From The Vault: Umair Haque: Redefining How We Measure Economic GrowthMarch 22, 2012
With Dylan off this week, we’re looking back at some of our favorite podcasts from the last few months that you might have missed. This was originally published in December of 2011.
For those of us who are lucky enough to have a job, there are new numbers out today analyzing American workers. According to the Labor Department, the average employed American works just over 2,000 hours per year — about 40 hours a week, earning about $37,000 a year. The jobs that require far longer hours and odd shifts, all too often, are often the jobs that pay the least.
We have undoubtedly seen a decline in the common wealth: wage stagnation, widening economic inequality, the depletion of the natural world, and more. To get out of this trap, we need to rethink the future of human exchange. In short, we need to get “out of business and into betterness,” says Umair Haque, director of Havas Media Labs and author of Betterness: Economics for Humans.
Business as we know it has reached a state of diminishing returns — though we work harder and harder, we never seem to get anywhere. The first step in fixing that, he believes, is coming up with a new way to measure economic growth by redefining GDP.
“The biggest problem with GDP — we’ve talked about it before in the sense that it undercounts some costs and overcounts some benefits, so it’s kind of inaccurate. But there’s a bigger problem,” Umair explains. ”GDP is kind of an income statement for our country, for our economy, but it’s not a statement of wealth… We don’t have a balance sheet to tell us, what are our real assets? Are they growing, are they in decline? Are they flatlining?”
Creating a new measurement of economic success and growth for countries should become more of a priority, in order to measure what growth is real and what isn’t. “I think there’s nothing more fundamentally disruptive to the status quo than a new reality. And that’s what we’re talking about constructing here. A reality that’s more in touch with people’s everyday reality,” Umair explains.
He also says we don’t need to depend on Washington to get this done. ”We can do it. We can do it. At my think tank, we have spent the last year trying to do it. And one of the things that we found is when we build a balance sheet for this country, we had a very different picture than when we look at GDP. Our balance sheet suggests that real wealth in America peaked around 1970. And that shouldn’t be a surprise to anybody who watches your show and knows that real income’s in decline and poverty’s gone up and all of these things have happened. So, we don’t need the institutions to do it for us anymore. We can take on the challenge ourselves,” says Umair.
Umair Haque is Director of Havas Media Labs and author of Betterness: Economics for Humans and The New Capitalist Manifesto: Building a Disruptively Better Business. He is ranked one of the world’s most influential management thinkers by Thinkers50. Follow him on twitter @umairh.
DYLAN: Can you run a machine that you can’t measure?
UMAIR: I think you get what you measure. Part of our problem, we’re measuring industrial age stuff. We’re kind of like a stone age tribe that wants to leap into the bronze age. We’re using yesterday’s tools to do it. We don’t have the right measurements and we haven’t had the right measurements for a long time. And part of the idea of Betterness is, if we want to build a meaningfully better economy, not just an economy that does what I call opulence, more, bigger, cheaper, fancier, nastier, which is kind of what we spend our lives in pursuit of today, we want to build a better economy, we need to update our measures.
DYLAN: We’ve talked a little bit about GDP as a bad measure. Walk us through a couple of the examples of the tools of the stone age tools that we’re using in this bronze age transition.
UMAIR: I think the big one is GDP, huh? We’ve talked a little bit about its shortcomings before. Now, if i was to ask you a simple question, which is, you know, Dylan, are you rich? You probably wouldn’t confuse your income with your net worth, right?
UMAIR: But what we do at a national level is make exactly that mistake. The biggest problem with GDP, we’ve talked about it before in the sense that it undercounts some costs and overcounts some benefits, so it’s kind of inaccurate. But there’s a bigger problem. The biggest problem is that GDP is kind of an income statement for our country, for our economy. But it’s not a statement of wealth. It’s not a balance sheet. And so one of the big problems that we have, and I think it’s the biggest problem we have in our economy, is that we don’t have a balance sheet for our economy. So looking at GDP, as a statement of income, we donate have a balance sheet to tell us, what are our real assets? Are they growing, are they in decline? Are they flatlining?
DYLAN: Isn’t the balance sheet, the wealth of the nation best measured through the absolute unemployment rate, hours worked, the average compensation, the percentage of the country in poverty.
UMAIR: Yes, yes.
DYLAN: It’s not like we don’t have the data. It’s just that we don’t look at it like it’s relevant to our economy, which strikes me as insane.
UMAIR: Absolutely. So, let’s go back to the idea of GDP for a second. We had a lot of the data that ended up going into the old GDP. What we hadn’t built was the actual synthesis, the creation of this one number. So we had the data, you’re right, it’s floating around. And I would argue it goes far beyond things like unemployment rates. I would argue it includes things like poverty rates. Is our work with really meaningful and engaging to us? Are we happier? Do we feel fulfilled? I would argue that a real balance sheet includes all of those things and more. And I think we have that stuff. But the real challenge for us is can we synthesize it into a balance sheet and use that balance sheet to begin monitoring, measuring, and managing for a more meaningful kind of process.
DYLAN: Here’s how I look at this. You see it in television. Everyone knows the Nielsen ratings are completely wrong. They couldn’t be more wrong, right? At the same time — and they know with digital technology, you could take a discreet analysis of exactly how many people are watching this show or any other show that’s ever been put on TV in a digital environment. But the power of the major networks who bill hundreds of millions of dollars in revenue against the bad data set and the threat to that incumbent power of realizing that the data set you’re billing against is wrong, and you may not be getting as much money, I think that that exact same issue exists here, where if I go to a politician, if I go to President Obama, if I go to Mitt Romney or Newt Gingrich, or whoever is going to run — I say, the real data is 20% unemployment, the highest poverty levels since the history of the census, a trade deficit that looks like this — the politicians would much rather point you to a slow-growing GDP number, which is really just slowly measuring the rate of extraction. It’s like “yeah, we’re sucking your blood again, so you should feel better about that.” And as a result, neither the media nor the political apparatus has any interest in making the transition you’re talking about.
UMAIR: I think you’re absolutely right. I think there’s nothing more fundamentally disruptive to the status quo than a new reality. And that’s what we’re talking about constructing here. A reality that’s more in touch with people’s everyday reality. Now, the good part is –
DYLAN: Now is that a new reality or just another fantasy?
UMAIR: I think we’re getting closer to what we might call reality itself. Not just the institutionally created reality that we’re taught exists. I think the good part is that we don’t necessarily need to look to Washington to build this stuff anymore. We can do it. We can do it. At my think tank, we have spent the last year trying to do it. And one of the things that we found is when we build a balance sheet for this country, we had a very different picture than when we look at GDP. Our balance sheet suggests that real wealth in America peaked around 1970. And that shouldn’t be a surprise to anybody who watches your show and knows that real income’s in decline and poverty’s gone up and all of these things have happened. So, we don’t need the institutions to do it for us anymore. We can take on the challenge ourselves.
DYLAN: So the last issue is, how do you deal with a population desperate to get doped up on “hopium,” so they don’t have to deal with the unpleasant realities that you and have have discussed?
UMAIR: Totally, listen. It’s one thing to build a new set of measures to gauge the health of any economy, but it’s another thing to change our lifestyles. And I think these things are inderdependent. I think if we were able to build these measures, people would be able to see their lives in a very different way. And they might be able to take a quantum leap much more easily. So I think the two kind of go hand in hand. But what is for sure is we cannot build a measure and hope for it to result in much, unless people also take a quantum leap, in terms of actually changing their own lives.