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GDP v GPI – What price progress?

Quantifying development in a way that counts the costs of growth can help challenge conventional thinking, but is never going to be an exact science, says Jon Entine

A failing state? Really?

Vermont, the New England state known for its pristine countryside, robust farming community and affluent skiers, is on the skids. But what’s the story behind this turn of events?

Last year, the Vermont legislature mandated the University of Vermont to prepare an annual “Genuine Progress Indicator”. The GPI is a quality of life statistic that proponents claim measures the broad economic and social health of a community more accurately than gross domestic product (GDP), the worldwide standard for assessing economic progress. The state of Maryland adopted GPI as a planning tool two years ago.

According to the first ever Vermont GPI, the state is doing terribly, with GDP overstating social welfare by more than 50%. That causes head scratching for many in Vermont, which has burst from its rural constraints over the past two decades to become a growth leader – at least according to traditional measures.

But GPI advocates will have none of this talk about economically salubrious times. “The GPI does a much better job of measuring overall economic wellbeing because it deducts the environmental costs of economic activity from the benefits that are produced,” says Eric Zencey of the University of Vermont’s Gund Institute for Ecological Economics, which crunched this year’s number.

Vermont is in the vanguard of an emerging international conversation about how to measure wellbeing. GDP is a relatively crude calculation constructed using dozens of assumptions. It has the attractiveness of being a number that governments can compare from year to year. But critics have long maintained it does not consider social and environmental factors.

GPI proponents sought to account for “hidden” welfare issues in 26 social and environmental categories, such as pollution, crime and ozone depletion, and for soft beneficial activities such as housework, the cost of family breakdowns, volunteering and demands on parenting time. But as the ethical investment movement learned over the past two decades, assigning hard numbers to value-laden social issues is a squishy enterprise.

Is poverty-eradicating growth a good thing in Indonesia if it results in shrinking rainforests that could cause future ecological problems? If your family income is up, but both parents are working full time, are you really better off? What’s the trade-off between industrial production, which bumps wages and healthcare standards, and carbon pollution, which pushes expensive climate change solutions into the future? These are prickly, and to some degree, unanswerable questions.

Many of these issues are not incorporated in GDP measures. But that’s for a reason, traditionalists say: many GPI categories have fragmentary or no data, which lead researchers to formulate new statistical frameworks that are extremely subjective and value-laden.

The index is unabashedly ideological, a fact underscored in a study released this summer by researchers at the Australian National University in Canberra. The researchers compiled estimates of GPI since 1978 for 17 countries, more than half the world’s population. During this period, China, Korea, India and Brazil experienced double-digit yearly GDP growth; the African continent and the poorer parts of Latin America and Asia stirred economically; global standard of living indices soared; and life expectancy rose by double digits. World poverty rates have been cut from 42% to 15% in less than 20 years, lifting half a billion people out of subsistence level existences.

What does GPI say about what by traditional economic measures has been a global golden age? Forgetaboutit.

Downward trajectory

The Australian researchers released their dour conclusions with a straight face. According to this controversial index, 1978 marked a high-water mark of international prosperity, and collectively we’ve been steadily sliding downhill ever since. In particular, they pointed to growing inequality of incomes (even though the incomes of the poor have risen along with the incomes of the more affluent, just not as fast) and environmental degradation as the biggest factors dragging GPI down.

Let’s be honest: GPI has yet to shed its training wheels. Like ethical investing, it’s a brilliant concept. It’s already served to challenge some fossilised views of what constitutes economic and social welfare. That’s helped encourage a conversation that those of us who care about social and environmental issues have maintained is long overdue.

But these kinds of indices were forged during an extended period of pessimism when the world was awakening to the rough edges of capitalism, particularly the environmental costs of growth. These are the same forces that have shaped the anti-globalism movement and there are strains of it in the zealous reaction against an array of new technologies, including fracking, synthetic biology and genetically modified crops and foods. It’s grounded in well-meaning concerns but also reflects a deep-seated fear of progress.

No single number can capture the complex relationship between economic and social factors. And yes, the last thing we need is a Panglossian view of the economy that leaves large swaths of the world population vulnerable. But let’s be cautious before we adopt quirky measures that by targeting innovation end up demonising growth in the name of progress.

Jon Entine is a senior fellow at the Center for Health & Risk Communication at George Mason University, and founder of the sustainability consultancy ESG MediaMetrics.

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