The AI Road to Serfdom?

February 23, 2019

by Robert Skidelsky

https://www.project-syndicate.org/commentary/automation-may-not-boost-worker-income-by-robert-skidelsky-2019-02

Estimates of job losses in the near future due to automation range from 9% to 47%, and jobs themselves are becoming ever more precarious. Should we trust the conventional economic narrative according to which machines inevitably raise workers’ living standards?

Estimates of job losses in the near future due to automation range from 9% to 47%, and jobs themselves are becoming ever more precarious. Yet automation also promises relief from most forms of enforced work, bringing closer to reality Aristotle’s extraordinary prediction that all needed work would one day be carried out by “mechanical slaves,” leaving humans free to live the “good life.” So the age-old question arises again: are machines a threat to humans or a means of emancipating them?

In principle, there need be no contradiction. Automating part of human labor should enable people to work less for more pay, as has been happening since the Industrial Revolution. Hours of work have fallen and real incomes have risen, even as the world’s population increased sevenfold, thanks to the increased productivity of machine-enhanced labor. In rich countries, productivity – output per hour worked – is 25 times higher than it was in 1831. The world has become steadily wealthier with fewer man-hours of work needed to produce that wealth.

Why should this benign process not continue? Where is the serpent in the garden? Most economists would say it is imaginary. People, like novice chess players, see only the first move, not the consequences of it. The first move is that workers in a particular sector are replaced by machines, like the Luddite weavers who lost their jobs to power looms in the nineteenth century. In David Ricardo’s chilling phrase, they become “redundant”.

.But what happens next? The price of clothes falls, because more can be produced at the same cost. So people can buy more clothes, and a greater variety of clothes, as well as other items they could not have afforded before. Jobs are created to meet the shift in demand, replacing the original jobs lost, and if productivity growth continues, hours of work can fall as well.

Notice that, in this rosy scenario, no trade unions, minimum wages, job protections, or schemes of redistribution are needed to raise workers’ real (inflation-adjusted) income. Rising wages are an automatic effect of the fall in the cost of goods. Provided there is no downward pressure on money wages from increased competition for work, the automatic effect of technological innovation is to raise the standard of living.

This is the famous argument of Friedrich Hayek against any attempt by governments or central banks to stabilize the price level. In any technologically progressive economy, prices should fall except in a few niche markets. Businessmen don’t need low inflation to expand production. They need only the prospect of more sales. “Dearness” of goods is a sign of technological stagnation.

But our chess novice raises two important questions: “If automation is not confined to a single industry, but spreads to others, won’t more and more jobs become redundant? And won’t the increased competition for the remaining jobs force down pay, offsetting and even reversing the gains from cheapness?”

Human beings, the economist replies, will not be replaced, but complemented. Automated systems, whether or not in robot form, will enhance, not destroy, the value of human work, just as a human plus a good computer can still beat the best computer at chess. Of course, humans will have to be “up-skilled.” This will take time, and it will need to be continuous. But once up-skilling is in train, there is no reason to expect any net loss of jobs. And because the value of the jobs will have been enhanced, real incomes will continue to rise. Rather than fearing the machines, humans should relax and enjoy the ride to a glorious future.

Besides, the economist will add, machines cannot replace many jobs requiring person-to-person contact, physical dexterity, or non-routine decision-making, at least not any time soon. So there will always be a place for humans in any future pattern of work.

Ignore for a moment, the horrendous costs involved in this wholesale re-direction of human work. The question is which jobs are most at risk in which sectors. According to MIT economist David Autor, automation will substitute for more routinized occupations and complement high-skill, non-routine jobs. Whereas the effects on low-skill jobs will remain relatively unaffected, medium-skill jobs will gradually disappear, while demand for high-skill jobs will rise. “Lovely jobs” at the top and “lousy jobs” at the bottom, as LSE economists Maarten Goos and Alan Manning described it. The frontier of technology stops at what is irreducibly human.

But a future patterned along the lines suggested by Autor has a disturbingly dystopian implication. It is easy to see why lovely human jobs will remain and become even more prized. Exceptional talent will always command a premium. But is it true that lousy jobs will be confined to those with minimal skills? How long will it take those headed for redundancy to up-skill sufficiently to complement the ever-improving machines? And, pending their up-skilling, won’t they swell the competition for lousy jobs? How many generations will have to be sacrificed to fulfil the promise of automation? Science fiction has raced ahead of economic analysis to imagine a future in which a tiny minority of rich rentiers enjoy the almost unlimited services of a minimally-paid majority.

The optimist says: leave it to the market to forge a new, superior equilibrium, as it always has. The pessimist says: without collective action to control the pace and type of innovation, a new serfdom beckons. But while the need for policy intervention to channel automation to human advantage is beyond question, the real serpent in the garden is philosophical and ethical blindness. “A society can be said to be decadent,” wrote the Czech philosopher Jan Patočka, “if it so functions as to encourage a decadent life, a life addicted to what is inhuman by its very nature.”

It is not human jobs that are at risk from the rise of the robots. It is humanity itself.

Robert Skidelsky, Professor Emeritus of Political Economy at Warwick University and a fellow of the British Academy in history and economics, is a member of the British House of Lords. The author of a three-volume biography of John Maynard Keynes, he began his political career in the Labour party, became the Conservative Party’s spokesman for Treasury affairs in the House of Lords, and was eventually forced out of the Conservative Party for his opposition to NATO’s intervention in Kosovo in 1999.

‘The Vagina Monologues’: Untold stories of womanhood

February 19,2019

by Som Kanika / Khmer Times

https://www.khmertimeskh.com/50578880/the-vagina-monologues-untold-stories-of-womanhood/

Each of the monologues deals with an aspect of the feminine experience. KT/Som Kanika

It was in 1996 when Eve Ensler’s “The Vagina Monologues” premiered in New York City. More than two decades on, the episodic play continues to draw women together and inspire them to embrace their bodies and womanhood. During last week’s Phnom Fem Fest, “The Vagina Monologues” was brought again to Phnom Penh to empower Khmer women, writes Som Kanika.

Drawing inspiration from the an episodic play “The Vagina Monologues” written by Eve Ensler and was first performed in 1996, a group of local and expat women worked hard to bring the motivational play to Cambodia in time for the Phnom Fem Fest which began on February 15.

“The Vagina Monologues” explores consensual and nonconsensual sexual experiences, body image, genital mutilation, direct and indirect encounters with reproduction, sex work, and several other topics through the eyes of women with various ages, races, sexualities, and other differences.

. .

The monologues use the female reproductive organ as a tool for empowerment. KT/Som Kanika

Shauna O’Mahony, Men Sonita, Emily Marques, Phoebe Ray and Alex Kennett – the directors of the Phnom Fem Fest – said that playing the thought-provoking “The Vagina Monologues” story in Phnom Penh was meant to inspire and empower Cambodian women to embrace their womanhood and fight for their rights. With its three-night run from February 15 to 17, the play drew a large crowd at the Chinese House on Preah Sisowath Quay.

The Vagina Monologues is made up of various personal monologues read by a diverse group of women. Originally, Eve Ensler performed every monologue herself, with subsequent performances featuring three actresses, and more recent versions featuring a different actress for every role. Each of the monologues deals with an aspect of the feminine experience, touching on matters such as sex, sex work, body image, love, rape, menstruation, female genital mutilation, masturbation, birth, orgasm, the various common names for the vagina or simply as a physical aspect of the body. A recurring theme throughout the piece is the vagina as a tool of female empowerment, and the ultimate embodiment of individuality.

The play – first performed Off-Broadway and in locations around the world by Ms Ensler – delves into the mystery, humor, pain, power, wisdom, outrage and excitement in women’s experiences. V-Day grew out of the play which exploded onto the scene in 1998, breaking taboos about women’s sexuality and shattering silence around violence done to women and girls. Strong language and sexual content. Recommended for ages 16 and older.

Having committed in the play writing and rehearsal for more than three months, Ms Sonita, emphasised that, “In this country, the word ‘vagina’ is one of the most sensitive topic and not too many women have the courage to talk about it. However, we can see that there are many issues that we need to know and discuss about vagina, such as health issues, its beauty and function. But talking about these seemed to cause condemnation before because it contradicts the code of conduct set for women in Cambodia. By creating this festival and performance, we want to change how women and the society in general see this sensitive topic. We want to break taboos in term of discussing a woman’s body in publich. We want to encourage more women to talk about the importance of their body because there’s really nothing to be ashamed of.”

Ms Sonita further note, “The inspiration leading me to take part in this festival and performance is my family. I grew up in an environment where my family gave me freedom to follow what I believe is right, and they listen to my opinion. And taking part in this festival and creating it up is part of my core desire to see Cambodian women in the next generation to have this kind of freedom, too.”

. .

“The Vagina Monologues” producer and director Alex Kennett, who has been living in Cambodia for 21 months now, noted that the play had been performed in Cambodia a few times before and people enjoyed it very much. “But this year, we would like to change some things including the Khmer translation and the participation of Khmer women performers, which is really important to us because what the monologue has to say is something that is for women everywhere. And I find that the ideas are really powerful so we wanted to bring it here.”

One of the interesting facts about the three-day Phnom Fem Festival and “The Vagina Monologues” performances was the producers and directors’ choice of highlighting specific issues that are relevant in Cambodia’s present situation.

Some of the actors of the thought-provoking play. KT/Som Kanika

“Each year they make a new issue that they want to focus on and for this year one of among the three spotlights is ‘incarceration of women’ which was in line with the 40th anniversary of the end of Khmer Rouge. It talked about the story of imprisonment of women at that time,” Ms Kennett said.

A theater performer and enthusiast, 22-year-old Ham Sovanpidor, was glad to be part of the play and deliver a strong message to her fellow women.

“This event is created for women and having women to participate in is really important in a way that shows Cambodia women should have a courage to talk more about her sex matters because the performance will feature many aspects of feminine experiences related sex beauty, menstruation, organism and more which are all related to women in general and it is vital for them to know too,” said Ms Sovanpidor, a student at the Department of Media and Communication.

Phnom Fem Fest is a registered international V-Day event, and this year’s V-Day spotlight was focused on ending gender-based violence and supporting previously incarcerated women. All profits from Phnom Fem Fest would go directly to Early Years Behind Bars, an initiative from a local human rights NGO that supports women, mothers and children in Cambodian prisons.

 

Our Infant Information Revolution

June 15, 2018

by Joseph S. Nye

https://www.project-syndicate.org/commentary/infant-information-revolution-by-joseph-s–nye-2018-06

 

In the middle of the twentieth century, people feared that advances in computers and communications would lead to the type of centralized control depicted in George Orwell’s 1984. Today, billions of people have eagerly put Big Brother in their pockets.

 

CAMBRIDGE – It is frequently said that we are experiencing an information revolution. But what does that mean, and where is the revolution taking us?

Information revolutions are not new. In 1439, Johannes Gutenberg’s printing press launched the era of mass communication. Our current revolution, which began in Silicon Valley in the 1960s, is bound up with Moore’s Law: the number of transistors on a computer chip doubles every couple of years.

Information provides power, and more people have access to more information than ever before, for good and for ill. That power can be used not only by governments, but also by non-state actors ranging from large corporations and non-profit organizations to criminals, terrorists, and informal ad hoc groups.–Joseph S. Nye

By the beginning of the twenty-first century, computing power cost one-thousandth of what it did in the early 1970s. Now the Internet connects almost everything. In mid-1993, there were about 130 websites in the world; by 2000, that number had surpassed 15 million. Today, more than 3.5 billion people are online; experts project that, by 2020, the “Internet of Things” will connect 20 billion devices. Our information revolution is still in its infancy.

The key characteristic of the current revolution is not the speed of communications; instantaneous communication by telegraph dates back to the mid-nineteenth century. The crucial change is the enormous reduction in the cost of transmitting and storing information. If the price of an automobile had declined as rapidly as the price of computing power, one could buy a car today for the same price as a cheap lunch. When a technology’s price declines so rapidly, it becomes widely accessible, and barriers to entry fall. For all practical purposes, the amount of information that can be transmitted worldwide is virtually infinite.

The cost of information storage has also declined dramatically, enabling our current era of big data. Information that once would fill a warehouse now fits in your shirt pocket.

In the middle of the twentieth century, people feared that the computers and communications of the current information revolution would lead to the type of centralized control depicted in George Orwell’s dystopian novel 1984. Big Brother would monitor us from a central computer, making individual autonomy meaningless.

Instead, as the cost of computing power has decreased and computers have shrunk to the size of smart phones, watches, and other portable devices, their decentralizing effects have complemented their centralizing effects, enabling peer-to-peer communication and mobilization of new groups. Yet, ironically, this technological trend has also decentralized surveillance: billions of people nowadays voluntarily carry a tracking device that continually violates their privacy as it searches for cell towers. We have put Big Brother in our pockets.

Likewise, ubiquitous social media generate new transnational groups, but also create opportunities for manipulation by governments and others. Facebook connects more than two billion people, and, as Russian meddling in the 2016 US presidential election showed, these connections and groups can be exploited for political ends. Europe has tried to establish rules for privacy protection with its new General Data Protection Regulation, but its success is still uncertain. In the meantime, China is combining surveillance with the development of social credit rankings that will restrict personal freedoms such as travel.

Information provides power, and more people have access to more information than ever before, for good and for ill. That power can be used not only by governments, but also by non-state actors ranging from large corporations and non-profit organizations to criminals, terrorists, and informal ad hoc groups.

This does not mean the end of the nation-state. Governments remain the most powerful actors on the global stage; but the stage has become more crowded, and many of the new players can compete effectively in the realm of soft power. A powerful navy is important in controlling sea-lanes; but it does not provide much help on the Internet. In nineteenth-century Europe, the mark of a great power was its ability to prevail in war, but, as the American analyst John Arquilla has pointed out, in today’s global information age, victory often depends not on whose army wins, but on whose story wins.

Public diplomacy and the power to attract and persuade become increasingly important, but public diplomacy is changing. Long gone are the days when foreign service officers carted film projectors to the hinterlands to show movies to isolated audiences, or people behind the Iron Curtain huddled over short-wave radios to listen to the BBC. Technological advances have led to an explosion of information, and that has produced a “paradox of plenty”: an abundance of information leads to scarcity of attention.

When people are overwhelmed by the volume of information confronting them, it is hard to know what to focus on. Attention, not information, becomes the scarce resource. The soft power of attraction becomes an even more vital power resource than in the past, but so does the hard, sharp power of information warfare. And as reputation becomes more vital, political struggles over the creation and destruction of credibility multiply. Information that appears to be propaganda may not only be scorned, but may also prove counterproductive if it undermines a country’s reputation for credibility.

During the Iraq War, for example, the treatment of prisoners at Abu Ghraib and Guantanamo Bay in a manner inconsistent with America’s declared values led to perceptions of hypocrisy that could not be reversed by broadcasting images of Muslims living well in America. Similarly, President Donald Trump’s tweets that prove to be demonstrably false undercut American credibility and reduce its soft power.

Public diplomacy and the power to attract and persuade become increasingly important, but public diplomacy is changing. Long gone are the days when foreign service officers carted film projectors to the hinterlands to show movies to isolated audiences, or people behind the Iron Curtain huddled over short-wave radios to listen to the BBC. Technological advances have led to an explosion of information, and that has produced a “paradox of plenty”: an abundance of information leads to scarcity of attention.–Joseph S. Nye

The effectiveness of public diplomacy is judged by the number of minds changed (as measured by interviews or polls), not dollars spent. It is interesting to note that polls and the Portland index of the Soft Power 30 show a decline in American soft power since the beginning of the Trump administration. Tweets can help to set the global agenda, but they do not produce soft power if they are not credible.

Now the rapidly advancing technology of artificial intelligence or machine learning is accelerating all of these processes. Robotic messages are often difficult to detect. But it remains to be seen whether credibility and a compelling narrative can be fully automated.

Joseph S. Nye

 

Joseph S. Nye, Jr., a former US assistant secretary of defense and chairman of the US National Intelligence Council, is University Professor at Harvard University. He is the author of Is the American Century Over?

 

Democracy and Press Freedom

May 18, 2018

by Amb. Dennis Ignatius

http://www.malaysiakini.com

COMMENT | Democracy brings with it its own dividends. One of them is press freedom.

Freed from the shackles of government control, the Malaysian press is already exploring the limits of its new found freedom to articulate news, views and opinions. Our dismal ranking – near the bottom of the list in the World Press Freedom Index (145 out of 180 countries) – will now improve dramatically. Perhaps we might even become a poster boy for press freedom, at least in ASEAN.

No More Vandalism of the Media

I anticipate that with time we’ll once again have a noisy and assertive press. There are lots of enterprising and intrepid reporters out there who are just raring to do their job once again. We must release them to their professionalism and passion if we want to strengthen our democracy.

I’ve been  a columnist and commentator for almost 10 years now. I know what it’s like to be censored, to feel anxious about crossing some invisible line, to worry about whether I might run afoul of some foul law or upset some powerful person somewhere.

Journalists, columnists and commentators should never have to fear the state. But that’s over and done with; I feel freedom’s caress in a very real way now as I write.

We cannot afford to be complacent about the press ever again. A free press is fundamental to democracy, fundamental to keeping our government honest and accountable, and the people informed.

To that end, we must insist that our new government act quickly to rid our nation of every single repressive law. No journalist should ever have to worry about exposing wrongdoings, malfeasance or corruption no matter who is involved. No editor should ever have to worry about a call from the Ministry of Home Affairs. Both government and public officials need to operate in the full glare of public scrutiny.

Abdul Rani  Kulup–King of Police Reports–is out of business

As well, we should stop the childish behaviour of making police reports whenever someone says something unpleasant against the prime minister or other public figures, as a group in Kedah did recently (claiming that someone had said something offensive about Prime Minister Dr Mahathir Mohamad). Public figures don’t deserve special protection from criticism or insult. In any case, Mahathir himself won’t be losing any sleep over being called names; he’s been called worse before and look where he is now.

Television and the print media should also be free of government control or influence; it gives them too much power to impose their views on the nation. Political parties, too, should get out of the media business. Hopefully, the new government will act decisively to free the media from political control. We certainly don’t want to see the mainstream media now become unthinking and fawning echo chambers of the new government.

Coming back to life

The air of freedom that is already penetrating mainstream media is now forcing them to reinvent themselves. Suddenly, public broadcasting and the print media are coming back to life.

Hooligans and Racists like Jamal Yunos and his Red Shirts will now have to bear the full brunt of the law if they intimidate journalists and disrupt public order

One TV channel, for example, carried a banner encouraging their viewers to celebrate our democracy. Another long-repressed reporter who had for years considered Mahathir a dirty word suddenly found the courage to give him advice on democracy. Strong stuff by the standards of our hitherto moribund mainstream media but it’s a good beginning.

For the first time, I find myself watching the news on local TV instead of automatically switching to CNN, BBC or Al-Jazeera.

I once wrote for a major English daily but resigned in disgust after a few years and refused to buy any of the local newspapers. Like many Malaysians, I refused to support the ‘dummification’ of the media, refused to be party to lopsided, blatantly dishonest reporting.

Well, I bought my first copy of a local newspaper a few days ago and I confess the content and tone have improved. Perhaps I can now look forward to once again spending part of my day, teh tarik in hand, reading the local papers.

Online news portals like Malaysiakini, Free Malaysia Today (FMT) and the now defunct Malaysian Insider have kept the flame of press freedom burning through the long dark years of oppressive government. So many of their journalists worked long hours with little pay and endured harassment and rejection because they were passionate about their profession.

Malaysiakini: Free at Last to pursue responsible journalism

Many of us will always be grateful to editors like Steven Gan, Nelson Fernandez and Jahabar Sadiq for their courage in publishing all our highly critical and near subversive articles about Umno-BN and the Najib administration when no one else would. They upheld freedom of expression and the right to criticise the government when both were abandoned by mainstream media. They and their staff ought to be hailed as heroes of our democracy.

In the new environment of press freedom, online media like Malaysiakini and FMT will now become mainstream. Perhaps it’s time for a print version of Malaysiakini or an FMT daily or even a KiniTV channel. One thing is sure: competition will result in better and more qualitative news coverage and lead to a flowering of investigative journalism. What a thrilling prospect! Politicians take heed.

Whatever it is, the sooner the media is revamped and given the freedom to do their duty without fear or favour, the safer our democracy will be.

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DENNIS IGNATIUS is a former ambassador. He blogs here.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

Making Academia Matter Again

April 19, 2018

by  Abraham Loeb

https://www.project-syndicate.org/commentary/academia-support-diversity-innovation-by-abraham-loeb-2018-04

Academics can no longer afford to pat themselves on the back and celebrate their own privileges. If they are to defend the freedom of their enterprise, they must restore dialogue with the broader public and ensure that the relevance of their research – and how research actually occurs – is well understood.

 

CAMBRIDGE – Academic freedom is a precious commodity, critical to ensure that discovery of the truth is not encumbered by political or ideological forces. But this does not mean that intellectuals should hide in academic bunkers that, by protecting us from criticism by “non-experts,” allow ego to flourish and enable a focus on questions that are not actually relevant to anyone else. We experts should have to explain ourselves.

The University of Cambodia, Phnom Penh

 

This means, first and foremost, that researchers should be communicating their results in a way that supports accountability and confirms that public funds and education benefits are being used in ways that are in taxpayers’ interests. The duty to communicate findings also ensures that the public is educated, not only about the topic itself, but also about the way research actually works.

Scholarly books and journals often give the impression that the truth is revealed through a neat, orderly, and logical process. But research is far from being a pristine landscape; in fact, it resembles a battlefield, littered with miscalculations, failed experiments, and discarded assumptions. The path to truth is often convoluted, and those who travel along it often must navigate fierce competition and professional intrigue.

Some argue that it is better to hide this reality from the public, in order to maintain credibility. For example, in 2014, physicists collaborating on a project known as BICEP2 thought that they had detected gravitational waves from the beginning of the universe. It was later realized that the signal they had detected could be entirely attributed to interstellar dust.

H.E. Dr. Kao Kim Hourn, University of Cambodia (UC) Founder, Board and Trustee Chairman, And President seeks to create a Research  Culture at UC,Phnom Penh.

Some of my colleagues worried that this revelation would undermine faith in other scientific predictions, such as those involving climate change. But would hiding the truth from the public really do more for scientific and academic credibility than cultivating a culture of transparency? Probably not. In fact, being honest about the realities of research might enhance trust and create more space for innovation, with an informed public accepting that risk is the unavoidable and worthwhile cost of groundbreaking and broadly beneficial discoveries.

Another way to ensure that academia continues to innovate in useful and relevant ways is to blur the traditional boundaries among disciplines – the frontiers where invention so often happens. To that end, universities should update their organizational structure, moving away from clearly delineated departments in order to create a kind of continuum across the arts, humanities, and sciences. Students should be encouraged to take courses in multiple disciplines, so that they can weave those lessons and experiences into new patterns of knowledge.

To make this process sustainable, universities should ensure that the courses and curricula they offer help students to develop the skills that a fast-changing labor market demands. This means not just creating new curricula today, but also updating them every few years, in order to account for new trends and discoveries in areas ranging from artificial intelligence and Big Data to alternative energy sources and genome editing.

Professors, for their part, should approach their job as mentors of future leaders in science, technology, the arts, and humanities, rather than attempting to mold students in their own intellectual image. Of course, the latter approach can be useful if the goal is to advance the popularity of one’s own research program and to ensure that one’s own ideas and perspective endure. But that is not the fundamental mission of academia.

The louder the consensus in the echo chambers of academia become, the greater the ego boost for those who inhabit those chambers. But history shows that progress is sometimes advocated by a soft voice in the background, like that of Albert Einstein during his early career. Truth and consensus are not always the same. Diversity of opinion – which implies diversity of gender, ethnicity, and background – is vital to support creativity, discovery, and progress.

That is why it is so important for prizes and professional associations to be used not to reinforce mainstream perspectives, but rather to encourage independent thought and reward innovation. This does not mean that all opinions should be considered equal, but rather that alternative views should be debated and vetted on merit alone.

We in academia cannot continue to pat ourselves on the back, celebrating our own privileges and failing to look at the world in new and relevant ways. If we are to defend the freedom of our enterprise, we must restore dialogue with the broader public and ensure that the relevance of our work is well understood – including by us.

Abraham Loeb

 

Abraham Loeb is the chair of Harvard University’s astronomy department, the founding director of Harvard’s Black Hole Initiative, and the Director of the Institute for Theory and Computation within the Harvard-Smithsonian Center for Astrophysics.

GDP Should Be Corrected

January 23, 2018

by Urs Rohner@www.project-syndicate.org

The hazards of relying solely on gross domestic product as a measure of overall economic activity have become obvious over time, especially as corporate profits have outpaced GDP growth in key economies. But none of the flaws in GDP are fatal, and policymakers should focus on fixing them, rather than seeking an entirely new framework.

 

ZURICH – Respected economists have long pointed out that gross domestic product is an inadequate measure of economic development and social well-being, and thus should not be policymakers’ sole fixation. Yet we have not gotten any closer to finding a feasible alternative to GDP.

One well-known shortcoming of GDP is that it disregards the value of housework, including care for children and elderly family members. More important, assigning a monetary value to such activities would not address a deeper flaw in GDP: its inability to reflect adequately the lived experience of individual members of society. Correcting for housework would inflate GDP, while making no real difference to living standards. And the women who make up a predominant share of people performing housework would continue to be treated as volunteers, rather than as genuine economic contributors.4

Another well-known flaw of GDP is that it does not account for value destruction, such as when countries mismanage their human capital by withholding education from certain demographic groups, or by depleting natural resources for immediate economic benefit. All told, GDP tends to measure assets imprecisely, and liabilities not at all.

Still, while no international consensus on an alternative to GDP has emerged, there has been encouraging progress toward a more considered way of thinking about economic activity. In 1972, Yale University economists William Nordhaus and James Tobin proposed a new framework, the “measure of economic welfare” (MEW), to account for sundry unpaid activities. And, more recently, China established a “green development” index, which considers economic performance alongside various environmental factors.

Moreover, public- and private-sector decision-makers now have far more tools for making sophisticated choices than they did in the past. On the investor side, demand for environmental, social, and governance data is rising steeply. And in the public sector, organizations such as the World Bank have adopted metrics other than GDP to assess quality of life, including life expectancy at birth and access to education.

At the same time, the debate around gross national income has been gaining steam. Though it shares fundamental elements with GDP, GNI is more relevant to our globalized age, because it adjusts for income generated by foreign-owned corporations and foreign residents. Accordingly, in a country where foreign corporations own a significant share of manufacturing and other assets, GDP will be inflated, whereas GNI shows only income the country actually retains (see chart).

Ireland is a prominent example of how GNI has been used to correct for distortions in GDP. In 2015, Ireland’s reported GDP increased by an eye-popping 26.3%. As an October 2016 OECD working paper noted, the episode raised serious questions about the “ability of the conceptual accounting framework used to define GDP to adequately reflect economic reality.”

The OECD paper went on to conclude that GDP is not a reliable indicator of a country’s material well-being. In Ireland’s case, its single year of astonishing GDP growth was due to multinational corporations “relocating” certain economic gains – namely, the returns on intellectual property – in their overall accounting. To address the growing disparity between actual economic development and reported GDP, the Irish Central Statistics Office introduced a modified version of GNI known as GNI*) for 2016.

The gap between GDP and GNI will likely close soon in other jurisdictions, too. In a recent working paper, Urooj Khan of Columbia Business School, Suresh Nallareddy of Duke University, and Ethan Rouen of Harvard Business School highlight a misalignment in “the growth in corporate profits and the overall US economy” between 1975 and 2013. They find that, during that period, average corporate-profit growth outpaced GDP growth whenever the domestic corporate-income-tax rate exceeded that of other OECD countries.

In late December, this disconnect was addressed with the passage of the 2017 Tax Cuts and Jobs Act. By lowering the corporate-tax rate to a globally competitive level and granting better terms for repatriating profits, the tax package is expected to shift corporate earnings back to the United States. As a result, the divergence between GDP and GNI will likely close in both the US and Ireland, where many major US corporations have been holding cash.

Looking ahead, I would suggest that policymakers focus on three points. First, as demonstrated above, the relevant stakeholders are already addressing several of the flaws in GDP, which is encouraging. Second, public- and private-sector decision-makers now have a multitude of instruments available for better assessing the social and environmental ramifications of their actions.

And, third, in business one must not let the perfect become the enemy of the good. We have not solved all of the problems associated with GDP, but we have come a long way in reducing many of its distortions. Instead of seeking a new, disruptive framework to replace current data and analytical techniques, we should focus on making thoughtful, incremental changes to the existing system.

 

• Urs Rohner is Chairman of the Board of Credit Suisse.