Can New Zealand Break The GDP Deadlock?

New Zealand has recently adopted a “wellbeing budget.” While I’m in favour of augmenting economic measures with wellbeing measures, I have grave reservations as to its possible success, based on some fundamental concerns.

New Zealand wellbeing budget

Holgi / Pixabay


On 30th May 2019, the New Zealand Prime Minister Jacinda Ardern announced the first-ever “wellbeing budget.” As a country, they are no longer going to focus exclusively on GDP. The country’s new “wellbeing budget” emphasises citizen happiness over economic growth. According to Prime Minister Ardern, the purpose of government spending must be to improve citizens’ health and life satisfaction, and that DGP is a secondary consideration. GDP alone, she said, “does not guarantee improvement to our living standards” and nor does it “take into account who benefits and who is left out.”

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The budget requires all new spending to go toward five specific wellbeing goals: bolstering mental health, reducing child poverty, supporting indigenous peoples, moving to a low-carbon-emission economy, and flourishing in a digital age. To measure progress toward these goals, New Zealand will use 61 indicators tracking everything from loneliness to trust in government institutions, alongside more traditional issues like water quality. Ardern, who has spoken of empathy as the trait most needed in political leaders nowadays, said that her government has "laid the foundation for not just one wellbeing budget, but a different approach for government decision-making altogether." This approach appeals to many progressives, but, understandably, it has attracted criticism from some who think it's nothing more than marketing spin at best, and fiscally irresponsible at worst.

While New Zealand has to be applauded, as the first country not just to acknowledge the inadequacies and inappropriateness of GDP (like many have) but to have the courage to implement them; placing wellbeing ahead of economic metrics. However, the big question remains - can they implement this noble plan without suffering fiscal problems. Fiscal problems not of their making, but those imposed on them by the global market. I'm of the opinion they will have great difficulty, for reasons I elaborate on in this article.

I'm going to highlight similarities between changing our inadequate and inappropriate business measures with those of changing GDP. This will highlight how difficult this is to do in isolation. We have known about the inadequacies of our Accounting Model for over three decades. Consequently, there have been some attempts to address these problems. Some of the more recent "solutions" are the Global Reporting Initiative, IIRC (International Integrated Reporting Council, UN Reporting Framework, and Ernst & Young LTV (Long Term Value model.) There have been other models before them, such as the "Balanced Scorecard," some intangible asset measures and other lesser known, proprietary models. There are many reasons why these "solutions" fall well short of meeting our requirements for a workable solution. The main reason being they don't meet our two minimum requirements for a business measurement standard. Firstly they are not based on any understanding of the value creation causal model (our underlying business model.) Secondly, the measures are not comparable across all businesses irrespective of sector or size. This means the Accounting Model remains dominant because its measures are comparable, and comparability is critically important to our economy. Consequently, businesses ensure they produce strong financials, to remain attractive to external investors. Decisions are often taken in favour of "strong financials", even although the decision makers may feel their decisions favouring the Accounting Model to be counterintuitive. Any incomparable measurement system will operate under the shadow of the Accounting Model and therefore, will never achieve its full potential. Like a small tree, living under the canopy of a giant in the forest has little chance of survival, unless the giant topples. Without comparable measures, any alternative measure will be dominated by our Accounting Model. Because of this dominance, soon it makes little sense following the alternative measurement system. That's why The Balanced Scorecard and all others have lost ground, and are almost defunct, despite the Balanced Scorecard offering a better alternative than financial metrics alone. Unless we have universally comparable measures, which take into account all stakeholders, the dominant measure will continue to exploit other stakeholders, as their interests are not measured. These stakeholders remain in the dark recesses of "business unknowns"; easily exploited to bolster financial results. The same applies to GDP measures.

Unless macroeconomic measures, which incorporate citizens wellbeing, and economic performance, form part of a universally comparable measurement framework, they will be ignored by the market. Comparability is important and incomparable measures will, understandably, be ignored. What concerns me about the New Zealand approach is that they don't appear to follow the OECD (Organisation for Economic Co-operation and Development) Better Life Index, which comprise a range of metrics which better reflect what constitutes and leads to wellbeing. If they followed this closely, then there would be a glimmer of hope, as others would be encouraged to adopt it, adding weight to its universal acceptance.

Governments are in a Catch 22 problem where they can't do what's right for their citizens because they form part of the bigger global system. It's similar to the problems business face. If they don't produce good financial results, investors won't invest, and creditors will charge higher interest rates. As a result, they are forced to produce good financials (often achieved by taking from stakeholders, as their interests are not measured.) Governments face the same problem. If their GDP is poor, they won't attract investment and face higher borrowing costs. Therefore, they, too, are forced to produce good GDP results, which they achieve by taking from other stakeholders whose outcomes are not measured or managed. The wealthy dictate outcomes by controlling our measures at both the micro and macroeconomic level. They force us to concentrate on financial outcomes, ignoring all other stakeholder interests. Until our measures are changed to incorporate all stakeholder interests, nothing will change. We need new measures at both micro, and macroeconomic levels, which include the interests of all stakeholders and are comparable. Only then will new measures work. Consequently, I applaud New Zealand's efforts but don't believe they will be effective, as they will, in all likelihood, be punished by the global financial markets.

Copyright © 2019 Adrian Mark Dore

adrian.dore@growingvalue.net




About the Author

Adrian Dore
Adrian Dore has over forty years experience as a business owner, corporate executive and adviser. He has worked for, and with diverse businesses in equally diverse roles. This has given him a wealth of experience and knowledge. However, he has always been interested in understanding how businesses go about creating value; the underlying processes and their interrelationships, which he has spent the past twenty years researching and understanding.