The English economist Noreena Hertz teaches at Cambridge University and the Duisenberg School of Finance in the Netherlands. This is an edited version of an interview published by Der Spiegel yesterday, March 24.
Spiegel Online: Dr. Hertz, one is constantly reading about how much a country’s economy has grown or shrunk. Why is gross domestic product (GDP) taken so seriously?
Noreena Hertz: It’s easy to measure and shows how one nation performs in comparison to another. Every country, therefore, measures its economic success by its GDP. Only Bhutan is an exception.
Spiegel Online: According to the constitution of Bhutan, the people should not become richer every year, but happier. The little Asian kingdom wants to achieve this with a socially equitable society and better protection of the environment. Is this a better approach?
Hertz: Definitely. GDP only measures a small part of economic success. Some really important aspects are ignored. Take sustainability, for example. It’s absurd that a country can have high growth rates because it has a lot of polluting industry. The quality of the air, health, progress made by women, child care and social cohesion – these are all important economic factors. GDP does not show how innovative an economy is. Nor does it show if the products being produced will be successful in the long run or will be out of fashion tomorrow. But, up to now, there has not been a substitute for GDP.
Spiegel Online: Experts say that growth is important for creating wealth.
Hertz: This has never been proven. The economy of a country can grow enormously, and the majority of the population remain poor….
Spiegel Online: French President Nicolas Sarkozy wants to include factors like happiness in calculating GDP.
Hertz: Yes, that is an absolutely forward-looking approach. More and more people are of the opinion that GDP is no longer adequate because it only measures output.
Spiegel Online: What concrete form would such a model take?
Hertz: It could be a kind of basket with different factors, for example, justice, environmental protection, the health of the population. These factors would have to be weighed differently.
Spiegel Online: And how much weight would you give to GDP?
Hertz: GDP does mean something and should definitely be included in the basket. But we have to decide whether we want to measure success by measuring absolute economic wealth on its own or if we want to take into account how the wealth is distributed and how sustainable it is.
Spiegel Online: Do you believe that the leading industrialized nations would move away from using GDP to compare the size of their economies?
Hertz: I am convinced that we are at a turning point in capitalism. The financial crisis could only come about because people were too focused on growth without asking where this growth comes from and at what cost. The crisis was a wake-up call for many people who accepted the rules of the old system. And many people – from policymakers to academics to economists to politicians, but also the man on the street – are starting to question whether the old rules were actually fair, just or right.
Spiegel Online: You call it the switch from Gucci capitalism to cooperative capitalism.
Hertz: In Gucci capitalism, people believed that the markets were absolutely rational and reliable. Economists created models with cartoon-like assumptions about people as super-rational profit maximizers. They tried to describe a complex world without paying attention to politics, economics and history. They ignored all of that. But, now, these economists are starting to question all of this. It is interesting that the Nobel Prize was not given to a traditional economist but, rather, to Elinor Ostrom, who questions the fundamental assumptions of the classical economy.
Spiegel Online: What form would companies take in cooperative capitalism?
Hertz: There are already companies that have a cooperative business model. Start-ups in Silicon Valley or the suppliers of open-source software are just some examples. These industries are not driven by Gucci capitalism. They work on principles that explicitly value collaboration, partnership, networking, relationships and social forces – values that were not really seen as having any economic worth. But we have seen that sometimes they can be far more successful than the old models.
Spiegel Online: About a year ago, you wrote an essay about the change to a cooperative capitalism. But, since then, nothing has changed, and bankers are pulling in huge bonuses again.
Hertz: There are two parallel realities going on at the moment. The bankers, many of whom do not understand the concerns of ordinary people, live in one reality. The rest of the economy – the rest of us – lives in the other one. To say that nothing has changed underestimates the many new innovations we are seeing in thinking, doing and acting.
Eric Koch’s book, The Weimar Triangle, is available at Indigo-Chapters and in your local bookstore. 
How do you measure happiness? Like that being a factor of the new measurement. I am sure that can be devised but it would be VERY controversial. Like percentage of marital break-ups? Number of orgasms per capita per month?
Why don’t you suggest that to Professor Noreena Hertz?
Claptrap. This is a way for politicians of the left and right to paper over their embarassment at falling GDP numbers. The US Declaration of Independence (or some such document) talks about the pursuit of happiness. Can the United States be called the happiest country? I think the French are happier.
“The Pursuit of Happiness” in the Declaration of Independence, I was once told, does not mean
happiness as it is occasionally experienced in the Café Doria, but happiness in the sense of being fulfilled the way a good citizen is while performing his civic duties.
All Europeans, with the exception of the morose Scandinavians, are happier than the Americans because they have graduated from puritanism, a serious condition of which the Americans still have to be cured.
And how many orgasams is enough to make you happy? None would definetly make you unhappy.
“I am convinced that we are at a turning point in capitalism.” From your lips to god’s ears. I’ve got my doubts. “Two parallel realities” – maybe; but the wee bubble of change looks mighty small to me, swimming in an unrepentant ocean of greed. Am I perhaps a trifle cynical? GDP is idotic: if there are huge numbers of car crashes, all the spending for towing, repairing, replacing vehicles, medical costs for the survivors, burial costs for the victims, it’s all “economic activity” and part of GDP. The only positive aspect of GDP is that it’s easily measured. But what to replace it with is not an easy question!
What is so difficult in creating a composite measurement for the quality of life in which GDP is one ingredient and access to Mozart, low pollution, fresh air, a nice garden, one or more agreeable companions, are other ingredients?