What Are More Eco-Friendly Ways For Measuring the Economy Than GDP?

money pile photo
photo: Tracy O via flickr

With Earth Overshoot Day 2010 coming up fast upon us, and every day's activities past that unsustainably depleting the planet's resources, it seems appropriate to ask whether there ought not be a better way of assessing the impact of the economy on the environment. After all, chasing Gross Domestic Product hasn't served particular well so far creating an ecologically sustainable society. Surely there's a better way.GDP Sums Up Everything Done For Money - Good, Bad & Neutral...
If you've found your way to this post and haven't yet clicked away, you probably already know what GDP is. But in case you don't--and slept through Economics 101--here the textbook definition:

[GDP] is the market value of all final goods and services officially made within the borders of a country in a year. (Wikipedia)

In other words, its the sum total of all economic activity that occurs in a country that has occurred for exchange of money. It places no value judgment on that activity, whether it has created a positive or negative effect on society, and doesn't include all sorts of unpaid activities such as growing your own food or doing unpaid housework. It also doesn't include black market and shadow economic activity. Nor does it address myriad social factors, such as how equally or unequally wealth is distributed.

...Without Accounting For Environmental Degradation
There's obviously value there, in knowing that sum total figure, but it doesn't really go very far in answering questions about whether that economic activity is occurring within sustainable ecological boundaries.

And when increasing GDP is unquestionably equated with progress and development--as has become the case in many nations both rich and poor--it simply feeds into the cult of more, which is at the root of humanity consuming on average 1.5 planet's worth of resources, and five Earth's resources in the US.

Endless Economic Growth Isn't Possible
Despite what mainstream economists doggedly maintain--even though there is an orgy of evidence to the contrary--there are very genuine ecological constraints on economic activity. This criticism isn't anything new. In fact ecological economists have been making it for going on decades now--and even Adam Smith suggested as much.

Attempting to address the shortcomings of GDP, there are a number of alternative economic measures which have been developed. If any one of these were substituted for GDP we'd both have a better idea about how nations were actually providing for the needs of people and how well the environment is faring. Let's look at a couple of these.

Genuine Progress Indicator Shows US Stagnating As GDP Increases
The Genuine Progress Indicator, developed by Redefining Progress some fifteen years ago. It starts with the same data used to calculate GDP, but then adjusts for factors such as income distribution, adds in factors like unpaid household and volunteer work, and subtracts the costs of crime, pollution, resource depletion and other negative factors.

Addressing the importance of subtracting factors degrading the environment, Redefining Progress notes,

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, farmlands and nonrenewable minerals (including oil) as current cost.

Similarly pollution and other long-term environmental damage, which often actually are marked as gains for GDP, are subtracted out of GPI.

genuine progress indicator for US 1950-2004 imageWhen you compare GPI to GDP over the past half century for the United States, a sharply different picture emerges for each. As you can see in the chart at left, though GDP per capita has steadily risen, once you subtract negative factors, GPI has largely been steady since the mid 1970s.

Happiness Has Declined Even As GDP Climbs
Another alternate measure which can be employed, alongside GPI, is the New Economics Foundation's Happy Planet Index--after all, and even though it may sound trite to say, life isn't about what you own (provided your most, most basic survival needs are met) it's about personal development of character, it's about learning, it's about self-realization. In short it's about happiness; and if a society's economic activity isn't furthering that, then it is failing even if strictly economic statistics say otherwise.

You can read all about how the HPI is calculated at the link above, but the key takeaway points are:

  • Costa Rica has the highest life satisfaction of anyplace on the planet--even though it ranks in the mid 70s for GDP per capita and is 128th in the world for per capita carbon emissions.

  • The United States, China and India all had higher HPI, higher average life satisfaction thirty years ago than they do today. Despite increasing per capita GDP in each nation, despite genuine poverty reduction in both China and India, despite all sorts of purely economic factors indicating progress, three of the world's largest nations were happier three decades ago. Today the US ranks 114 out of 143 nations surveyed.

  • European nations don't fare much better, all scoring in the middle range of life satisfaction. In the latest version of the HPI the Netherlands scores highest for Western nations (43rd place), while the UK places 74th.

  • Important to note in those rankings: No country actually achieves both high life satisfaction, high life expectancy, and one-planet living.

The Right Measurements Lead to Better Management
There are other alternate measures out there that could be used on their own or in conjunction with GDP to making more accurate and more environmentally appropriate assessments of how nations' economies are doing--from the UNDP developed Human Development Index, to the much touted but infrequently implemented Gross National Happiness measurement of Bhutan.

But the key points to remember are: 1) humanity is collectively but unequally using natural resources far in excess of the planet's ability to regenerate them; 2) when nations focus exclusively on GDP as a measure of progress it creates an unsustainable race for more and more consumption, leading to that resource depletion; and 3) there are alternative measurements, factoring out the effects of environmental degradation, which if more widely and publicly employed would help both individuals and nations make more environmentally friendly economic decisions.

All of this leads us towards considering a greater economic restructuring: Moving from a growth-based economy to a steady-state economy. But that's a discussion unto itself which will have to wait for another post.

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More on Economics:
What if the Global Economy Was a Giant Hamster? or Infinite Growth on a Finite Planet (Video)
Book Review: Prosperity Without Growth - Economics for a Finite Planet
Experience the Economics of Happiness at Schumacher College

Tags: Economics


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