Wednesday, March 8, 2017

Growth of What? (2017)

The Cooking the Books column from the March 2017 issue of the Socialist Standard
In an article in the New York Times (6 February), 'The Economic Growth that Experts Can't Count', Patricia Cohen reported on criticism by some economists of increases in Gross Domestic Product as an adequate measure of economic growth. GDP, she wrote, 'is designed to measure production and just production – not welfare or happiness.'
'At its most basic, G.D.P. is calculated by looking at prices – the price of materials, workers, overhead and so on that it costs to make a product and the price that consumers in turn pay for that product. And while prices can be measured, they don't necessarily reflect the value of quality and experience. As far as G.D.P. is concerned, a delectable $20 meal that would wow Julia Child is equal to a rubbery, tasteless one that costs the same amount. The growing suspicion, however, is that in a digital world overflowing with free services like Facebook, Google and YouTube, price is an increasingly ill-suited proxy for value.'
This is true. GDP does not measure use-value (Cohen's 'value of quality and experience'); it measures only exchange-value expressed as price, or monetary value. This is the only sort of value that capitalism is concerned with increasing. Although what is produced does have a use-value (otherwise no one would want to buy it), this is not the aim of production; it's profit, the difference between what a capitalist firm pays to produce something (the exchange-value of the materials, energy, labour-power, etc) and what it obtains from selling it (the original exchange value + the new exchange value added in the course of production).
GDP is a measure of the exchange-value of new wealth produced as commodities in a country in the course of a year. 'Growth' is the amount this increases from one year to the next (when it does increase, that is, as from time to time it falls, as after the Crash of 2008).
GDP is calculated by adding up the 'value added' (the term actually used by national accounts statisticians) in each branch of industry or line of activity. Basically, this is the difference between what, apart from labour power, was paid for the materials, etc to produce goods or services  and the price obtained from selling it. In Marxian terms, very roughly, surplus value (s) + variable capital (v) as the wages and salaries of productive workers.
Supporters of capitalism say that growth in GDP is a good thing as it makes us all better off. They argue that, if the population remains the same or increases at a slower rate than GDP, each person has more. On average maybe, but this does not mean that everybody actually gets more. That would be to assume that the new wealth was evenly divided, which of course it is not. In practice, given the inequality of wealth ownership that is the basis of capitalism, 'to him that hath shall be given' and the rich get richer while the rest of us stay more or less the same.
In any event, as Cohen noted, GDP is not a measure of human welfare. It does not measure use-value. In fact, it includes products that are useful to capitalism but of no use to human welfare, such as arms and financial services. Bourgeois economists get into difficulty over GDP because, according to them, a good's price reflects its 'utility'. So they think that GDP is a measure of use-value as well as of exchange-value. But GDP can't count both as that would be to compare apples and pears.
Ironically, Marxian economics sees GDP for what it is – a measure only of the total amount of new exchange-value created by labour in the course of a year.