Even though GDP -- Gross Domestic Product -- has been castigated as a misleading statistic for years, it continues to be cited by politicians, economists and the press as a generally accepted proxy for societal progress. The investor class has a big stake, after all, in conflating “the economy” with “human well-being.”
What if it were shown that intensified market activity isn’t such a boon to humankind, after all? That seems to be the goal of such alternative indices as the Gross National Happiness index (Bhutan), the Human Development Index (UNDP), the Happy Planet Index (New Economics Foundation), OECD Better Life Index, among others.
It is also the goal of the goal of the Genuine Progress Indicator, or GPI, a new metric that is explored in great detail by Ida Kubiszewski, Robert Costanza and a team of other economists in an April 30 paper in Ecological Economics. Kubiszewski et al. make a rigorous attempt to estimate net social welfare by taking into account all sorts of factors that GDP ignores.
The GPI still relies upon “personal consumption expenditures,” as does GDP, but GPI goes much further by taking into account such factors as income distribution, environmental costs, and the presence of crime and pollution. The idea is to measure the depletion of “natural, social and human capital” that economic activity entails. The GPI also seeks to measure positive factors in human well-being such as the benefits of volunteering and household work, and self-reported “life satisfaction.” All told, the GPI uses 24 different component metrics.
The authors note the methodological complications of synthesizing their numbers, and caution that the GPI is “by no means a perfect indicator of well-being or progress.” But they do argue that the GPI is a “better approximation to economic welfare than GDP, which was never intended as a welfare measure.”
Their research paper, “Beyond GDP: Measuring and achieving global genuine progress,” (Ecological Economics 93 (2013): 57-68), is the first global estimate of when and where economic welfare has fallen. The estimates synthesize the GPI for 17 countries over the period 1950-2003 -- representing 53% of the human population -- and then compare those numbers with GDP (and other metrics of well-being such as the Human Development Index, Ecological Footprint, Biocapacity, Gini coefficient and Life Satisfaction scores).
What the authors found is that global GPI/capita peaked in 1978. At the same time, the global Ecological Footprint of human activity exceeded global Biocapacity. Since 1975, Life Satisfaction in nearly all countries surveyed has not improved significantly despite a three-fold global increase in GDP since 1950.
Kubiszewski et al. conclude that “rising income inequality and increasing external environmental costs canceled the growth in consumption-related benefits, causing GPI/capita to level off.” They found that global GPI/capita peaks at around $7,000 GDP/capita. After that threshold, economic growth seems to produce more “illth” (negative externalities; John Ruskin's term, not theirs) than wealth. One highly controversial conclusion is that reductions of GDP could actually enhance societal welfare in many instances.
Put more bluntly, the externalized costs of economic growth around the world have outweighed the benefits since 1978. This is not a huge surprise, but it is nice to have a painstaking statistical project confirm this general conclusion. It is also noteworthy that the Reagan/Thatcher era of neoliberalism really took off just a few years later.
While I welcome these rigorous attempts to demonstrate the profound flaws of GDP, I do worry that such debunkings will not really impel a search for better alternatives. After all, the Index of Sustainable Economic Welfare – another alternative to GDP that is akin to the GPI – was first proposed in 1989, more than 20 years ago. It’s hard to work one’s way out of the economic matrix by working within the economic matrix. The generative alternatives will not necessarily be comprehensible through statistics or economics; they will be driven by qualitatively different dynamics that are more irregular, distributed and sociological than quantifiable and global.
Still, to the extent that GPI opens up some space for respectable economists and political players to discredit GDP and validate fresh alternatives, the latest findings about Genuine Progress are very welcome indeed. The next step is finding still-better ways to represent our migration out of an all-consuming economic matrix and into a new taxonomy of values.
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