On October 17, 1995, Senator Byron Dorgan (D-ND)asked his colleagues in the Senate to rethink sacred notions of economic progress. "We are told daily that the Gross Domestic Product (GDP) in America is up, our economy is moving forward and we are doing so well. But why, when Americans are working longer and harder just to keep up, why are we told that things are so good, that the GDP is a measure of enormous progress?"
The answer, continued Dorgan, is that the GDP is fatally flawed, as it privileges the world of the market at the expense of social and environmental breakdown. "The gross domestic product adds up everything Americans spend and declares that as the total good. As a result, the hundreds of billions of dollars that Americans spend to cope with crime, the lawyers, and social breakdown costs, is all GDP--car crashes, fender benders in front of the Capitol. Mr. President, $200 billion a year in repair bills and hospital bills give this country a real boost," says Dorgan.
THE NEW MEASURE
Dorgan based much of his speech on an article that had come out in The Atlantic Monthly that same month, titled "If the Economy is Up, Why Is America Down?" In it, authors Clifford Cobb, Tad Halstead and Jonathan Rowe (who now does research for Dorgan) propose a different measure--a Genuine Progress Indicator (GPI). The GPI would add up the nation's expenses (GDP), factor in sectors that are usually excluded from the market economy such as housework and volunteering, and then subtract social ills: crime, natural resource depletion and loss of leisure time.
No surprise: the GPI figures reveal a cloud in the silver lining of the GDP. As measured by the GPI, the U.S. economy has declined by 45 percent in the past two decades. The GDP figures, on the other hand, indicate the economy has more than doubled its growth rate since the early 1950s.
The disparity between the two indexes, argue the authors, confirms that the GDP is no longer an accurate gauge of economic progress. "The GPI reveals that much of what we now call growth or GDP is really just one of three things in disguise: fixing blunders and social decay from the past, borrowing resources from the future, or shifting functions from the traditional realm of household and community to the realm of the monetized economy."
Three years after the publication of the Atlantic article, Dorgan's impassioned 40-minute speech, and a flurry of congratulatory newspaper articles and editorials, the GPI remains controversial for its economic methodology. Yet it is becoming a powerful tool for advocates of social change, environmentalists in particular. The ideas embodied in the GPI are being pursued in books such as Paul Hawken's Natural Capitalism and Stanford University biologist Gretchen C. Daly's Nature's Services, both of which underscore the economic worth of ecosystem "services." And across the country, dozens of communities are adopting their own "sustainability indicators" as a means of assessing their economic, environmental and social condition.
"We want people to rethink what progress is all about," says Mathis Wackernagel, director of Indicator Programs at Redefining Progress, the San Francisco-based policy organization that developed the GPI and other social progress indicators. "We want to live well as people, but there's only so much ecological capacity on this planet. That's the essence of the sustainable dilemma, and that's what the GPI and other `real life' measures can help us to do."
The criticisms leveled against the GDP, the country's main index of progress, boil down to this: what it deems as growth is merely increased spending. It doesn't tell us if the spending is good or bad. This kind of critique is nothing new. In fact, it originated with Simon Kuznets, the man who helped create the national accounting system to jump start a post-war economy. In his first report to Congress in 1934, Kuznets warned that "the welfare of a nation" can "scarcely be inferred from a measurement of national income as defined above." Further, argued Kuznets, as the economy expands, the requirements for economic growth also change. "Goals for more growth," he said, "should specify more growth of what and for what."
Since that time, a number of economists and policy makers have tried to highlight the shortcomings of the GDP. Just before he was assassinated, Robert Kennedy delivered a speech attacking the national index that was all the more notable since it came from an aspiring president. "If you were an economist with a soul, Bobby Kennedy's GDP speech made you weep," says Everett Erlich, undersecretary for economic affairs from 1993 to 1997 and now president of ESC, an economics consulting firm in Washington, D.C.
Over 400 U.S. economists, including Professor Herbert Simon, a Nobel laureate, and the late Robert Eisner, a former president of the American Economics Association, have backed a GPI initiative stating that the GDP ignores social and environmental costs and is thus "inadequate and misleading as a measure of true prosperity." Despite increasing interest, however, an intractable political and corporate culture has successfully arrested efforts to change the nation's system of tallying accounts. The quarterly release of GDP figures has become a national ritual, albeit one that is little understood by the public.
Today, GDP percentages are used as a blueprint for Wall Street takeovers, federal budget calculations and political campaign strategies. Just last January, in his State of the Union address, Clinton exploited the mystique of quarterly GDP numbers to keep attention focused on national well-being instead of presidential impeachment.
The nation's political reliance on the GDP was spotlighted in 1994, when the Commerce Department undertook a project to adjust the GDP for depletion of oil and other nonrenewable resources. Called the Integrated Economic and Satellite Accounts (IESA), the program was eventually supposed to include renewable resources like forests and factors such as changes in air quality. But soon after the data on nonrenewables was published, Congress cried foul and effectively shut down the program. The rationale was clear: "Somebody is going to say ... that the coal industry isn't contributing anything to the country," Congressman Alan Mollohan of West Virginia said at the time.
According to Larry Moran, a spokesperson for the Commerce Department, the Bureau of Economic Affairs has not received any funding for Phase Two of the IESA and has no plans to move forward with the environmental accounting system. When they shut down the IESA, says Erlich, "Congress made thinking about a Green GDP a thought crime."
But it is precisely because the GDP is so clearly skewed in favor of natural resource exploitation that the GPI is such a compelling idea for environmentalists. According to the perverse logic of the GDP, the nation prospers every time there is an oil spill, an increase in air pollution or a depletion of habitat. Why? Because an environmental disaster creates jobs and stimulates the economy. As the people at Redefining Progress put it, when measured by the GDP, the nation's most desirable habitat is a multibillion dollar, toxic Superfund site. "If we have to use one index as a guide to policy" says Jay Andrew Hoerner, senior research scholar at the Center for Sustainable Economy, "we must make the kinds of adjustments made in the GPI."
In a sense, we already are. Seemingly disparate concerns--the North American Free Trade Agreement and rapid deforestation, corporate welfare and global warming--are weakening the traditional polarization between environmental protection and economic growth. Green taxes, natural capitalism and ecological deficits--an entirely new language has been created to explain an environmentalism rooted in self-interest and an economics rooted in nature's commodities. Redefining Progress itself is reaping the benefits of these shifting alliances, says Wackernagel. "Banks are now giving us money" he says, making reference to the organization's "Ecological Footprint" project, which monitors the ecological capacity of individual countries. "They are investing in government bonds and want to know, `Do countries have ecological deficits? Are they overspending their natural capacity?'"
Governments, says Wackernagel, don't want to expose themselves because it's obvious they're moving in the wrong direction. "But these will be the vulnerable countries of the future." Indonesia provides a useful case study. Since 1970, development experts had labeled the Southeast Asian country a success story for its rapid growth rate (as measured by the GDP) of seven percent a year. But a study by the World Resources Institute in 1989 revealed that after adding in the costs of forest clear-cutting and intensive farming, the country's rate of sustainable growth was really only one-half the original. Ten years later, with the clarity of hindsight, the collapse of the Indonesian economy is proof of the GDP's fragile mask.
LIMITS TO GROWTH
Paul Hawken outlines a similar scenario in Natural Capitalism. For the first time in history, argues Hawken, the obstacle to national and global prosperity is not the lack of man-made capital such as investments, factories and equipment, but the lack of natural capital, which he defines as both nonrenewable and renewable resources. "The limits to increased fish harvests are not boats," he writes, "but productive fisheries; the limits to irrigation are not pumps or electricity, but viable aquifers; the limits to pulp and lumber production are not sawmills, but plentiful forests."
Moreover, argues Hawken, it's time to stop defining natural capital in terms of the commodities they provide--wood, for example. Instead, we should recognize the critical "services" they provide, like clean air and water, ocean productivity and fertile soil. In her essay "Valuing Nature's Services," Worldwatch Institute researcher Janet Abramovitz takes these ideas one step further by recognizing and assigning value to the "income" the ecosystem delivers to the market economy: production of raw materials, purification of water, waste decomposition, soil maintenance, pollination and pest control, and regulation of local and global climates.
"Honeybee pollination activity is 60 to 100 times more valuable than the honey they produce," writes Abramovitz. "The value of wild blueberry bees is so great, with each one pollinating four to five gallons of blueberries in its life, that farmers view them as `flying $50 bills.'"
Ecological economists (who are creating a new field within the established discipline of environmental economics) argue that the GDP not only encourages exploitation of natural resources but that, astoundingly, it ignores the use value of renewable and nonrenewable resources to the economy. "Nature's `free' goods and services aren't included in the gross domestic product," writes Abramovitz. "But nature's services are not, in fact, free, and the future will bear the hidden costs of losing them." The mission statement of Portland, Oregon-based EcoTrust, one of a small but growing number of organizations seeking to use economic tools for conservation purposes, puts it this way: "The development of a conservation economy is a deeply `conservative' strategy. Just as a reasonable businessperson will seek to grow his or her asset base and live off current income instead of debt, conservation economics seeks to preserve and grow the natural capital ... to live off income instead of `eating our seed corn' and to build as much new wealth as possible on increasing knowledge."
NEITHER RIGHT NOR LEFT
Although ecologically-minded organizations are often associated with political liberals, proponents of the GPI have discovered unlikely bedfellows in the form of conservative groups that are joining the attack on the nation's main index of progress. In 1993, former Secretary of Education William Bennett produced a study called the Index of Leading Cultural Indicators, to chart the social decline that has taken place--divorce, crime, media addiction--even as the economy has grown. The right-leaning Family Research Council has developed a similar measure.
At the same time, Redefining Progress is not the only progressive institution to generate social change indicators. Another national gauge of well-being is the Index of Social Health, which is published annually by Fordham University's Graduate Center in Tarrytown, New York. Since 1985, the center has studied the nation's health through the evaluation of 16 indicators affecting children, teenagers, adults and the elderly: infant mortality, child abuse, poverty, suicides, drug use, dropout rates, average salaries and health insurance coverage. Like the GPI, the Fordham Index shows steady declines, from 73.8 out of a possible 100 in 1970 to 40.6 in 1993. There is also the Physical Quality of Life Index, which measures literacy, infant mortality and life expectancy, as does the Worldwatch Institute in its State of the World volumes.
Together, these indexes reinforce the need for new definitions of growth and progress. Moreover, the social message sounded by these national monitors can also be heard at the local and regional level. In response to tremendous increases in urban growth, communities across the country are undertaking "community indicator projects" that take a frank look at livability issues. Sustainable Seattle, for example, is internationally known for its indicator model, which uses a list of 40 cultural, ecological, economic and social indicators to assess progress toward sustainability. Last year, the group released a "Sustainable 98 Report" showing, among other things, that wild salmon runs in the Cedar River watershed have stabilized at dangerously low levels and that automobile use had increased even as fuel efficiency decreased.
Like the GPI, these indicators are a way of measuring the health of a community; they do not measure the success of a particular policy or program. But like the GPI, the ultimate goal of the community indicator projects is to move the benchmarks into action. This is beginning to happen. For instance, the city of Seattle not only incorporated the indicators report into its comprehensive plan, but King County Executive Ron Simms also held up the report as a guide for his public policy goals. "This is my textbook" he said in an interview last year. "And I think I'll have been successful at the end of the year if we have moved all the indicators up."
In Santa Monica, one of the Sustainable City Programs' 1995 indicators showed that only 15 percent of municipal fleet vehicles used reduced-emission fuels. In response, city officials instituted a new schedule of vehicle maintenance so that Santa Monica will have 75 percent of its fleet running on low-emissions fuels by 2000.
Over the last few years, the city of Noblesville, Indiana and Indiana University developed a series of community benchmarks which have been integrated into the comprehensive plan and zoning ordinance. Responding to a benchmark governing park space per resident, the city adopted a park impact fee policy and then used the money to purchase land adjacent to an historic community park and along the nearby White River.
Many textbook economists are critical of the GPI because they are convinced of the absolute value of measuring market activity; by the same token, they argue that it is difficult to quantify activities that take place outside of the marketplace. "The market economy does two very important things for us as individuals that can explain why it should be measured separately from everything else" says Larry Moran at the Bureau of Economic Affairs. "It provides jobs and those jobs provide income. We don't count things like housework or mowing the lawn because they provide neither." But to highlight the costs as well as the benefits of "jobs and income" the GPI considers more than 20 aspects of the economy which the GDP ignores. Thus, in addition to subtracting the costs of environmental degradation such as pollution and damage to agriculture and water, the GPI also counts such negative factors as repairs after auto accidents and security devices people buy to prevent crime.
It also adds in "non-market" factors such as unpaid domestic labor, contributions to neighborhood groups and care of the elderly. Most controversially, it makes an adjustment for income distribution; that is, even if overall income levels increase, the GPI labels greater income inequality as a negative for economic and social progress.
VALUE JUDGEMENTS FOR THE EARTH
Implicit to the market-based critique of the GPI is that the new measure substitutes value judgements for the objectivity of the market, an argument that updates age-old questions about economic theory for the end of the millennium. Is the market simply about individual choice? Or are those choices influenced by circumstance? In the 1990s, how much of our "income" is generated by social problems and how many of our consumption "choices" are dictated by environmental and social decline?
As Wackernagel points out, the market itself is a value judgement, as it dismisses everything but financial transactions. "Valuations are arbitrary judgements and the GDP is full of them" says Wackernagel. "It says many things have the value zero, such as housework and the environment" The GPI figures aren't perfect, he says. "But we think it's better to give a rough estimate than to say these things are worth nothing"
Whatever questions they may have about the GPI's value, most critics agree that the measure's natural resource adjustments are the most sound methodologically-another sign the environmental movement may be at the vanguard of the GDP reform effort. "It's very difficult to count leisure time or women's work in the home," says Erlich. "But we have information on environmental quality"
Once again, however, the problem is that the GDP disregards this information. "We'll have a consulting firm come out and try and estimate the cost to our economy of reducing carbon emissions" says Jim Barrett, an environmental economist at the Economic Policy Institute in Washington, D.C. "Instead of saying anything about environmental costs, we'll hear: `In 2010, our GDP will be 3.2 percent lower than it otherwise would have been'" This gives policy officials an out, says Barrett. "They say, `If the value to our nation is a loss of three percent, why should we do it?'"
There hasn't been another GPI speech in the Senate since Senator Dorgan delivered his stinging rebuke of the GDP in 1995. Yet the GPI continues to stimulate discussion both here and abroad, where at least 11 countries--including Austria, England, Sweden and Germany--have recalculated their gross domestic product using the GPI (known as the ISEW abroad). Like their counterpart in the United States, the European GPIs post steady declines over the last 30 years.
But perhaps more importantly, the GPI is emblematic of a grassroots movement that has been building in this country for over two decades: an acknowledgment that sprawl, growth and congestion are changing neighborhoods, depleting green spaces and affecting our quality of life. Americans might be ahead of their policy makers in measuring what's really important. CONTACT: Center for a Sustainable Economy, 1731 Connecticut Avenue NW, Suite 500, Washington, DC 20009/(202)234-9665; Friends of the Earth, 1025 Vermont Avenue NW, Washington, DC 200056303/(202)783-7400; Redefining Progress, 1 Kearney Street, Fourth Floor, San Francisco, CA 94108/(415)7811191.
LINDA BAKER is an Oregon-based freelance writer.
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|Title Annotation:||use of gross domestic product figures as economic indicator may no longer be valid|
|Date:||May 1, 1999|
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