Although the EU economy is running almost head-to-head with the U.S. economy, the numbers don’t tell the whole story. That’s because the comparisons between the EU and the U.S. are being made by looking at their respective GDPs. The problem with this approach is that GDP gives a false sense of real economic well-being. For this reason, it has come under increasing criticism in recent years by economic reformers, and even policymakers inside some of the world’s leading global economic institutions.
The GDP was created by the U.S. Commerce Department at the height of the Depression in the 1930s and was used first as a gauge for measuring the nation’s economic recovery and then to monitor wartime production capacity during World War II. The fault with the GDP is that it doesn’t discriminate between economic activity that really improves the standard of living of people and economic activity that does not.
In a scathing critique of GDP in The Atlantic magazine several years back, policy analysts Clifford Cobb, Ted Halstead, and Jonathan Rowe likened the tool to “a calculating machine that adds but cannot subtract.”48 In an era where “production”—any kind of production—was considered a sine qua non for measuring well-being, GDP became the standard reference for economists, business leaders, and politicians. GDP counts every economic activity as good. So if crime rises because of unemployment and poverty, requiring an increase in police protection and enforcement, court costs, prison costs, and a beefing up of private surveillance and protection, the economic activity it engenders finds its way into the GDP. If a toxic-waste dump needs to be cleaned up, an oil spill contained, or contaminated groundwater purified, again the economic activity adds to the total GDP. If the use of fossil fuels increases, it is added to the GDP, even though it means a depletion of existing stocks of nonrenewable energy. And if the health of millions of Americans deteriorates because of an increase in obesity, cigarette smoking, alcohol consumption, and drug use, the increased costs of health care are, likewise, added to the GDP. Same with the increased costs associated with protecting the nation against terrorism. The purchase of more missiles, airplanes, tanks, and bombs are all added to the GDP. One would be hard-pressed to say that any of these activities actually result in a net improvement in our quality of life. Here lies the rub. So much of our GDP—and an increasing percentage of it each year—is made up of economic activity that clearly does not improve our well-being.
The late senator Robert Kennedy best summed up the shortcomings of using Gross National Product to define the economic well-being of the country. He wrote,
The Gross National Product includes air pollution and advertising for cigarettes and ambulances to clear our highways of carnage. It counts special locks for our doors and jails for the people who break them. GNP includes the destruction of the redwoods and the death of Lake Superior. It grows with the production of napalm and missiles and nuclear warheads . . . it does not allow for the health of our families, the quality of their education, or the joy of their play. It is indifferent to the decency of our factories and the safety of our streets alike. It does not include the beauty of our poetry or the strength of our marriages, or the intelligence of our public debate or the integrity of our public officials . . . it measures everything, in short, except that which makes life worthwhile.49
Even the man who invented the GDP, Simon Kuznets—he later went on to win the Nobel Prize in 1971 for his accomplishment—warned in his first report to the U.S. Congress back in 1934 that “the welfare of a nation” can “scarcely be inferred from a measure of national income.”50 Thirty years later, Kuznets weighed in again on the subject, after having witnessed politicians and economists abusing the tool he invented for more than three decades. He wrote: “Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and the long run. Goals for ‘more’ growth should specify more growth of what and for what.”51
A number of attempts have been made over the years to come up with a suitable alternative to GDP. The Index of Sustainable Economic Welfare (ISEW), the Genuine Progress Indicator (GPI), the Fordham Index of Social Health (FISH), the UN’s Human Development Index (HDI), and the Index of Economic Well-Being (IEWB) are among the more popular indicators. They each attempt to determine “real” economic improvement in human welfare.
The earliest effort at establishing an alternative index was the ISEW, created by then World Bank economist Herman Daly and theologian John Cobb in 1989. Their index begins with personal consumption spending and then adds unpaid domestic labor. Then they subtract activity that is primarily designed to mitigate losses, like money spent on crime, pollution, and accidents. The ISEW also adjusts for income disparity and depletion of natural resources. 52 The GPI includes many of the same criteria but adds the value of voluntary work in the community and subtracts the loss of leisure time.53 The FISH measures sixteen social-economic indicators, including infant mortality, child abuse, childhood poverty, teen suicide, drug abuse, high school dropout rates, average weekly earnings, unemployment, health insurance coverage, poverty among the elderly, homicides, housing, and income inequality.54 The IEWB takes into account such things as the family savings rate and the accumulation of tangible capital such as housing stocks, which measure one’s sense of future security.55
The question of how accurate the GDP is in measuring and monitoring real improvement or deterioration in our quality of life has come home for me over the course of the past twenty years. Beginning in the mid-1980s, I spent upwards of one-third of my time in Europe. I have visited virtually every part of the continent and stayed in small towns, rural communities, and large metropolitan areas. Because I was commuting, sometimes twice a month, back and forth, I was continually bombarded by the differences between America and Europe. The little things often caught my eye. For example, when I walk into men’s rooms in Europe, the lights go on automatically and then shut off nine or ten minutes later whether I am done or not. Or when I enter most hotel rooms, I have to insert my card key into a slot for the lights to turn on. When I leave, I retrieve my card key from the slot and the lights automatically turn off. Similarly, when I’m at an airport or approaching an escalator, a light signals my presence and the escalator begins to move. All of these little devices are designed to save energy.
On the streets, I see very few homeless or mentally ill people. Although they certainly exist and their numbers are on the rise, they are not as visible a presence as they are on the streets of New York City, Washington, Chicago, and Los Angeles. People in Europe walk on the streets at night, even in the poor neighborhoods. Women often walk unaccompanied in the parks after dusk. While police are around, they seem fewer and less tense than the ones I’m familiar with on city streets in America.
When I’m in Europe, I rarely come across multitudes of fat and obese people. Sometimes, I can walk an entire day without encountering a single overweight person. In America, by contrast, it seems everyone is grossly overweight and, even more shocking, unaware or unconcerned about their appearance.
In Europe, I see men and women lingering for hours over food and drink in the eateries and outdoor cafés. Although not unusual in itself, what’s strange is that I see them at these establishments at all hours, not just at lunch or at the end of the day, as would be the case in America. The first thought that crosses my mind is, Are these people all unemployed or just slow to get back to their desks and their assignments?
And no one seems to be rushing. No one. People still stroll in Europe. The older people often walk with their hands behind their backs, with one hand clasping the opposite wrist. I can’t remember the last time I saw large numbers of people stroll on America’s big-city streets. And while there is run-down housing and there are very poor neighborhoods all over Europe, they don’t, for the most part, compare to the burned-out neighborhoods in the South Side of Chicago where I grew up or the Bushwick/ Brownsville section of Brooklyn where I lived and worked as a VISTA volunteer after finishing my graduate studies at
the university.
While graffiti on buildings has become epidemic in some parts of Europe—Milan comes readily to mind—I rarely experience the kind of urban blight that characterizes most American towns and cities. There appears to be more symmetry to the way everything is laid out in Europe. Living environments are more in scale. Adjoining neighborhoods, schools, and retail stores are usually within walking distance of one another or just a few minutes away by tram. And, here’s a statistic sure to elicit envy: nearly six out of ten Europeans take less than twenty minutes to get to work.56
When I visit homes in Europe, people seem to have fewer things and be surrounded by less high-tech gadgetry. But what they do have is generally of very high quality and well taken care of. The same can be said about personal appearance. European men and women I know—mostly in the middle and upper middle class—don’t have the extensive wardrobes some of my friends in the States enjoy. But what they do have is very high quality, and so when they go out, they appear to be put together better. The difference, I suspect, is that most mercurial and immeasurable of things called “style.” In Europe, it’s less about how much one has and more about how to enjoy one’s life. Most Europeans are quite clear in this regard.
The point is, there is a very real and demonstrable difference in “the quality of life” one experiences in much of Europe compared with that in most parts of the United States. I have talked to countless Americans and Europeans, from every walk of life, who share similar thoughts on the matter. But, curiously, in my meetings with business leaders, economists, government policy wonks, and elected officials—especially in America—I hear only of how much better off America is, and, in case proof is needed, the GDP is invariably trotted out as a testimonial to the superiority of the American way of life.
But what if we were to really take seriously the criticisms waged against the GDP as a measure of well-being and began to fully take into account alternative criteria for assessing the quality of our lives? I believe it would become clear to any objective observer that, in many ways, the “United States” of Europe—while still in its infancy—has already eclipsed the United States of America and become a new kind of superpower.
Recall that the EU GDP is now approximately $10.5 trillion, while the U.S. GDP weighs in at $10.4 trillion. The $100 billion difference widens, however, if the GDPs are adjusted to reflect the negative activity that does not contribute to the improvement of people’s everyday quality of life. Let’s begin with the wide disparity in military expenditures. The twenty-five EU nations together devoted $155 billion in 2002 to defense-related spending. The U.S. defense expenditures for this same year totaled $399 billion, or $244 billion more than the total defense outlay for all of the European countries combined. 57 If the $244 billion were to be subtracted from the U.S. GDP, it would bring the U.S. GDP down to $10.16 trillion, broadening the gap between the EU and the U.S. to $344 billion.
Some might argue that subtracting the U.S. military expenditures is a bit unfair since the United States has had to take on the burden of defending Europe since the end of World War II. Were it not for America’s superior military machine, and the U.S.’s willingness to act as Europe’s protector through the North Atlantic Treaty Organization (NATO), Europe would have long ago had to beef up its own military machine to defend its regional and global interests. Fair enough. On the other hand, many Europeans argue that the U.S. military is far bigger than warranted in a post-Cold War world, and they remind the U.S. that the so-called “peace dividend”—the expected reduction in military expenditures that was supposed to result from the fall of the Berlin Wall and the end of the Cold War—has yet to materialize. While the threat of global terrorism poses new security issues that were not anticipated a decade ago, Europeans argue that these problems are best handled with a combination of police actions, soft diplomacy, and more sophisticated and generous development aid. In any event, say European analysts, if the $155 billion currently spent by all twenty-five European countries for defense was properly reorganized at a European level to establish a single streamlined rapid-reaction force for the continent—that effort is already partially under way—it would more than suffice to meet any potential military contingency.
The U.S.’s exorbitant and wasteful use of energy is another item that, if we adjusted for it, increases the gap even further between the European and U.S. GDPs. In 2000, the then fifteen EU member countries consumed 63.3 quadrillion British Thermal Units (BTUs) of energy. While this amounted to 16 percent of the world’s total energy consumption for the year, it was 35.5 quadrillion BTUs less than the U.S. consumed during 2000. In other words, the U.S. consumed 98.8 quadrillion BTUs of energy, or nearly one-third more energy than the fifteen EU countries, even though the combined population of the EU at the time was 375 million people, or 102 million more people than lived at that time in the United States.58
The U.S. continues to consume one-third more energy than the European Union, with energy expenditures in excess of $703 billion in 2000 (the most recent figure available). This means that one-third of the total, or $234 billion, is simply a reflection of the wasteful use of energy and, if deducted from GDP, would increase the gap between the EU and U.S. GDP to about $578 billion.59 If we were also to calculate the increasing expenditures for pollution abatement that result from the burning of one-third more energy than our European friends, the U.S. GDP would need to be adjusted downward again, to reflect the negative economic activity.
The U.S. also spends far more money on fighting crime and administering civil justice than any of the European countries. In 1999, more than $147 billion went into police protection, court administration, and prison maintenance, or 1.58 percent of that year’s total GDP.60 Again, if a portion of the $147 billion were deducted to allow for the gap in expenditures on crime in the U.S. and Europe, the GDP differential between the two superpowers would widen still more.
Other categories could be added to this list. What becomes clear is that the initial gap in GDP—with the United States running slightly behind the European GDP—turns out to be even more when adjustments are made for economic activity that is either destructive or does not contribute in any significant way to improving living standards.
Quality of Life
It’s when we turn to very specific benchmarks for measuring economic well-being and quality of life, however, that the European Union begins to shoot ahead of the U.S. When we think about criteria for determining a good quality of life—what an economy should be all about—what comes immediately to mind is access to a decent education, assuring our good health, providing adequate care for our children, and living in safe neighborhoods and communities. In most of these particulars, the European Union has already surpassed the United States of America.
Take, for example, education. Americans are rightfully proud of our public education system. In the seventeenth century, Massachusetts became the first colony in the New World to accord children the right to a free education. (In 1635, Boston Latin School became the first public school in America.) Universal public education is among our most cherished institutions and a signature for a country that has long believed in equality of opportunity. The American Dream is built on the idea that everyone in America, regardless of the station or circumstances to which they were born, ought to be assured an education so that they might make the most of their lives.
No wonder American educators were taken aback by the results of the International Adult Literacy Survey (IALS) conducted in the mid-1990s and designed to compare the cognitive skills of adults in countries around the world. The survey found that Americans with less than nine years of education “score worse than virtually all of the other countries.”61
In 2000, the OECD reported on a detailed global survey taken to assess reading literacy in various countries. The Program for International Student Assessment (PISA) “focuses on measuring the extent to which individuals are able to construct, expand, and reflect on the meaning of what they have
read in a wide range of texts common both within and beyond school.”62 Again, Americans would be surprised to learn that our children rank fifteenth in the world in reading literacy, below eight Western European nations.63
Although the U.S. spends about the same proportion of our GDP—3.6 percent—on education as the EU countries, children in twelve European nations rank higher in mathematics literacy, and in eight European countries, the children outscored American kids in scientific literacy. Equally surprising, the average teenager in the EU finishes 17.5 years of education, while American teenagers, on the average, finish only 16.5 years of education. And, in nine European countries, more teenagers enter tertiary education (higher education) than in America.64
There is no better index of the well-being of a society than a nation’s health. Americans have come to believe that we have the best overall health-care system in the world, and the healthiest population to boot. Although many Americans lament the fact that millions of their fellow citizens cannot afford private health-care insurance and aren’t eligible for public assistance, we nonetheless believe that Americans still enjoy a health-care system second to none. Unfortunately, the facts don’t support the belief. A comparison of health in the European Union and the United States is enlightening.
The European Dream Page 10
