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OECD Says: Beyond Growth (Report Review)

Updated: Jul 27, 2022

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[In the previous article, we looked at our current ‘neoclassical’ economic model which has GDP growth as its singular goal. It’s a blind model, a blunt tool, unworthy of the 21st century. We also looked at five different economic models.

Today, we’ll review the OECD’s ‘Beyond Growth’ report. It’s refreshing and surprising to realize that even the OECD thinks differently about what used to be unquestionable – the primacy of growth.

In their words: “We can no longer rely on economic growth on its own to make our societies better off.”]

Do you believe that the economy must grow forever?

I always felt uneasy about it. It seemed crazy that on a finite planet with finite resources, something can grow forever.

And these ideas were easy to share with friends, girlfriends, and relatives, but I never shared them with clients or while working for a big company as a sustainability manager.

Why? It was taboo and belonged to the you-just-can’t-say-that category. It seemed like growth is the only option.

So if you’re in that situation, in an environment where it's taboo to challenge the golden status of evergrowth, and you worry about being ostracized for your legitimate concerns, you’re going to love the OECD’s ‘Beyond Growth’ report which we’ll review here.

Look, if ‘Beyond Growth’ was written by the UN, the Greens, Greenpeace, WWF, David Attenborough, Bob Brown, or Tim Flannery, I wouldn’t bother reading it let alone reviewing it.

Coz that would've been predictable.

But this was written, in 2020, by the Organisation for Economic Co-operation and Development. OECD is in bed with the IMF and the World Bank. They are not greenies or ‘lefties’.

A quick review of the OECD before we dive in…

Founded in 1961, it’s the international economic organization of the 38 most advanced and democratic countries. (It isn’t simply 'group of rich’, e.g. Saudi Arabia, Iran, China, and Russia are out).

Initially, its main focus was to prevent wars through market tools, such as stimulation of economic progress and world trade. Then, in the 70s and 80s, it progressed to a purely economic organization focusing on markets and global trade.

But its current mission is broader - to “build better policies for better lives” and its goal is to “shape policies that foster prosperity, equality, opportunity and well-being for all, to better prepare the world of tomorrow.”

In 2020, they published ‘Beyond Growth - Towards a New Economic Approach’

Okay, let's get into it…

a) They acknowledge that the neoclassical economics (our current model since the 1980s, crucified here) with GDP growth as its single objective is insufficient and damaging.

For example…

· Liberalised financial markets don’t, as this model assumes, generate an optimal allocation of resources (p.21)

· Increasing liberalisation of international trade does not have the widespread economic benefits formerly assumed, particularly for already open economies (p.22)

· Neoclassical model views the economy as an equilibrating system (market does the balancing out and correcting), but the reality is constant ‘turbulent flux’ (p.21)

· Neoclassical model views people as rational individuals, acting in self-interest, as though in isolation. But people aren’t rational calculating machines, performing comprehensive data analysis, then making logical decisions. They’re biased, following rules of thumb and frames of thought, nested in morality, habits, and culture (p.20)

· Neoclassical model puts liberalized markets on a pedestal. But it ignores the fact that “markets are brought into being by institutions and the social rules they embody: by law, custom, social norms, the structure and ownership of businesses, by public policy. All of these – and therefore reforms to them – can change the ways in which different kinds of market operate, and the outcomes they generate. The idea of ‘market competition’ is simply too narrow a frame to understand this.” (p.20)

· Neoclassical model views the economy in isolation, as a bubble, through a ‘timeless frame of reference: understood as a set of equilibrating markets, the economy is analysed with little reference to its own history or to the processes of change.’ (p.21)

· Macroeconomists failed to ‘predict the financial crash of 2008, and the continued weakness of many developed economies despite the very low interest rates’ (p.21)

· ‘Neoclassical economics understands environmental degradation as a form of market failure, where environmental goods are unpriced.’ (p.22)

But this view is narrow, assuming the environment follows a linear rationale. It views the environment as though it were the subsystem of the economy – and seeks market mechanisms to “correct” it.

b) The OECD acknowledges that the primary focus on growth WAS sufficient for over 70 years, because growth (national income) translated into raising household incomes and living standards, raised employment, reduced poverty, and provided tax for governments to spend on services.

But not anymore.

While the OECD recognizes its place, it notes (p.15) that the singular focus on growth has “generated significant harms”:

o Rising inequality – “In almost all OECD countries, the last forty years have seen a declining share of national income going to wages and salaries (labour), with a rising share going to the owners of capital.” No surprises about the rise of neomarxism.

o Environmental degradation – “Climate change, air and marine pollution, and ecological breakdown are already damaging the lives and livelihoods of millions of people around the world; they risk catastrophic damage to our economies and societies within the next few decades unless currently dominant forms of production and consumption are radically changed.”

o Decreased wellbeing – “For most people today, rising GDP is no longer a sufficient measure either of their own wellbeing or their sense of society’s economic progress”

But this isn’t about abandoning growth…

c) but rather “changing the composition and structure of economic activity to achieve the multiple goals of a more rounded vision of economic and social progress” (p.17).

They note (p.15) that “it’s not enough for GDP to be rising, if the underlying patterns of growth are generating significant harms at the same time. It is the type of economic activity which matters. This is why we believe politicians and policymakers need to go ‘beyond growth’. They need to ensure that, alongside rising GDP – and as a result of it – economic policy is achieving a wider set of objectives and measures of economic and social progress.”

d) to fix the above problems, “correcting market failures will not be sufficient; markets can also be ‘shaped’ in pursuit of publicly-determined goals.” The problems “arise from structural features of modern economies. So they will require a more profound shift in the kinds of policy which governments use to address them, not by incremental changes to existing policies. The OECD calls for the goals (below) they set out to be built into the design of policy, not a by-product. Because if they aren’t, the environmental considerations, for example, will continue to be “dealt with ‘after the event’ rather than as integral to economic policy.” These goals are:

· Environmental sustainability

· Rising wellbeing

· Falling inequality

· System resilience

The OECD believes that the “countries which seek to achieve these four goals, rather than giving overwhelming priority to growth, will experience a more balanced path of economic and social development, with better outcomes for both current and future generations. If we were to suggest a simple phrase to summarise this, we might describe it as a path of development which meets the needs of both people and planet.” (p.16)

They endorse the concepts of ‘inclusive growth’, ‘green growth’, sustainable development, and SDGs but warn that “these terms can be used with a range of meanings, and have sometimes been accompanied by rather minimal policy changes in practice.”(p.17)

This report is bold. I like it.

While reading it, I was getting a sense of real change in the wind, perhaps because it’s by the OECD, instead of the usual talking heads.

But don’t expect a list of ‘five ways to a just, green, and fair economy’ or similar nonsense.

I’m glad that it isn’t at the simplistic checklist level but goes deeper. There is plenty of digital, linear thinking around.

Complex systems, such as a new economic model, can’t be relegated to a grocery list of action steps to follow, like a weight-loss program.

I often see attempts to distill complex systems (but also relationships, life, or career) into a simple formula, a checklist, or ‘5 tips to _____’.

Nothing wrong with having a list of steps. But that comes naturally later, as we reflect on the past in the current context (e.g. damaging neoclassical economic model); by concretizing it we’ll get to the steps later. Checklists and steps are useful only if the task / challenge is simple to understand (e.g. making a cake), if the goal is clear, or if the consensus about the goal has been reached, the decision made, and the course of action set.

This report is at the level of principles, not strategy, let alone tactics.

It’s not about weight loss, making a birthday cake, house cleaning, or dog grooming – activities where the “five ways to ___” approach is appropriate.

As one wise philosopher said: “Don’t despise theory, theory guides practice; it's theory which creates possibilities, it's theory which critiques fruitless practice.”

Let’s not forget that the OECD is an intl. umbrella for a group of 38 advanced economies. It’s not the Treasury of the UK or Australia or Sweden. Or your accountant.

The report calls for a paradigm shift, recognizing that the 38 member states are sovereign, realizing that “no single prescription will fit all circumstances. Every country is different, and each will wish to find its own way”. Great to see in a sea of hacks and prescriptions.

It’s gonna take years to dethrone growth and put it on the same level with the environment - or below.

But this report is a solid sign that the wind is shifting!

Thanks for reading.


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