A few days ago I had the honor of moderating a keynote briefing by Maryland Governor Martin O'Malley and Professor Jeffrey Sachs. We discussed the problems with the current economic system and opportunities for creating a better one.
I set the context with the following:
It is clear that America is facing serious economic challenges. Too many people are out of work, struggling just to feed and shelter their families. Too many of our young people, even those with college degrees, are unable to put their educations and talents to full use.
It is easy to blame this on the Great Recession. But even before 2008 America reached a dubious tipping point: for the first time in our nation's history increases in average life expectancy stagnated and even slipped downward for under-educated women. Meanwhile our young people became the first American generation not expected to be as well off as their parents.
And then the Great Recession plowed across our nation and massive numbers of us lost our jobs, our homes and sometimes even hope.
And of course, the Recession didn't stop here. Much of the Industrialized world has been experiencing record unemployment and economic volatility.
Along with tremendous challenges and hardship, the recession provides an important opportunity. There is growing recognition that our economic problems probably go much deeper than just a temporary downturn in growth -- there may be some significant structural problems in the economic system itself.
One of biggest problems with our current system is that we are measuring the wrong things. Our measurement tool is the Gross Domestic Product (GDP). We judge the economy to be doing well if the GDP, or the Gross State Product, is going up and doing poorly when it is not. But here's the problem. Gross Domestic or Gross State Product simply measures the number of dollars flowing through the economy, not whether those dollars are improving the quality of our lives.
Under GDP the money spent to keep a child in juvenile jail is equal to the money spent to give a child a good education. The GDP registered the clean up costs of the BP Deepwater Horizon oil spill catastrophe as a net gain, completely ignoring the environmental and social impacts to Gulf Coast communities.
Even before the recession, as the GDP was growing consistently, poverty, income inequality and carbon emissions were growing relentlessly.
We tend to manage what we measure. The primary problem with using the GDP metric is that we are managing for constant economic growth, without measuring the true costs of that growth.
In 1962 Simon Kuznets, the man who created the GDP, warned, "Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what."
It's been said that if you ask the wrong questions, the answers don't really matter. Ever since the onset of the Great Recession the question has been "How do we achieve economic recovery?" I think that's the wrong question. Recovery has a sense of returning, of going back to the way things were. But things really weren't working all that well. We don't need to go back. We don't need recovery. We need Economic Reinvention.
There is a lot of momentum in that direction, momentum toward reinventing our economic system. A burgeoning global movement of leaders from civil society, government, and academia is moving ahead to develop and apply new economic indicators that go beyond GDP.
One example of Beyond GDP metrics is the Genuine Progress Indicator. The goal of the Genuine Progress Indicator is to measure the actual societal wellbeing and health generated by economic activity. The Genuine Progress Indicator uses 26 metrics and consolidates critical economic, environmental and social factors into a single framework in order to give a more accurate picture of the progress - and the setbacks - resulting from our economic activities.
From the costs of crime, pollution, commuting and inequality to the value of education, volunteer work, leisure time and infrastructure, the GPI helps us understand the true impacts of our policies and could be an important tool for creating an economy that increases prosperity and restores natural resources.
Maryland is the very first state in the U.S. to develop a statewide Genuine Progress Indicator. This reflects important leadership on Governor O'Malley's part and Governor Kitzhaber and I appreciate his team's help in developing a new Genuine Progress Initiative in Oregon.
Governor O'Malley gave a substantive, visionary and inspirational speech. Below are some excerpts:
... Our country's GDP has doubled over the last three decades. Yet, things like income inequality,... middle class opportunity,... the amount of poisonous carbon pumped into our atmosphere: these graphs simply aren't moving in the right direction.
What does GDP tell us about pollution being pumped into our air or flushed into our waters?
What does it tell us about how many little boys are dealing drugs on street corners? Or how many little girls have to dodge hypodermic needles in their playgrounds?
What does it tell us about how much harder moms and dads are working, only to bring less home in their paychecks?
What does it tell us about the time we lose with our families, stuck in traffic?
What does it tell us about the quality of our poetry? The sounds of our music? The grace of our art?
What does it tell us about the progress we are - or are not - making in confronting the greatest challenge to human existence on this planet since the threat of nuclear annihilation?
GDP tells us what we are producing. But it totally neglects what we are using up. There is a difference between income - which is fleeting - and wealth, which is lasting.
To make genuine progress, we must be willing to adopt a more holistic definition of progress itself. To seek an honest assessment of whether our graphs are moving in the right direction - or in the wrong one.
I especially appreciated his thoughtful comments about the type of growth that really matters.
In many ways, we Marylanders, think of ourselves as pro-growth Americans - and before you get "wiggy" about that term, let me explain: Like you, we believe in growing jobs and growing opportunity.
Like you, we believe in children growing healthy, growing educated, and growing strong.
We believe in grandparents growing old with dignity and with love.
We believe in growing trees, growing sustainable Bay fisheries, growing food locally to feed our citizens.
And we believe in growing prosperity for every generation.
But not all growth is good.
If we are going to solve the great engineering challenges to humankind,......if we are going to move from economies of global depletion to economies of local regeneration, we must be willing to make better choices. And we must embrace a new, more entrepreneurial, more collaborative, more performance-driven style of leadership.
Professor Sachs gave a lot of information about the urgency of the problems and the need to make an economic shift in very short order. He ended by saying that he believed "genuine progress was genuinely possible."
The full audio of this event can be found here: https://www.dropbox.com/sh/1xt1dbh0xfcjw9j/av6n3mVCkA.
Governor Martin O'Malley has served as the Governor of Maryland since 2006. Prior to being elected governor, he served as the Mayor of Baltimore from 1999 to 2007 and as a Baltimore City Councilor from 1991 to 1999. He has a proven track record of developing and implementing measurement tools that lead to concrete, effective and efficient outcomes.
Jeffrey Sachs is the Director of The Earth Institute at Columbia University and the Quetelet Professor of Sustainable Development at Columbia University's School of International and Public Affairs as well as a Professor of Health Policy and Management at Columbia's School of Public Health. Time magazine called him one of the most influential leaders in the world.
This keynote briefing was part of the second Genuine Progress Indicators in the States event conducted by 3EStrategies' client, Demos. More information on that initiative can be found in the next article in this bulletin.
