Economics and quality of life

Press, 5 July 1977, Page 16

Economics and quality of life

SIR ALAN LOW, former governor of the Reserve Bank, continues his discussion of New Zealand’s economy.

When addressing a group of business people — still called "white-collar” workers although white shirts have gone out of fashion — I have asked: "If you were told that your standard of living could not rise any higher than it is now, would you be upset? Would it matter?” There have been no apparent protests. The same question could be put to the great majority of people in New Zealand and there would be little if any protest if they were honest in answering. There are, of course, many who would justifiably be upset at the idea of no improvement in their way of life; and in a previous article I listed "growth" first in the four basic economic objectives for that very reason. The desirability of growth is usually taken for granted. If the Government Statistician reports that gross domestic product (G.D.P.) has shown a good rise in real (quantity) terms in the past financial year, we feel pleased with ourselves and the Government pats itself on the back. If a fall is recorded in the official figures, we are dissatisfied and look for someone to blame. If the recorded growth is faster than the growth 1n population, there is an improvement “per head,” and this is accepted as good because it is understood that a rise in real G.D.P. a head means, or should mean, a rise in our standard of living. Alwavs there is the assumption that growth is a “good thine” for its own sake, needing no special justification — and the bigger the better.

But we need to take a closer look at the subject if we are not to mislead ourselves, and some of the assumptions need at least to be questioned. First, the calculation uf G.D.P. covers only those goods and services bought and sold in the market, for which a price or money value can be established. It does not and cannot cover intangibles. such as the environment, law and order, the security of person and property, community and atmosphere, mental health, and so on. which are so essential to people’s welfare, but to which a money value can not be applied. For example, the cost of constructing and running a treatment plant to control effluent from a factory, which otherwise flows into a stream, is counted in G.D.P. because it is a "productive” operation involving measurable money costs. But the previous pollution of the stream, which really was a negative item in our quality of life, was not counted as such at all.

Second, G.D.P. a head is an average and tike all averages does not reveal the wide range of individual situations and and the inequality of incomes.

Third, while G.D.P. derived from production and productivity. is the major factor in our standard of living, there is another factor, namely the terms of trade which can at times be a more important influence on changes in our standard of living. Subject to these qualifications, we can regard real G.D.P. as the broad indicator of “growth,” which is the economic objective we are now considering. Figures for

recent March years have been:—

Changes in Real Gross Domestic Product % 1969- +5.0 1970- +3.7 1971- +2.5 1972- + 4.4 1973- + 7.2 1974- + 3.0” 1975- + 2.0* 1976- —0.5” 1977- —o.s”' •Provisional. ’‘New Zealand Institute of Economic Research. •••NZIEF forecast. March 1977. You can see these changes are irregular and, in the last 20 years or so has been fact, the record of New Zealand’s growth rate over the poor compared with other developed countries, and last four years, not good. In even with some of the developing countries.

Whereas we used to be regarded as one of the top four or five nations in respect to real G.D.P. a head, in the latest count I have seen (a World Bank press release of December 27, 1976), we were listed as 20th in 1975. (The figures are approximate only). It may hurt our pride to see ourselves slipping down the ladder as other countries, including four of the oil states, pass us on the way up.

How much does this matter? The answer depends on one’s view as to the importance of growth, measured in this way.

In the last two centuries the standard of living of Western countries (and, more recently, almost all Eastern countries) has been rising on an almost unbroken and often dramatic trend. How much further will this trend continue? Are we going to continue to “enjoy” better and better living standards for the indefinite future? Need we? Do we as a community or individuals need to have a constant urge for more money, more things to buy.

more luxury, even after we are already satisfied in our basic wants, have accumulated more possessions, are already buying things we could well do without (and might even be harmful to ourselves and others) just to keep up with the fashion? Our advertisers, designers and marketeers keep devising new things to buy, new variations on old themes, new gadgets to save us effort, new examples of builtin obsolescence.

We do want to keep people fully employed. We do like to have “the latest,” the conventional visible symbols of success. This requires an ever-expanding production, with a corresponding level of income and demand. That means growth. Some will want to ask ethical questions. Is it right to be so greedy when so many people, both here and overseas, are so much worse off than ourselves? Some will simply say that wealthy people are not as “happy” as the rest of us — and will be contradicted by others. There are purely practical aspects too. Many of the forms of conspicuous consumption are very expensive, not merely to the affluent who buy them, but also to the community — luxury foods, alcohol, road accidents and the consequences in hospital and social welfare expenditure. Affluence can be very costly in terms of human welfare. I am reminded of Oliver Goldsmith’s lines, in “The Deserted Village,” written in 1770:

“11l fares the land, to hasten ills a prey, Where wealth accummulates, and men decay.” The situation Goldsmith described may or may not be becoming relevant to New Zealand n,ow. But at least it is a danger we should keep in mind as we pursue the objective of economic growth.