Broad prosperity: a political search for balance?
In recent years, broad prosperity, sometimes also referred to as broadly defined wellbeing, has become more than just a policy concept in the Netherlands. And yet translating the concept into everyday practice remains a challenge. We put three of our VU professors, Bas Jacobs, Erik Verhoef and Henri de Groot, on the spot. On one thing, at least, they all agreed: if politicians don’t start taking broad prosperity really seriously, we will all soon be in for a very rude awakening.
Author: Rachelle Wagner
Where did it go wrong? For Henri de Groot, professor of Regional Economic Dynamics, it was in the 1970s, with economist Milton Friedman, the great champion of the free market. ‘I think Friedman, as an economist, did society a disservice. He managed to convince many that 'the social responsibility of business is to increase its profits'.’ In other words: profit maximisation is the most important thing for companies to focus on. De Groot sees this as an important turning point in modern history. ‘In my view, Friedman provided both Margaret Thatcher and Ronald Reagan with a justification for pursuing the policies they did.’ The consequences were not long in coming: ‘With Thatcher in particular, this led to her breaking the power of the unions in a very drastic way. This had consequences that were beneficial for companies, but detrimental to the “ordinary” man.’
‘That has gone too far and developed into a form of hyper-capitalism.'
But decades of growth followed, didn’t they? That’s right, De Groot agrees. ‘Initially, that brought us a great deal in terms of material prosperity.’ But at the same time, an ever-increasing concentration of power, with negative consequences for the environment and society. ‘That has gone too far and developed into a form of hyper-capitalism,’ says De Groot.
Profit versus prosperity
And then we come to the crucial point of this discussion: maximising profit is not the same as maximising well-being. But what exactly is well-being? And how do you measure it? Bas Jacobs, professor of Economics and Public Finance, is clear about this: ‘Well-being is a perfectly clear concept within economics. However, the knowledge that economists have gathered about this over the past century seems to have completely disappeared from the Dutch policy debate.’ He gives the example of how CBS tries to map well-being. ‘CBS now has more than two hundred indicators when it comes to well-being. But the point is that we should not be measuring more or less; we should start thinking clearly about well-being.’
‘CBS now has more than two hundred indicators when it comes to prosperity. But the point is that we should not be measuring more or less; we should start thinking clearly about well-being.’
He cites the way we look at work as an example. ‘CBS works with indicators that it rates as “positive for prosperity”, while a number of these indicators actually reduce prosperity from a standard economic perspective. Just think: if we all work much harder, we may be able to earn more income, but we are also making a sacrifice. We have less time for our friends, less time at home and less time with our children and parents. Working in itself therefore reduces well-being.’ Jacobs repeats an important rule of thumb in economics: ‘Things only count towards well-being if you make a sacrifice for them. Conversely, if you don’t make a sacrifice for something, it doesn’t count towards well-being.’
The bill comes due
Erik Verhoef, professor of Spatial Economics, starts from a different point but arrives at the same message: what you don’t take into account will come back to haunt you sooner or later. ‘If we don’t do anything about a number of important issues – climate, agriculture, drinking water, CO2 emissions – we’re really going to have a problem.’ One way or another, the bill will come due: if not here and now, then people elsewhere or in the future will have to pay it. The important question is: what are we going to do and what can we do about it?
Verhoef argues for the systematic incorporation of societal values into prices, including by putting a price on environmental impacts, and for the use of an instrument to make the future bill explicitly visible: a capital budget. ‘If you keep track of the value of, say, infrastructure and natural capital just as you keep track of money, overdue maintenance becomes apparent sooner,’ he explains. ‘Our national infrastructure now faces maintenance needs amounting to fifty to eighty billion euros. Not a penny has been reserved for that, precisely because we have never kept track of that value. While of course it should be as clear as day that roads built decades ago will at some point need maintenance.’
‘If we don’t do anything about a number of important issues – climate, agriculture, drinking water, CO2 emissions – we’re really going to have a problem.’
Coincidence or not, De Groot also points out that these kinds of hidden bills are untenable. He also looks ahead: ‘We are passing on huge bills to future generations. As a human being, I find that unpalatable, but I can also objectively demonstrate that the policy we are pursuing is really very stupid.’
Providing the framework
Exactly that – providing objective evidence, developing instruments, understanding and explaining how prosperity actually works – is where economists have a role to play. The three are unanimous on this. However, they cannot determine what choices should be made, what policy should be pursued or what compromises should be made. That is up to the government. As De Groot puts it: ‘As economists, we like to optimise subject to constraints. But we cannot know the social welfare function. As economists, we must also be honest about that. Because to determine it, you need weights.’ And those weights are subjective; the three professors agree. As a scientist, you shouldn’t want to determine them either. Verhoef: ‘We have to make sure that we show the frameworks for weighing values, without making that trade-off ourselves as economists.’ Jacobs adds: ‘As an economist, I ask myself how the government can achieve a particular societal conception of justice at the lowest cost. Without taking a position myself on what the right societal conception is.’ But before they can do that, it is very important that politicians determine what they think is important. ‘They should determine the weights,’ says De Groot. ‘And if they then give us those weights, we can start optimising.’
‘Broad prosperity is not for lazy decision-makers.’
But that’s exactly where the shoe pinches. Because politicians now prefer to be told what to do. That probably also explains the urge to reduce prosperity to one or a few figures. After all, that is a lot easier than taking into account all kinds of complex issues, trade-offs and consequences. But, says Verhoef, we have no choice: ‘We have to make trade-offs because our choices are going to become increasingly painful as scarcity increases across more and more dimensions.’ De Groot: ‘Broad well-being is not for lazy decision-makers. Many decision-makers don’t want to be explicit about what they consider important. Politics is failing us at the moment.’
‘I see that thinking about broad prosperity has become a left-wing hobby,’ Jacobs adds. ‘That’s unfortunate because prosperity is neither left-wing nor right-wing. If the left now takes up broad well-being, that apparently means that the right is against it.’ The result: a concept that has become politically deadlocked.
Understanding what’s going on
You might think that all of this means that scientists are washing their hands of the political and public debate. But nothing could be further from the truth – at least, not if you ask these three professors. De Groot therefore ends with an appeal: as a scientist, don’t just sit behind your desk. You also need to understand what is going on. ‘And that can’t be done from an ivory tower. You also have to be willing to get your hands dirty.’ Jacobs is very matter-of-fact about it: ‘What we do is a kind of plumbing: society says what it wants and we then think about how best to make it happen.’
Broad prosperity is therefore not a trick, but the instrument for making the inevitable choices open to discussion again. De Groot sums it up nicely: ‘For me, that is broad prosperity: a search for balance across all dimensions.’
Henri de Groot is Professor of Regional Economic Dynamics at Vrije Universiteit Amsterdam and a Crown Member of the Social and Economic Council of the Netherlands (SER). His research focuses on regional economic growth, energy and environmental economics, and technology adoption, and he teaches Regional and Urban Economics, Microeconomics, and Globalization and Transaction Costs.
Erik Verhoef is Professor of Spatial Economics at Vrije Universiteit Amsterdam, a research fellow at the Tinbergen Institute, and a council member of the Council for the Environment and Infrastructure (RLI). His research focuses on the economics of transport and on urban and spatial externalities, with an emphasis on policy design and evaluation. He teaches courses including Transport Economics, Microeconomics, and Spatial and Transport Economics (Tinbergen Institute).
Bas Jacobs is Professor of Economics and Public Finance at Vrije Universiteit Amsterdam and a research fellow of the Tinbergen Institute and CESifo. His research covers public finance, optimal taxation, welfare economics, human capital theory and labour economics.
DEEL DEZE PAGINA
