August 24th, 2018
by Ben Martin
“Life is about more than just money.” It’s almost a cliché. But that quote isn’t from a left-wing think tank or a green non-governmental organization. In fact, it comes straight from official documents of the Treasury of New Zealand.
When even famously conservative government economists are saying there’s more to life than dollars and cents, something interesting is going on. And in fact, New Zealand is at the forefront of a radical shift in economic policy. The aim is simple: to make nature and society just as important as gross domestic product (GDP) growth in government thinking.
The administration of Jacinda Ardern, who became prime minister in October 2017, has lost no time establishing rock-solid environmental credentials, with the recent ban on offshore oil and gas drilling just the latest in a long line of climate-smart policy commitments. But the shift to a “well-being budget” for 2019 could be the boldest play yet.
The New Zealand Treasury has been instructed that, when planning policies or modelling future economic scenarios for the country, it can no longer only consider the impact on GDP growth. Instead, it must include social, human and natural considerations in its thinking. For example: Would a trade deal endanger existing jobs? Would a pipeline destroy valuable forest or freshwater? And could deregulation damage cultural cohesion?
All of these are questions that government finance ministries rarely, if ever, concern themselves with. But New Zealand wants to be different.
“We want New Zealand to be the first place in the world where our budget is not presented simply under the umbrella of pure economic measures, and often inadequate ones at that, but one that demonstrates the overall well-being of our country and its people,” Arden said in a January speech.
This approach has alarmed some traditional economists as radical, unscientific or conceptually confused. But I think it’s eminently sensible.
As recent research by Oxford University economists has shown, all economic prosperity rests on natural foundations. Simply put, without clean air, safe water and a well-functioning environment, there can be no material wealth. And even the business big cheeses at the Davos World Economic Forum now argue that policy-makers’ obsession with GDP has damaged our planet and our societies.
Traditional economics has forgotten that our economies should have a purpose: they should deliver greater well-being, increasing prosperity, improved security and comfort, without imperilling the things that make life worth living. If all government decisions are made on purely financial terms, then ultimately those decisions will benefit finance and capital at the expense of people and nature. As New Zealand treasury secretary Gabriel Makhlouf puts it, “The traditional view of economics is more of a caricature than reality.”
Happy ever after?
Some have largely been forgotten; others have attracted some scholarly attention or the support of a well-meaning think tank or policy institute. Only tiny Bhutan, a landlocked Asian nation of less than a million people, has attempted to get beyond GDP at the policy level, with its Gross National Happiness Index. No other country has made a strong, public commitment to incorporating social and natural value in governance – until now.
In New Zealand, a new generation of leadership has arisen, symbolized by Ardern: wise to the danger our planet is in; alive to the opportunities of a greener, fairer society; and not beholden to the outdated economic doctrines that have led us into this predicament. In New Zealand, GDP will no longer be the sole measure of success for economic policies, because GDP is not, and has never been, the best or only way to measure social development.
In many ways, New Zealand’s new approach is a return to a more honest, more grounded way of practicing economics, more rooted in the real world, as Makhlouf explains. “Economics is about trade-offs,” he says. “Economics is about the fact that there are finite resources to meet unlimited wants and what’s the best way of dealing with that problem. What the Treasury is suggesting now is that we can become a bit more sophisticated than in the past at making those trade-offs.”
It’s a refreshing change of focus from a senior treasury official. I’m looking forward to the day – hopefully soon – when finance ministries around the world are equally candid about something the rest of us have known for a long time: There’s more to life than money.