09 / 2008
Critique of the Gross National Product
The per capita Gross National Product (GNP) of the United States of America, has more than doubled in the last five decades. But the graph of depression, divorce and crime has risen correspondingly. In fact, these forms of social distress help boost the GNP (Gross National Product) because they cause money, products and services to change hands. For example, the sales of anti-depressants puts over $10 billion into the US economy annually.
The concept of GNP was never designed to reflect people’s well-being, only the production and exchange of material goods in an economy. But after the Second World War, GNP growth came to be equated with progress and determined a country’s status on the development hierarchy.
The concept of GNP dates back to the 1930s and is attributed to the economist Simon Kuznets, who was hired by the US Commerce Department to formulate a mechanism for assessing the annual performance of the economy. The system devised by Kuznets was entirely focused on measuring industrial and agricultural output which formally enters the market. Later, Kuznets himself cautioned that: “The welfare of a nation can scarcely be inferred from a measurement of national income as defined [by the GNP] […]Goals for ‘more’ growth should specify of what and for what.”
Through the 1970s and 1980s, the critique of the GNP as a measure of progress gradually moved from the fringes into the mainstream. This process was pushed along by several activists and intellectuals. Hazel Henderson did pioneering work in developing the Calvert-Henderson Quality of Life Index, which even incorporated cultural values and opportunities for self-improvement. Similarly Herman Daly made a seminal contribution, both in academia and as an economist within the World Bank.
In 1989, then President of the World Bank, Barber B. Conable, joined the critics by stating that GNP figures usually show an income that cannot be sustained: “Current calculations ignore the degradation of the natural resource base and view the sales of nonrenewable resources entirely as income. A better way must be found to measure the prosperity and progress of mankind.”
Since then the World Bank has been engaged in the process of working out how to rank countries not by GDP, but by quality of life. In 1995, the World Bank issued a revolutionary ‘Wealth Index’, which defined the wealth of nations to consist 60% of ‘human capital’ (social organization, human skills and knowledge), 20% of environmental capital (nature’s contribution) and only 20% of built capital (factories and capital). Meanwhile the United Nations had launched its Human Development Index (HDI) in 1990 - measuring factors such as education, life-expectancy, gender and human rights data.
In 1992, at the Rio Earth Summit, 170 countries signed on to Agenda 21. This document included a provision to overhaul their national accounts to properly value environmental assets and costs of pollution and depletion, while including the unpaid work of millions of women in households and ‘informal sectors,’ traditional agriculture and community volunteer work.
These developments created the space for more radical challenges to the definition and measure of prosperity and progress. Redefining Progress, a San Francisco-based think tank founded in 1994, set about crafting a complementary measure called Genuine Progress Indicators (GPI). It was also at Redefining Progress that Mathis Wackernagel matured the concept of Ecological Footprint.
According to the GPI analysis done by Redefining Progress, the quality of American life has been declining steadily since the 1970s. This is because the GPI looks beyond money and counts things like family time and fresh air as important indicators of a healthy society. The GPI analysis shows that as USA’s GNP rose, there was a corresponding increase in loss of leisure time for most Americans. Ever since the early 1970s, most Americans have been working harder and longer to stay in the same place. Similarly it is good for the economy that car ownership has tripled since the 1950s. But the amount of time Americans spend commuting, and being caught in traffic congestion, has also more than doubled.
Then there are the consequences of excess consumption. Food is an over $700 billion industry in the USA. Almost fifty percent of all Americans consider themselves over-weight and about $33 billion is spent every year trying to undo the effects of over-eating. Childhood obesity has been official declared to be an ‘epidemic’. Excess weight-related diabetes has quadrupled among children in the last 15 years. Almost 70 percent of the nation’s medical bill stems from preventable, life-style related, illnesses. “We are literally growing ourselves sick, and the resulting medical bills make the economy grow more” wrote Jonathan Rowe, while he was a researcher at Redefining Progress: “We’ve been coasting along on glib assumptions in this country for the better part of the century and especially since the Second World War. That people are sensing the need to step back and ask the question, ‘What is better’, is itself an indicator and a positive one.”
Redefining Progress is not marshalling all this data simply to warm the hearts of simple-living advocates or bitter critics of the wasteful American way of life. Neither is this a group of people who wish to dismantle the modern industrial edifice. It is, however, part of a rising crescendo of voices that tell the story of how economic ‘growth’ does not automatically lead to human well-being and much of this growth is actually depleting both social and natural capital.
The Genuine Progress Indicators
When Redefining Progress set out to evolve the Genuine Progress Indicators (GPI), they began by challenging Paul Samuelson’s pronouncement in his famous text-book that: “economics focuses on concepts that can actually be measured”. It is a truism that the value of our family and community life, our oceans and open spaces cannot be measured in the way that cars, diamonds or sacks of wheat can be. The objective of the GPI is not to assign money value to these immeasurables. Instead it seeks to assemble a more well-rounded, and thus realistic, balance sheet of the interface between market and society. For example the GNP counts as “progress” the money people spend deterring crime or repairing damage and losses caused by crime. The GPI lists these on the minus side.
Using data from the US government and respected research institutions the GPI makes an assessment of the factors that the economic establishment ignores. For example, the GPI takes into account the distribution of income. In the 1980s the top one percent of American households enjoyed a more than 60 percent growth in their income. While the income of the bottom 40 percent of households declined. The GPI is adjusted for the extent to which the whole population actually shared in any increase. Damage to human health, agriculture and buildings from air and water pollution is also listed as a loss. For Redefining Progress this is not merely an academic exercise. It converted the GPI into a set of tools and resources that neighborhoods, towns or cities can use to check their own GPI status. Essentially these projects attempted to assess the quality of life in a community by integrating environmental, social and economic well-being.
How and why, then, did the GPI rise at the end of the 1990s? According to Redefining Progress, this was due to the stabilization of some measures of the quality of social life. Under-employment fell from its high in 1989, even though it was still eight times as high as in 1950. As more people had access to better jobs, this translated into reduced rates of illness, suicide, and crime. This again reinforces the importance of the quality of economic growth.
For an endeavor that started out as more of a thought experiment than a scientific measure, the GPI has come a long way in 10 years. Its proponents are not worried that it has holes, for it is a work in progress. Besides, as Rowe points out, the holes in the GPI concept and mechanism are less fundamentally “wrong headed” than those in the GNP.
The GPI went on to be further developed and refined by GPI Atlantic, a non-profit organization in Nova Scotia, Canada. Founded in 1997, GPI Atlantic is one of the leaders in research into quality of life indicators. The GPI Atlantic integrates 22 different components, including work hours and income distribution, population health and greenhouse gas emissions. “What we measure is a sign of what we value in our society,” says Ron Coleman, director of Atlantic GPI. “If you measure the right things, you change the whole policy agenda.”
The outcome of these altered measurements can be eye-popping for even conventional bottom-line number crunchers. For example the Atlantic GPI shows that solid waste recycling saves Nova Scotia taxpayers $31 million per year in energy use and landfill replacement. Old accounting methods focused on basic operating costs, neglecting even obvious outlays like the $10 million paid to Sackville residents for landfill-related quality-of-life losses. Atlantic’s work has inspired a wide array of regional studies on quality of life within Canada.
This sheet is also available in French: Mesurer le bien-être : redéfinir le progrès
Rajni BAKSHI, An Economics For Well-Being, Centre for Education and Documentation, Mumbai & Bangalore, 2007
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