Measuring what Matters

 While I have investments, I have never felt the stock market is my bottom line. There are too many other factors more important when it comes to my well being or, more importantly, our nation’s well being. Thus, I bristle whenever I hear Dow Jones or S&P 500 numbers rattled off on the radio a half a dozen times a day.

It has been rewarding for me to discover top economic thinkers have similar concerns. Social, economic, and environmental factors all impact our well being. Economies, to thrive, need social stability. Without a benign climate, clean water, and clean air, achieving a healthy society is impossible.  This awareness has created an appreciation for societal and environmental stewardship at the top ranks of the capitalistic elite.

The old bottom-line measurement for national economic success was the Gross Domestic Product, (GDP). GDP, while important, only measures how much money moves around. It is a blunt tool measuring market activity.

Here are a couple glaring examples of GDP weakness.

If most of the money moving around the marketplace ends up in the hands of only a few does GDP measure the financial well-being of a nation? As I write, three US men own as much wealth as the bottom half of all US citizens combined?

Should we take satisfaction with the massive profits of pharmaceutical companies? These profits raise the GDP. Are the pharmaceutical billions measured by the GDP a measure of our well-being when many of these dollars came from pushing addictive opioids?  

Should we be pleased when our GDP measured economy rises as environmental health protections are removed?  Or, when we include government subsidized energy sold by fossil fuel companies which create health threatening pollution? Or, when the greenhouse gasses released destroy the planet we live on?

An even greater indictment of GDP as a measurement of societal health is the fact our medical expenditures spent to heal the ravages of opioids and pollution, and the taxes we commit to deal with environmental degradation deceptively raise our GDP. This further tricks us into thinking we are doing well.

Yet the stock market and GDP numbers are the societal yardsticks we worship.

If we start to measure what matters maybe the very nature of capitalism can be modified. This idea is not originating out of my head or a Marxist. These calls for a better way to measure success come from people at the pinnacle of capitalism. Some businesses are taking a new more holistic leadership role. The new reality of the marketplace and societal health is called sustainability.

Larry Fink is the CEO and Chairman of BlackRock the largest investment firm in the world managing 7.4 Trillion Dollars. He promotes standards for investing called ESG which stand for Environmental, Social, and Governance investing.

Today most large companies recognize their profits are threatened by climate change. To aid business decision making and in an effort to bring the climate threat to the attention of society, Mr. Fink supports new government requirements in the UK requiring large businesses to analyze and report their exposure to climate change. He also recommends the US government do the same via the Securities and Exchange Commission. Other suggested sector economic reports bringing climate change vulnerabilities to our attention could be done by the Federal Reserve and the Department of Labor.

Klaus Schwab, the founder of the world’s largest economic think tank, the World Economic Forum, recognizes the current capitalistic model is creating a chasm of economic inequality. The poorest of the world are also confronted with more climate harm and environmental deterioration than the wealthier. These factors inevitably lead to societal turmoil threatening the world economy.

His advice, “……it is only when government, businesses and individuals all play their respective roles, and agree on a social contract with shared responsibility that societal outcomes will be optimal.”

This shared responsibility by all members of society is called, “Stakeholder Capitalism”.  He has written a book by the same title due out in February.

The challenge, according to the Nobel Prize winner in Economics, Joseph E. Stiglitz, is for all of us to participate in creating measurement tools with which we can gauge our well being. We must regularly measure what matters to us.  Dr. Stiglitz served on the Organization of Economic Co-operation and Development (2013-2019). The OECD identified many factors impacting national quality of life.  The 11 indicators they thought most important to nations are these: Housing, Income, Jobs, Community, Education, Environment, Civic Engagement, Health, Life Satisfaction, Safety, and the Work-Life balance.

The bottom line, according to Professor Stiglitz, is a country and its citizenry, by broadening its vision and measuring the factors it deems important, can do a much better job of avoiding economic, societal, and environmental crisis than by simply using GDP.

If you examine the OECD list of quality of life indicators you may draw some insight into what matters in your life. From there you can share your thoughts with neighbors. From these conversations we can bring our concerns to our city and county leaders.  Eventually, these may make it up the political ladder to the policy makers at the state or even the national level.

For me, tracking our progress mitigating and adapting to climate change is job 1. If you examine all the quality of life factors above it is impossible to avoid the conclusion all factors depend on a benign climate.

The specter of a world beset by a hostile climate has raised awareness in every corner of the world whether it is our universities, governmental planners, insurance companies, investment firms, the United Nations, our Department of Defense,  banks, or even our children.  We are not in this alone. It is a big team. It is a team of stakeholders, stakeholders with responsibility.

Reference: Scientific American August 2020, “GDP is the Wrong Tool for Measuring What Matters”