“It should not be all about growth”

Is growth always good? Comprehensive wellbeing economist Rutger Hoekstra from Leiden, has his doubts about that economic mantra. Hoekstra feels it is time to start defining growth differently. He is looking for alternatives that will allow us to measure social progress better. He believes we need a new economic story, in which wellbeing, sustainability and equality are the focus. But how do you make that happen?

What’s wrong with the gross domestic product (GDP)? Not much, Rutger Hoekstra says, as long as you use it to measure whether the economy is growing or shrinking. “Economic growth should not be a goal in and of itself, but that is what it is currently. There is more to life than money. The GDP is not an indicator of wellbeing, wealth distribution and sustainability within a society.” Hoekstra, who is connected to the University of Leiden and the United Nations University as an economist, thinks the current system is outdated. He studies alternatives to the GDP, and also wrote about this in his book Replacing GDP by 2030, which received high praise.

Continuous improvement

Since World War II, there has been a deep-rooted idea that the economy and growth are important. “A hundred years ago you hardly heard anyone talk about economics or economic growth. The latter term has only been around for fifty years. Now it has become almost a synonym for society. Everyone has an association with it. If the economy is growing it is good, if it is shrinking it is bad. Because of that idea, we are constantly asking ourselves how we can improve the economy, how we can grow faster, and what role we have in driving that economy. In that sense, human beings are at the service of the system.”

However, economic growth is not necessarily good, Hoekstra argues. “It has been very good for our quality of life in the past centuries. And for poor countries, economic growth is still good. There, growth is necessary. But particularly in the Western world, that is not the case. If you are very poor, more money contributes to your wellbeing, but there is a limit to that, research shows. At a certain point you have enough money to live a good life and you do not become happier by having more. Moreover, the current growth goes hand in hand with sustainability problems, such as climate change and loss of biodiversity. In addition, inequality has risen in many countries in recent decades.

By this I do not mean that all sectors should grind to a halt. Industries that are shaping a sustainable future may continue to grow rapidly; that is where pension funds can earn a return, for example. But the mantra ‘growth is good’ does not apply to the entire economy.”

Shift the focus

So what is the alternative? Shift the focus to increasing welfare, sustainability and equality, Hoekstra believes. Those should be the social goals. We can achieve this in concrete terms by, for example, considering a four-day work week throughout the Western world, says Hoekstra. “Over the years, we have started to work less and less. In the 19th century, the common man still worked seven days a week. After the war, five days a week became the norm. But in ten years, four days a week could well be the norm. More free time benefits wellbeing. And with less income, people will automatically consume less, which in turn is good for the environment. That kind of relationship between wellbeing and sustainability is something to think about. Income is just a means of shaping the future.”

Carefree retirement

A carefree retirement is also definitely part of welfare economics, Hoekstra says. "Including the present. If you have worries about the future and whether things will work out in your retirement, that can lead to stress long before you retire.” But what does ‘carefree retirement’ look like? That is something pension funds need to make more transparent, Hoekstra believes. “If you only look at it from an income perspective, it is often so abstract. Okay, you get a certain amount, but what does that mean in concrete terms? What will you be able to buy with it by that time? The term ‘carefree retirement’ suggests a certain standard of well-being, but I rarely see this concept fleshed out. You just have to trust that it will be enough.”

Unfair system

And what about equality? Hoekstra quotes writer and historian Rutger Bregman, who at the World Economic Forum in Davos, Switzerland, frankly confronted the rich, mostly tax-avoiding attendees with the instrument to fight income inequality: “Taxes, taxes, taxes”. Especially the rich and multinationals should pay more taxes, Hoekstra says. “We have to put the pain where it’s caused: in the richest part of the Western world. Warren Buffett (one of the richest people in the world, ed.) once called out that he pays less tax than his cleaning lady. There is also increasing public outrage about the fact that multinationals pay so little tax. Bookstores pay taxes, while Amazon, which delivers those same books to your doorstep, pays nothing at all. The current system is not sustainable or fair. Even at the top, people are starting to realize this. The picture is tilting, but it’s slow going.”

Reach an agreement

The current economic narrative, with GDP as its starting point, was formulated by economists after the stock market crash of the 1930s and the war. It was crisis time, people yearned for a way out in which jobs and income were central. That was a decisive moment. In that respect, the corona crisis can be an opportunity to bring a new story into the world. But then there must first be agreement on what exactly that new narrative is, Hoekstra says. “The community suggesting alternatives is far too fragmented. There are hundreds of systems to measure wellbeing, sustainability and equality. The human development index, the broad prosperity monitor, sustainable development goals, the genuine progress indicator, the better life index, etc. And everyone thinks their own system is the best, while the overlap between all these systems is enormous. That is not helpful. For lay people, it’s impossible to make sense of it all. If we can’t achieve harmony among ourselves, there’s no chance of landing a different story with the general public.”

Speak one language

In that respect, as a community, they would be better off following the example of the economists they like to hate so much, Hoekstra believes. “We have to speak one language, just like the economists do. When it comes to terms like import, export, income and consumption, everyone around the world knows what they mean. In 200 countries GDP is measured in exactly the same way. That is clear and effective. We, as a community, do little in return. There are no global definitions for wellbeing, sustainable development or broad prosperity. It’s a mess. That frustrates me. We need to reach agreement if we are ever going to be taken seriously.”

Hoekstra sees a role in this for the United Nations, which also helped lay the foundation for macroeconomic science after World War II. “In fact, the situation in the 1930s was exactly the same. At that time, the UN said: there is not much we can do with this. You have to choose one system. If the UN had not done that, GDP would not have come into being. I think they should start a harmonization process again. The time is ripe for that.”

Working on harmonization

Hoekstra is currently developing this idea with the UN. “I don't want to give the impression that we have already started that harmonization, but we are preparing to enter the harmonization period. Nobody benefits from this constantly expanding mishmash of systems. We should not be looking at the differences, but at the similarities; working towards a common goal. There needs to be one global measurement system for wealth distribution, well-being and sustainability. I am exploring what the fundamentals of such a system should be, what it could look like. We are calling it the WiSE Transformation Initiative. WiSE stands for Wellbeing, Sustainability and Equity.”

So, one language and one system. With the goal of increasing wellbeing in a sustainable, fair way. What does Hoekstra think the future should look like if that goal is achieved? “That is perhaps the biggest challenge, to make it clear what it means for people in concrete terms.”

A turnaround is already underway in New Zealand, says Hoekstra. “They draw up their budget with the welfare of the population as the starting point. They look at which groups in society are struggling and reserve a portion of the budget for them. All the ministries can submit proposals for how the money should be spent, and each plan is evaluated for effectiveness. In this way, the ministries compete with each another for the best idea. This method has been enormously successful there. New Zealand is also working with other progressive countries in the Wellbeing Economy Alliance. Concrete steps are being taken worldwide.”

Sustainable ideas

Another, smaller-scale idea for a sustainable, fair future comes from England. How do we get people to fly less? Increasing the tax on airline tickets may sound like a good idea, says Hoekstra, but it is mainly the common man who suffers. “People who are very rich can easily afford it and will not fly less. But suddenly Joe Blow can no longer go on vacation. From an environmental point of view, it doesn't matter who flies, but from a sense of fairness, of course it does. This problem was put to a citizens’ panel in England, which came up with a better idea: what if you make the tax progressive? For the first time you fly in a year, you pay a small amount. And for each subsequent time, you pay more and more. That’s a fairer system.”

With respect to sustainability and equality, we as a society are actually already on the right track, Hoekstra believes, “although it could be faster.” Pension funds, he says, can make a big difference by putting the billions in pension money they manage into sustainable companies. “There is so much money involved in that; it greatly affects wherever it is invested.”

Phased retirement

In terms of wellbeing, the four-day work week is an example that will appeal to many people. And why do we often retire so abruptly in the first place, instead of gradually working less in phases? “The question is whether it is good, from a wellbeing point of view, to step out of working life cold turkey. For many people, work is more than income. It is also part of social life and the enjoyment of life. In fact, we now write people off very abruptly, from five days to zero sometimes. Surely it must be possible to do that differently.”

What the welfare pillar should look like next is more difficult for Hoekstra to explain. “The best thing would be for everyone to have the opportunity to develop and to live their dream life, within the natural boundaries that our earth imposes on us. But what exactly would that look like? We need more research and social dialogue for that. If we can clarify this more, I think a large group of people could get excited about a narrative of wellbeing, sustainability and equality.”

APG-economist Charles Kalshoven also writes about economic growth in his new column. You can read it here.