Scotland should ditch GDP and join a 'G7 of happiness', says economist

SNP MSP Ash Denham at Professor Lorenzo Fioramonti's 'The World After GDP' lecture at the Scottish Parliament

A radical political economist who has urged Nicola Sturgeon to ditch GDP and aim to be part of a ‘G7 of happiness’ has caught the attention of top Scottish Government officials and SNP MSPs.

Lorenzo Fioramonti, Professor of Political Economy at the University of Pretoria, told an audience of senior Scottish Government statisticians, leading business organisations, unions and charities that GDP (gross domestic product) is a “toxic” economic indicator which should be scrapped.

SNP MSP Ash Denham, who sits on the Scottish Parliament's economy and finance committees, said she has been "personally interested in going beyond GDP for several years" as she welcomed ​Fioramonti to Holyrood.

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She said: “One of the things that struck me when reading Lorenzo’s book was the idea of ‘alternative G7 clubs’, such as a G7 of sustainable development, or maybe social progress, or maybe environmental performance, or economic prosperity, or even happiness.

“The UK wouldn’t rank in the G7 of any of those alternatives.”

The audience included Scottish Government chief statistician Roger Halliday, head of public service reform Stephen Gallagher, head of communities analytical services David Signorini, international strategic affairs expert Jenny Holt, who is also parliamentary assistant to chief whip Bill Kidd, and communities analyst Anja-Maaike Green.

Fioramonti arrived in the middle of a furious debate about a 0.2 percent contraction in Scotland’s GDP but he said MSPs have got their priorities wrong.

Halliday questioned whether GDP should be replaced or if it could continue as part of a suite of indicators, but Fioramonti was uncompromising.

“My book is about ditching GDP, not fixing it, not embellishing it, not complementing it,” he said, insisting GDP distracts from other indicators like happiness, social cohesion and environmental protection.

“If it’s so toxic that every time you put it somewhere that it is the only one that is being discussed and used, then I would rather get it out of the way,” he said.

He compared GDP to using a phone booth in the age of social networking.

“You spend no money when you use WhatsApp but you spend money when you use a phone booth, so in GDP terms it’s better to use a phone booth because it moves money around,” he said.

“Using new apps for free, regardless of the fact that they provide better communication and even video calling, is structurally unable to be regarded as the creation of value.”

The economist promoted another measure called GPI (genuine progress index) — which balances economic growth against negative activity like pollution, depletion of resources, crime and family breakdown — and urged international institutions to punish countries with negative GPI.

“If you destroy your natural environment or your society gets weaker, the IMF or the World Bank would historically see that as progress and give you more money to do it,” he said.

He added: “The 20 top sectors around the world — fossil fuels, food production and big retail — would not be profitable if we asked them to pay the bill for the depletion of the natural resources that they contribute to, so in a sense they are running their profits on the back of society being willing to pick up the bill.”

Sturgeon wants Scotland to be an independent member of the European Union — which requires all accession countries to keep their deficit below 3% of GDP.

Scotland’s deficit is currently 9% — deeper than crisis hit Greece — but Fioramonti believes his theory could help Sturgeon convince the EU to change the rules.

He said: “The OECD, The World Bank, the UN, even certain sections of the EU are all talking about going beyond GDP — and she could easily win the argument internationally by looking at what these major international institutions have done and show that Europe is on the cusp of major change, which is wanted by new members, and that it’s just about getting it done.

“I think she would be with the majority of EU countries in that regard.”

Fioramonti called for “a new Adam Smith” to challenge the prevailing economic model, and said Smith’s birthplace is uniquely placed to lead the debate.

“There’s always a fear of being the first, that lack of courage, and I think maybe a nation like Scotland…may need to play that role by showing the world that it is easier than you think,” he said.

Fioramonti told Holyrood: “It’s not about fluffy ideas or trying to steer the debate into Alice In Wonderland…the First Minister couldn’t be accused of not living in the real world, nor could she be accused of dismissing the things that people care about.

“It’s about moving on and realising that the problems can be fixed by understanding how a new economy can be produced.”