GDP: STILL MISLEADING GOVERNMENTS, BANKS, AND INVESTORS

By Hazel Henderson and Joaquín Roy Reprint | | Print |

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SAINT AUGUSTINE, Jan 25 2011 (IPS) - The Gross Domestic Product (GDP) results for the final quarter of 2010 are an unreliable gauge of recovery and progress in Europe, the US, China, Brazil, and most other countries. A new survey by GlobeScan and Ethical Markets, titled “Beyond GDP”, reaffirms that large majorities favour reforming the money-based GDP economic yardstick and adopting many of the available indicators of health, education, infrastructure, poverty gaps, and environmental quality found in their 2007 survey for the European Commission (www.beyond-gdp.eu). The new survey was conducted in Australia, Brazil, Canada, China, France, Germany, India, Italy, Kenya, Russia, the UK, and the US and released on January 21.

Yet statistical agencies still use GDP, an inaccurate “rear view mirror” that omits vital indicators of future trends.

The chorus of critics of “GDP fetishism” now point to many more accurate indicators forecasting national well-being, sustainability, and quality of life. Britain’s David Cameron has ordered his Office of National Statistics to develop new measures by 2012, similar to Canada’s Index of Well-being.

The survey’s conclusions mirror those of the 2009 Stiglitz-Sen commission to french president Nicholas Sarkozy: that gdp had become a “fetish” and it was time to move on [1]. Reasons for the continued use of GDP include deregulation and the growing influence of money and finance in politics. In OECD countries, special interests and their allies in politics and in ministries of finance, economic development, trade, central banks, and stock markets grew to dominate government policies.

The survey showed that many companies, investors, and much of the public recognise that in GDP a well-trained work force, efficient public infrastructure, and productive ecosystems are all counted at zero.

GDP’s macro-economic, money-denominated, over-aggregated methods are unnecessary in our Internet age, which enables multi-disciplinary indicators and metrics, using systems approaches.

The fallout from the continued reliance on GDP is considerable: as deregulation and privatization became widespread, infrastructure (ignored in GDP) was short-changed, while ministries of education, health, social welfare, consumer, and environmental protection lost influence. Their support and that of NGOs for overhauling GDP accounts was insufficient to breach the bastions of macroeconomics. Statisticians claimed it was too difficult. Market enthusiasm, buttressed by financial forces and powerful interests were all justified by these traditional economic theories.

In the 1992 Earth Summit in Rio, 170 countries signed Agenda 21 Article 40 and so pledged to overhaul GDP to reflect infrastructure, social capital, unpaid work, and environmental assets. Indicators proliferated on infrastructure assets, environmental quality, resource depletion, loss of biodiversity, public health, access to clean water, education, poverty gaps, social welfare, and quality of life.

Yet, all these well-researched indicators have remained sidelined from GDP accounting and designated “satellite accounts”, which devalued their importance and relegated them to academia, NGOs, and the margins of society. mass media, financed by advertising, still focuses on driving mass consumption, gdp, and other macro-economic indicators.

Stressing the need for “faster growth”, most fail to clarify that they and politicians use GDP-growth as the tacit definition of overall progress. Other indexes of national progress (www.beyond-gdp.eu) include the UN’s Human Development Index (HDI) since 1990, the Living Planet Index of WWF, and the Ecological Footprint to measure global conditions.

Meanwhile, the rise of socially-responsible business and investment has led to new corporate accounting standards -beyond earlier “efficient market” models- to measure performance by environmental, social, and governance standards (ESG), the “triple bottom line”.

It is time to require all companies to internalize the “externalities”, i.e., to fully account for their social and environmental costs of production on their balance sheets. Many companies have succeeded in overhauling accounting practice toward this “triple bottom line”.

The new breed of micro-economists corrected company balance sheets and incorporated the new indicators. But macro-economists, the fossilized incumbent industries they serve, and their allies in politics and government agencies still seek to preserve their freedom to “externalize” social and environmental costs. They benefit from the view of “progress” in GDP-measured growth.

Thus, our economies continue to pump out carbon and other pollutants while ignoring social and environmental assets, hiding poverty gaps as well as infrastructure assets, all of which are missing in GDP. Financial markets wager on the future of the euro and bet on member countries’ sovereign bonds, while demanding “austerity”, forcing taxpayers to pay again for bankers’ follies. Calls by European leaders for bondholder “haircuts” are fiercely opposed.

We can now steer our societies away from dangerous inequalities, pollutants, and climate change toward the cleaner, greener economies we are all building and track progress with the Green Transition Scoreboard, totalling all private investments since 2007 in growing green sectors worldwide at USD 1.6 trillion in 2010.

As distrust, anger, resentment at the unfairness of the bailouts emerge in the US and Europe, indicators on public infrastructure, environment, health, education, and quality of life are even more important for our future. Nations can find new paths out of austerity and recession as casino finance is curbed and returned to its former, proper role in serving the world’s real economies. The Beyond GDP survey shows that the public is ahead of politicians ( www.globescan.com). (END/COPYRIGHT IPS)

(*) Hazel Henderson, author, president of Ethical Markets Media (US and Brazil), co-developed with the Calvert Group the Calvert-Henderson Quality of Life Indicators ( www.calvert-henderson.com) and co-authored “Qualitative Growth” (2009).

[1] “Stiglitz-Sen Moving in the Right Direction, but Slowly,” IPS, Sept. 18, 2009, https://www.ipsnews.net/news.asp”idnews=48492