Gross Domestic Product (GDP) was first used in the United Kingdom to measure their war-time production. Since the whole economy was geared up to wage war, it was a fair measure of how much the system was turning over.
While the second world war has finished, GDP is peculiarly still the measurement system of choice for economic performance, measuring crime, environmental destruction and catastrophes at the same value as activity that leads to genuine growth. Furthermore, countries of the world are "ranked" as "developed" or "developing" based on GDP - an additional system built on top of an inappropriate one.
But as they say, money can't buy happiness, at least once you're over the poverty line. Happiness is a much harder equation than GDP, and something that global systems don't spend a lot of time concerning themselves with fulfilling today.
So a number of systems have emerged over the years to quantify economic and social growth; alternative equations to GDP that account for more than just the value of traded goods. We've written a lot about this debate here on Worldchanging, from measuring inclusive wealth, green economics, ecological economics to different ways of valuing nature and understanding social production (what Yochai Benkler called the Wealth of Networks).
The Genuine Progress Indicator (GPI)
The GPI is an alternative accounting system that internalises what are normally considered externalised costs. The result is, ideally, a measurement system that accounts for the true and full values - positive and negative - of activity inside a given economic system.
GDP can show how the total personal income of a nation grows - but not how the income is distributed. What's unwritten here is that a wide income distribution is favored by the measurement system - a good thing for the left but maybe not something everyone can agree on (yet).
Housework, Volunteering, and Higher Education
Since GDP only measures monetary trade, it ignores the value of un-paid work entirely - some of the most significant work to drive society like household work. With the emerging tools of Web 2.0 and increased online participation (most of it for no pecuniary gain), this sector of the economy will only become more valuable in the coming decades.
Violence that results in hospital bills is good for the economy, or at least, leads to a greater GDP. Proponents of GPI say that crime-related growth is not valuable, and don't count it as positive in GPI measurements.
If today’s economic activity depletes the physical resource base available for tomorrow, then it is not creating well-being; rather, it is borrowing it from future generations. The GDP counts such borrowing as current income. The GPI, by contrast, counts the depletion or degradation of wetlands, forests, farmland, and nonrenewable minerals (including oil) as a current cost.
Pollution is one of the most common examples of the GDP system's failure, and in fact benefits twice from pollution. In the event of an oil spill, GDP systems appear to benefit first by having a tanker there in the first place, then secondly by spending money cleaning up the mess it leaves behind. Proponents of a GPI system say that cleaning up should be counted as a positive - but that its creation in the first place can only be negative.
Long-Term Environmental Damage
Coal mines are difficult to return to their previous (usually forested) state. GPI systems do not allow the creation of coal mines to add value, since they destroy pieces of the environment that may never be restored.
Changes in Leisure Time
Since leisure time has no economic value to GDP, it can go completely un-noticed. Under a GPI system, leisure time can be valued appropriately.
The GPI counts defensive expenditures as a cost rather than a benefit - a debatable presumption, but one that aims for a better world.
Lifespan of Consumer Durables & Public Infrastructure
One massive criticism of GDP is that it encourages products that break and get replaced (by more products that break). Instead, the GPI considers the lifetime of an appliance, tool or other such "durable" to be an indication of its quality, and values high quality infrastructure and goods favourably against those that would fail us.
Why would we want a system that encouraged poor stuff?
Dependence on Foreign Assets
I'm not sure what I think here - because I'm in to globalisation. The idea is that borrowing money from other countries is living beyond your means - but if these loans are paid back with interest... it might be one of the few cases of where our existing monetary infrastructure (at least systemically) works. (International loans are often made with unfair conditions, but that's another story)
None of these facets are simple to measure, even alone. The system could use some modification in all areas to be taken seriously by anyone other than idealists.
The outcome when successfully measured is that GPI presents a much more detailed picture of how a society is getting on in total, where it's rich and where it is poor.
But there's an even simpler system of quantifying well-being and progress...
Enter Jigme Singye Wangchuck, the fourth king of Bhutan, famous for introducing the concept of Gross National Happiness (GNH). GNH is intended to be a measure of overall well-being within a country, and is comprised of seven very sensible components.
1. Economic satisfaction (savings, debt and purchase power)
2. Environmental satisfaction: (pollution, noise and traffic)
3. Workplace satisfaction (job satisfaction, motivation, ethics, conflict, etc.)
4. Physical health (Severe illnesses, overweight,..)
5. Mental health (usage of antidepressants, self-esteem, positive outlook..)
6. Social satisfaction [including family and relationship satisfaction] (domestic disputes, communication, support, sex, discrimination, safety, divorce rates, complaints of domestic conflicts and family lawsuits, public lawsuits, crime rates, etc.)
7. Political satisfaction (quality of local democracy, individual freedom, and foreign conflicts, etc.)
It's hard to disagree with this list, and imagining a world that prides itself on the seven factors is quite enticing. While there's only so much involvement you might want the state to have in your social satisfaction, it can't be a bad thing for your country to measure its total contribution to the world with a system that includes workplace satisfaction and environmental health.
GNH is measured by surveys, with a wide and representative sample of participants giving information about their satisfaction in each area.
It's true that any good governance concerns itself with more than just GDP. But use of GDP to determine success, even financial success, is short-sighted and often wasteful. Going backwards isn't valuable, so we shouldn't treat it as such.
Image: Cheers Flickr/jaja_1985!
Bonus link: Dr Ron Colman, GPI proponent, interview on Radio New Zealand.
might work better if you want to listen to the interview - be quick it will only be there for a few weeks.
Hey guys.....where can I find good links on studying ecological economics. I live in South Africa, but would be looking at worldwide opportunities if necessary.
It would be masters level as I have already obtained four year degree, specializing in Environmental Economics. But Eco Eco appeals to me for its truly green roots and thought.....would love to study it, experiment with it and spread it.
Love your work....
One place to look for ecological economic ideas is the site of Ron Colman's organization: gpiatlantic.org
Great article and very relevant.
Why do some GPI proponents say that oil spill cleanup should be counted as a positive? It seems to me an awful waste of resources that has a high opportunity cost--if the spill hadn't happened, we could've used the resources elsewhere to create new real wealth instead of using it to attempt to get back to square one.
I don't see how money spent on an oil spill is any more positive than money spent to pay a police officer to respond to a case of domestic violence or money paid to an oncologist to treat cancer patients.
The real positives are the things done to prevent oil spills, cancer, domestic violence, etc. such as real communities, renewable energy and a permaculture-based food system.
It should be mentioned that Redefining Progress developed the GPI. Mark Aneilski recently wrote a book on that and his Genuine Wealth Model. The book is the Economics of Happiness.
If you want to study Eco Econ, it seems tough to beat the Gund Institute for EE at the University of Vermont. I believe there is also a program at the University of Edinburgh.
Thanks guys for the suggestions...keep them coming if possible.
All the best
I'm concerned about the use of surveys to determine environmental "satisfaction" in GNH. It doesn't seem like this would necessarily measure environmental *health,* since some people are satisfied with environmental damage, if it makes them money, or represents the way people have always done things, or what have you.
"Why do some GPI proponents say that oil spill cleanup should be counted as a positive?"
Because cleaning up the oil spill is a positive relatively to leaving the spill there to wreak havoc on the environment. The spill itself should be counted as a negative. In fact, the most logical thing to do would be to count the effect of the spill as
"cost of clean up" + "damage done that can't be cleaned up", each being negative.
Has anybody tried to actually calculate GPI?