BEYOND GDP TO BETTER WAYS OF JUDGING PROGRESS AND WELL-BEING

By Hazel Henderson Reprint | | Print |

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SAINT AUGUSTINE, Aug 1 2011 (IPS) - At last there seems to be real progress in overhauling the Gross Domestic Product (GDP) as measure of a country’s status and progress-almost twenty years after 170 governments pledged to do so by signing Article 40 of Agenda 21 at the 1992 Rio Conference.

It’s about time. Since 2007 and the Beyond GDP conference in the European Parliament, surveys in 12 countries show wide public support.

The inventor of the GDP system of national accounting, Simon Kuznets, warned that it was never intended to measure overall progress. Its one-size-fits-all focus on priced output of goods and services is akin to overflying a country at 50,000 feet. While it simplified the math, the aggregation and over-averaging of data obscures important aspects of national progress and human development: education, health (both treated as “consumption” in GDP rather than key investments), the state of infrastructure and the environment. Many of these key indicators are still treated as “externalities” (like pollution) in economics and company balance sheets, and are passed on to taxpayers and future generations.

GDP indices and their regular reporting in mass media became a “fetish” as described Joseph Stiglitz, winner of the Bank of Sweden prize in economics. GDP became the focus of economic competition between nations, the justification for interest rates on their sovereign bonds, the obsession of politicians seeking election, and the reason for business leaders’ plant location decisions at conferences in Davos, the G-7, G-20, IMF, World Bank, as well as at the World Trade Organisation and the United Nations.

Then financial reporting and mainstream media amplified GDP in their global eco chambers. In stock markets, security analysts, economists, and pundits relied on GDP in benchmarking performance of securities, central bankers, company CEOs and politicians. Macroeconomists’ models measured GDP performance numbers, reducing the rich complexity of countries’ culture, history, geography, climate, terrain and various approaches to development to money-coefficients.

All this explains why it has taken twenty years to make the needed corrections to GDP and why it has been so staunchly defended by economists, business leaders, politicians, powerful ministries, and even statistical agencies in most countries. GDP perpetuates the false prices resulting from externalising costs to societies and exploiting environmental resources. This helps explain BP’s massive oil well blowout in the Gulf of Mexico and the meltdowns of nuclear reactors in Fukushima, Japan. Many crises have reached global levels in pollution, desertification, climate change, and epidemics. Recurring financial crises produce unemployment, “jobless economic growth”, and un-repayable debts. Public distrust and anger is growing, along with demands for truth and accountability. If societies are blinded to longer-term threats by incorrect prices, all incorporated into stock and bond markets and GDP, then such crises and social backlashes will worsen.

Many efforts have been mounted by NGOs, academics, and professionals in key scientific disciplines beyond economics to correct GDP. They call for proper accounting for these externalities and for the some 50 percent of productive work in all societies that is unpaid and ignored in GDP. They have faced implacable opposition from economists, business groups, and their political allies as well as special interests making money by externalising costs. Alternatives to GDP have proliferated based on indicators beyond economics: on health, education, sustainability and the environment. These include the UN’s Human Development Index (HDI), the Living Planet Index, Ecological Footprint, Bhutan’s Gross National Happiness, and the Canadian Index of Wellbeing.

The Calvert-Henderson Quality of Life Indicators, which I co-created with the Calvert Group in 2000, uses a web-based dashboard with 12 indicators. British prime minister David Cameron recently ordered its statistical office to develop an Index of Wellbeing like that in Canada. China’s innovative Green GDP, which showed in 2006 that some 3 percentage points of its rapid economic growth were externalised environmental costs which should be deducted from its GDP, was quashed in spite of public support.

The most significant new effort is that of the OECD, which announced its Better Life Index in 2011. It uses as indicators housing, income and wealth, jobs, community, education, environment, governance, health, life satisfaction, safety, work-life balance. A unique innovation is the OECD’s better life index, an interactive tool allowing customised comparisons of indicators on education, housing, and environment across selected countries. the goal of inviting more scrutiny and involvement of citizens to foster a more intelligent debate about national progress and well-being is an admirable one.

But as with most of the new indicators and efforts to go beyond GDP, direct confrontation with GDP proponents is avoided. EUROSTAT’s 2011 conference did not directly address GDP’s reliance on false pricing and externalised social and environmental costs. Such timidity and discretion is understandable, however, given the power of special interests and their profits in “business as usual” externalising costs models.

History is now on the side of the Better Life Index and the growing influence of all the other new indicators mentioned. The European Parliament voted to approve the Beyond GDP report and a new regulation on Environmental Economic Accounts. It’s a good beginning. (END/COPYRIGHT IPS)

(*) Hazel Henderson, author of Ethical Markets:Growing the Green Economy and other books, is president of Ethical Markets Media (USA and Brazil), www.ethicalmarkets.com.