healthcare in people's well being, that
Speaker 1: should have spent money in infrastructure and developments, because that
Speaker 1: would have then created all the positive uh IN effects
Speaker 1: that would have done propped up the economy and improved
Speaker 1: even the life of those living with HIV NAS. It
Speaker 1: was crazy. People were done only when in two dozen
Speaker 1: and four, two dozen and five the country decided to
Speaker 1: really intervene in social weapon because it was too much.
Speaker 1: We experienced a significant decrease in mortality rates, HIV AIDS
Speaker 1: infections went down dramatically. And guess what This happened at
Speaker 1: a time in which we had half the GDP growth
Speaker 1: of the previous decame. So this tells you that politicians
Speaker 1: that follow the GDP vision can take very wrong, the
Speaker 1: extremely wrong decisions when it comes to the welfare of
Speaker 1: There are people Lorenzo. Is that happening right now in
Speaker 1: the United States? We have a president here who has
Speaker 1: pledged to achieve four percent GDP growth, which is roughly
Speaker 1: double the pace that we've seen in recent years. Is
Speaker 1: the US headed for this kind of uh, these kind
Speaker 1: of difficulties if the Trump administration really pursues that kind
Speaker 1: of goal as hard as as maybe they're indicating, well,
Speaker 1: I think that, I think that there's a serious um
Speaker 1: level of confusion in the United States at the moment.
Speaker 1: I mean, like, in many ways, a lot of people
Speaker 1: are rightly upset at at least three decades of economic
Speaker 1: policies in the US that promoted UM, a kind of
Speaker 1: economic developments that increased inequality, that made the working class
Speaker 1: works off UM, that used glibalization to put a lot
Speaker 1: of people out of work UM and create kind of gaps.
Speaker 1: That's in many ways explained why somebody like Donald Trump,
Speaker 1: with an agenda of change, so to speak, won the elections. Now.
Speaker 1: What is being proposed, however, as a solution, is more
Speaker 1: of the same rutter than trying to tackle the inequalities,
Speaker 1: the suffering, and the low level of well being that
Speaker 1: many Americans experience. I mean, I still find it striking
Speaker 1: that America is number one in terms of GDP and
Speaker 1: in terms of all the things that really matter health, literacy, education,
Speaker 1: life expectancy, and so on and so forth. It's way
Speaker 1: beyond many countries that are much poorer in GDP terms.
Speaker 1: So I think America is a very very good case, Laurens.
Speaker 1: There have been countless attempts in recent years by various
Speaker 1: commissions and bodies and so forth to create other kinds
Speaker 1: of indexes of a country's well being. Uh. You know,
Speaker 1: many people have pointed out the problems in per actions
Speaker 1: with focusing on GDP as the end all be all
Speaker 1: of economic indicators. We can talk about this all we want.
Speaker 1: Is there any real chance of anything changing? Or are
Speaker 1: we just all tilting at windmills here? I think we're
Speaker 1: wasting our time with all these commissions. I think it's
Speaker 1: important to open the debate. That's what my book is
Speaker 1: supposed to do, to open the debate and have a
Speaker 1: public debate, and only a debate among experts. Um, we
Speaker 1: do already have tools that helped a great deal. As
Speaker 1: I said, if we were to use something as simple
Speaker 1: as the gen in Progress Indicator, which is nothing else,
Speaker 1: the GDP, but distinguishing the bat and the good transactions,
Speaker 1: and and that would be really useful because you would
Speaker 1: tell the government what are investing in certain areas makes sense.
Speaker 1: For instance, with with this kind of accounting, it's clear
Speaker 1: that many industries are not really producing anything valuable for
Speaker 1: society because the the negative impacts outweigh the gains of
Speaker 1: these companies. And this includes the fossil fuel industry, that
Speaker 1: the coal industry, mining and large, the distribution of food
Speaker 1: and so on and so forth. And I think in
Speaker 1: the US some states Maryland, Utah, Verymond have already introduced
Speaker 1: some of these tools at the local level. Um So
Speaker 1: there are tools that could be used tomorrow. The problem
Speaker 1: is that we need the political world to do so.
Speaker 1: And unless the GDP ideology is unmasked and unveiled as
Speaker 1: an ideology and people mobilize against this to to to
Speaker 1: code for a different approach, we're never gonna make significant
Speaker 1: hardware here. And I think in my book, I show
Speaker 1: how this could be done. I show the fact that
Speaker 1: GDP is extremely obsolete to be able to account for
Speaker 1: an economy which is increasingly digital. I'm calling you by
Speaker 1: a skype now, and I'm not paying anything, and yet
Speaker 1: we're having a very useful conversation which is not adding
Speaker 1: anything to GDP. GDP would have been much happier ten
Speaker 1: fifteen years ago if I was to call you by
Speaker 1: the phone, because the coal would have been very expensive,
Speaker 1: probably very low quality, and yet adding to the national accounts.
Speaker 1: So every time we use What's up to communicate, every
Speaker 1: time we use Spacebook to make you know to to
Speaker 1: to share information and some so forth, the Google maps
Speaker 1: which are for free, we're not adding to GDP, but
Speaker 1: actually we're strengthening the economy. Nevertheless, GDP is very anachronistic.
Speaker 1: It sees money flows as a sign of a good economy,
Speaker 1: but often money flows may indicate a very very sick
Speaker 1: of Conmy write it in a good one and I
Speaker 1: think ultimately my book shows that we could use this
Speaker 1: opportunity to have national conversations about what it means to
Speaker 1: be developed. In the twenty percent, GDP is no longer
Speaker 1: what we want. Then we can decide what we want
Speaker 1: to gether. And so maybe what's going to be decided
Speaker 1: by Americans or in a state in the US may
Speaker 1: be different from what's going to be done next door.
Speaker 1: So if one country Lorenzo. If one country tried to
Speaker 1: go it alone, and I don't mean a country like Naro,
Speaker 1: I mean a sort of a medium sized or even
Speaker 1: a large sized country said right, we're teaching it, We're
Speaker 1: gonna do something else. What are the risks if they
Speaker 1: acted alone? They would be crucified by markets and then
Speaker 1: forced to retreat. Absolutely, we believed exactly because of the
Speaker 1: power of GDP and its ideology and because it s
Speaker 1: used as a policy tool, that would be crucified, It
Speaker 1: would be punished, which is the reason why we're publicly advocating,
Speaker 1: as I do in the book, for an alliance of
Speaker 1: countries to go together. What are in Europe? What are
Speaker 1: around the world. We have also talked about a in
Speaker 1: alliance of all being economies will call the we seven
Speaker 1: countries that have done extremely well at building an alternative
Speaker 1: way of doing the economy that is beyond GDP. And
Speaker 1: these countries include New Zealand, Costa Rica, Sweden, very good
Speaker 1: examples of countries that have achieved high levels of well
Speaker 1: being with a minor ecological footprint and very low and equality.
Speaker 1: If these countries were too good together and show to
Speaker 1: the rest of the world that change is possible that
Speaker 1: we can do it collectively in collaboration. There would really
Speaker 1: help the entire world wake up, and they may be
Speaker 1: a positive ripple effect across society. A country shouldn't do
Speaker 1: this change on its own because GDP has an extremely
Speaker 1: significant impact of policy decisions and they may be easily critcified.
Speaker 1: But going together as an alliance regionally or globally would
Speaker 1: make a big difference, and it is necessary if we
Speaker 1: want to achieve the Sustainable Development Goals. We have a
Speaker 1: twenty thirty Agenda which is being ratified by the u
Speaker 1: N and unless we change away from GDP, we're never
Speaker 1: going to get there. Well, look, this conversation could go
Speaker 1: on for a while, and I can tell you're only
Speaker 1: just getting started. We'll have to have you back on
Speaker 1: the show. To Lorenzo, thank you for joining us. It's
Speaker 1: been a pleasure. So Dan, do you think we're ever
Speaker 1: going to get to a point where we're not focusing
Speaker 1: on GDP as our end all, be all economic indicator.
Speaker 1: As Lorenzo was saying towards the end, it really can't
Speaker 1: be one or two nations, certainly one or two nations
Speaker 1: that don't have major economic heft being out from the
Speaker 1: pack and saying we're going to chot our own course
Speaker 1: with economat tricks. They really would be killed. It really
Speaker 1: needs to be wanting all in and that's tough to say. Yeah,
Speaker 1: you'd really have to have something like the I m
Speaker 1: F or similar body organizing a global conference where you
Speaker 1: know they'd actually moved towards UH an agreement on which
Speaker 1: statistics would would would be highlighted because the IMF actually
Speaker 1: uses a country's UH production of GDP statistics as a
Speaker 1: measure of their quality of development as a nation. So
Speaker 1: in any change to that would obviously be highly political.
Speaker 1: Something for the next Briton Woods for sure. Alright, Well,
Speaker 1: Benchmark will be back next week and until then, you
Speaker 1: can find us on the Bloomberg terminal, Bloomberg dot com,
Speaker 1: the Bloomberg App, as well as iTunes, pocket cast, Stitcher,
Speaker 1: or wherever you prefer to find your podcast. While you're there,
Speaker 1: take a minute to rate and review the show so
Speaker 1: more listeners can find us and let us know what
Speaker 1: you thought of the show. You can follow me on
Speaker 1: Twitter at at Scott Landman Dan. You're at moss under
Speaker 1: School Eco and our guest is at at l O
Speaker 1: f I O r A m O n t I
Speaker 1: l O fiora. Monty Benchmark is produced by Sarah Patterson
Speaker 1: and the head of Bloomberg Podcast is Alec McCabe. Thanks
Speaker 1: for listening, to see you next time.