What is at the root of the global challenges of widening income gaps, job insecurity etc.? Some would say that it is the increasing ‘financialization’ of the economy. Rana Foroohar writes in a recent article in TIME magazine:
“consider that the financial sector now represents around 7% of the U.S. economy, up from about 4% in 1980. Despite currently taking around 25% of all corporate profits, it creates a mere 4% of all jobs. Trouble is, research by numerous academics as well as institutions like the Bank for International Settlements and the International Monetary Fund shows that when finance gets that big, it starts to suck the economic air out of the room. In fact, finance starts having this adverse effect when it’s only half the size that it currently is in the U.S.” (http://time.com/4327419/american-capitalisms-great-crisis/)
(Abandoned house in Detroit. Source: Wikimedia)
But is not only “American capitalisms great crisis” – it’s a global crisis. In Washington Post, E J Dionne, professor at Georgetown University, argues that the ‘Brexit’ reaction is at least partly due to the financialization of the economy, and a justified response from those who see themselves are increasingly marginalized:
“Citizens who live in the economically ailing peripheries of wealthy nations are in revolt against well-off and cosmopolitan metropolitan areas. Older voters lock in decisions that young voters reject. Traditional political parties on the left and right are being torn asunder […] The European idea was killed in part by right-wing Tories who think they can turn their island into a free-trade, low-regulation paradise. But it was also battered in traditionally Labour-voting industrial areas far away from a happy and generally prosperous London that voted overwhelmingly to stay […] technological change, globalization and financialization force the left-out to stare at prosperity from a great distance.” (https://www.washingtonpost.com/opinions/lessons-to-learn-from-the-brexit/2016/06/26/2642481e-3a4b-11e6-8f7c-d4c723a2becb_story.html)
In an article by Engelen, Konings & Fernandez (2010) it is argued that “…the fallout from the credit crisis has not been homogeneous across space. That some localities were hit harder than others suggests that there are distinct geographies of financialization.” Also here in Malmö (Sweden), a city that prides itself as a champion of innovation and diversity, the financialization of the economy has been identified as a major driver of segregation and increasing inequalities:
“To cope with the crisis of the 1980s and 90s Malmö became a part of the new global order that emerged during the 1980s, dominated by a relationship between finance-driven growth and an increasingly unequal welfare. This was done through a new type of politics, described as entrepreneurial city politics, which is more regional than municipal, governed through networks more than parliamentary assemblies and often involves the business community and technical/hard administrations […] The changes led to Malmö being put on the map as a successful node in the global economic development but at the same time deepened the earlier inequities. The poorest households have become poorer, in the absolute sense, while the most financially well-positioned households have become substantially better off since the beginning of the 1990s. The richest tenth have gone from being six times richer than the poorest tenth in 1990 to being twelve times as rich in 2008. […] Income inequality is largely explained by the household’s relation to the labour market.” (Malmö’s path towards a sustainable future, 2013; p. 46)
The financialization of the economy is clearly not a win-win process, but a process where a small minority wins , and a large majority loses. ‘Brexit’ can probably be regarded as a reaction to this – as well as the perplexing breakthrough of ‘The Trumpster’ in the US; a reaction from those who feel being left-out towards the ‘elites’. A paradox, however, is that these ‘anti-establishment’ initiatives are being fronted by billionaires and Etonians – with political agendas that will actually increase inequalities!
There is no lack of suggestions on how to change this situation. In Malmö’s case, the Commissions report have two overarching recommendations and a total of 24 objectives and 72 actions. On national and global levels, there are many who feel compelled to put forward suggestions – some more realistic than others. However, I would like to highlight the discourse on challenging the current domination of GDP metrics as well as their counterparts on regional and local level.
As one of the leading critics of GDP, professor Lorenzo Fioramonti (University of Pretoria), have argued, it’s dominance in policy-making on all levels needs to be challenged. “Gross Domestic Problem” is a title of one of his recent books where he outlines his thoughts. In a piece in Foreign Policy with the title “A post-GDP world” professor Fioramonti argues that:
“The concept of the GDP was introduced in the 1930s, when the myths of industrialization were uncontested and environmental and social concerns were less acute. But it is an outmoded tool for a generation increasingly concerned with social well-being and climate change.” (http://foreignpolicy.com/2015/06/02/a-post-gdp-world/)
Fioramonti suggest using alternative indicators, such as alternative indicators: the Social Progress Index, the Legatum Prosperity Index, the Environmental Performance Index, and Ecological Footprint. The results from these indicators would give a different view than if you compare countries globally based on GDP:
“Using these measures, conventional powers — both in the West and in the East — would rank far below countries that have been more successful at building equitable and sustainable economies.” (Idem)
Of course this would also be the case if different indicators were used also on regional and local levels. But it’s not the ranking that is relevant – it is the question of what would happen if the underlying perspectives of these alternative indicators would be implemented to review and evaluate public policies on different levels.
What if the well-being of humans and ecosystems rather than economic growth and increased private consumption would guide urban planning processes, for instance?
Utopian? Well, this is actually what is being done in Bhutan, a small country in the Himalayas, squeezed between India and China. ‘Gross National Happiness’ rather than economic growth guides the policy making process. Economic aspects are not neglected, but just one of nine domains that are covered the GNH model (read more about it HERE).
My suggestion is that Malmö should initiate a pilot project to develop, review and evaluate policies and public programmes based on a wider set of indicators and perspectives. One suggestion would be to build on the Social Progress Index, which already is well-developed and spread throughout the world.