Revisiting Stiglitz, Sen, and Fitoussi: Coronavirus edition
The coronavirus global pandemic is slated to have economic repercussions on par with the Great Depression. The last time the world was plunged into global economic chaos of this scale was the Global Financial Crisis (GFC).
In 2008, in the lead-up to the GFC, France’s President Sarkozy asked celebrated economists Joseph Stiglitz, Amartya Sen, and Jean Paul Fitoussi to establish a commission (the Commission on the Measurement of Economic Performance and Social Progress) to explore the reliability of current measurements and indicators for economic and social progress (which was later revised to specifically consider the context of the GFC).
Their final report[1], completed in 2009, made a number of recommendations and queried whether the metrics relied upon in economics ought to be replaced or reassessed. It also raised important questions challenging how economic and social progress is measured by GDP and highlighted its shortcomings.
In the wake of the coronavirus and the impact it will doubtlessly have on global economies. It may be time to re-examine the relevance of some of these findings and recommendations, to determine if there are recurring themes to the broader concerns raised by Stiglitz, Sen, and Fitoussi that have been again exposed by the global pandemic and its shake up of the global (and economic) status quo.
Inequality
The report flagged the importance of inequality in terms of measuring economic progress.
The recommendation was made that ‘quality of life indicators in all the dimensions covered should assess inequalities in a comprehensive way,’[2] citing that inequalities are integral in the assessment of quality to life across countries and in the context of development. The report went further to emphasise the importance of analysing inequalities in across people, socio-economic groups, gender, and generations, and those linked to immigration.
These concerns over inequality have once again reared their head in the context of the coronavirus. The multi-faceted nature of inequality that Stiglitz, Sen, and Fitoussi describe is ever relevant now. Elise Gould, a senior economist at the Economic Policy Institute in Washington, warned the discussion about inequality in the current context (focussing on the United States) could not be restricted only to jobs and unemployment, saying: “It’s about health and working conditions and access to health insurance. All of these things highlight that there’s two different societies in this country. Because of rising inequality, more people are vulnerable.”[3]
The virus has forced many issues into the spotlight that may be catalysts for difficult conversations (and vital policy) regarding inequality in the years to come. After all, the disparity between sectors and their respective abilities to whether these disruptions to their work whilst protecting workers is clear.
Professional sectors wherein workers are more able to either work from home (given the knowledge-based work they undertake) or have access to paid sick leave is a stark contrast to those workers who are less equipped to manage coronavirus-related disruptions.
Certain frontline workers such as supermarket employees, those working in public transport, and other low-skilled essential services are also more likely to be at risk of contracting the virus whilst simultaneously falling under the umbrella of lower income-earning occupations. This means, unless sufficient protections are put in place, they are simultaneously the workers most ‘at risk’ as well as those less able to simply ‘work from home’ or individually mitigate their risk (compared to other sectors).
Those in similar positions such as trades people, and those working in the hospitality, food, and retail industries face similar difficulties though their challenges are also exacerbated by ‘stay at home’ orders and lockdowns which effectively throttle cash flow and income generation.
Multifaceted wellbeing
Another theme in the report was the inadequacy of GDP as a comprehensive metric of wellbeing and economic development. Sen, Stiglitz, and Fitoussi criticise the measure as lacking in terms of covering many economic, social, and environmental dimensions.
A more appropriate indicator, as per their recommendation, would emphasise income distribution (echoing earlier concerns regarding inequality), consumption, and wealth. Furthermore, parameters of health, education, and environmental conditions were all relevant when analysing wellbeing but had been largely excluded up to this point.
The coronavirus pandemic has moreover introduced an interesting element of this discussion, namely how GDP’s blanket assessment of economic strength and population wellbeing may indeed possess some inherent flaws.
After all, GDP does not account for growth, wellbeing or living standards barring income (GDP per capital crudely takes into account population size, whilst real GDP per capita also goes so far as to shepherd inflation into the picture).
To illustrate this limitation, the United States regularly tops the list of top national GDPs (and is generally high ranking in GDP per capita) however as discussed earlier, this only takes into account the nation’s production and trade.
Parameters such as health are not encompassed in any way in this metric, so what is omitted from this general picture is the fact that, despite having the world’s highest GDP, the United States also has one of the most debated healthcare systems. With health insurance tied to employment, the flaws of this system (and the impact of it on the population after an estimated thirty-six million American workers are made unemployed by the coronavirus pandemic)[4] have been brutally thrust into the spotlight.
This naturally also interacts with the earlier discussion of inequality to further paint a worrying picture of an overreliance on an economic metric which, whilst not without clear relevance, possess evident flaws which bear recognition.
Conclusion
Ultimately, Stiglitz, Sen, and Fitoussi maintain that ‘statistical indicators are important for designing and assessing policies aimed at advancing the progress of society as well as assessing and influencing the functioning of economic markets.’[5] However, this is qualified by the understanding that if the metrics underlying decision making are flawed, it would follow that, so too would the ensuing decisions.
What the commission’s report also makes clear, is that GDP, a broad general metric, fails to take into account complex and significant economic and social factors which are integral to a considered and nuanced measurement of wellbeing. As the world continues to change and economies scramble to respond to coronavirus, these factors become increasingly difficult to shut your eyes to.
The coronavirus pandemic and the damage it is, and will likely continue to, wreak on global economies only highlights why it may be time to both heed the warnings outlined by the discussed report and explore new parameters for economic strength and population wellbeing.
[1] Commission on the Measurement of Economic Performance and Social Progress. (2009). Report by the Commission on the Measurement of Economic Performance and Social Progress. France, Joseph E. Stiglitz, Amrtya Sen, Jean-Paul Fitoussi.
[2] Commission on the Measurement of Economic Performance and Social Progress. (2009). Report by the Commission on the Measurement of Economic Performance and Social Progress. France, Joseph E. Stiglitz, Amrtya Sen, Jean-Paul Fitoussi. 15.
[3] McGreal, C. (2020, April 10). American inequality laid bare. The Guardian. Retrieved from https://www.theguardian.com/world/2020/apr/09/america-inequality-laid-bare-coronavirus
[4] Cohen, P. & Hsu, T. (2020, May 14). ‘Rolling Shock’ as Job Losses Mount Even With Reopenings. The New York Times. Retrieved from https://www.nytimes.com/2020/05/14/business/economy/coronavirus-unemployment-claims.html
[5] Commission on the Measurement of Economic Performance and Social Progress. (2009). Report by the Commission on the Measurement of Economic Performance and Social Progress. France, Joseph E. Stiglitz, Amrtya Sen, Jean-Paul Fitoussi. 7.
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