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It's Not About Growth
Alternative Economic Indicators Measure the Quality of Life
by Wendy Priesnitz

Traditionally, a country’s economic health and well-being is measured by something called the Gross Domestic Product (GDP) or its cousin, the Gross National Product (GNP). The media eagerly report the number on a monthly basis and its rise or fall is used as an indicator of how well things are progressing or not. A recession, for instance, is defined as two consecutive quarters of negative GDP growth.

But GDP is really just a measure of national spending with no distinctions made between transactions that add to well-being and those that diminish it. As long as money changes hands, the GDP increases.

The fact that this indicator is based upon economic growth is not surprising. The collection of the statistics underlying GDP and GNP, which is called the System of National Accounts (SNA), was created in the United States in the 1930s to kick start the economy out of the Great Depression by maximizing production and consumption of manufactured goods in a wartime economy.

Seventy-some years later, however, the GDP’s faith in unbridled growth and efficiency is not as useful. Our current worldwide economic and environmental crises suggest that we need a new definition of progress and a new way of accounting for the costs generated by economic activity. For instance, under the GDP, environmental pollution ends up being a positive because it creates economic activity – and is even counted positively twice: once when it’s created and again when it’s cleaned up. And the result of that pollution, which is often illness such as cancer, also ends up on the plus side of the ledger because it, too, creates economic activity. Shouldn’t a true set of indicators include a way to debit the accounts for the cost of degradation of wetlands and the depletion of the ozone layer and oil? Shouldn’t it adjust for factors such as the value of household and volunteer work, which are invisible in the GDP because no money changes hands?

A think tank called Redefining Progress, founded in California in 1994, puts it this way: “We believe that progress is not measured by the quantity of goods we consume, how fast our economy is growing or how much financial wealth is being amassed. We believe progress is measured by how well we equitably distribute wealth, income and access to cultural amenities; diversify and stabilize our economic base; protect and restore native ecosystems; and advance social, economic and environmental sustainability.”

So Redefining Progress created the Genuine Progress Indicator (GPI) as an alternative to the GDP. The GPI enables policymakers to measure how well citizens are doing, based on economic, health, social and environmental factors. In effect, the GDP could be seen as gross profit of a company and the GPI as its net profit – or revenue minus the costs incurred. If the costs associated with our way of life were to equal the financial gains, the GPI would be zero.

A number of countries have used the GPI to recalculate their GDP. And in Canada, Nova Scotia and Alberta have pioneered its use provincially. In 2000, the National Roundtable on the Environment and the Economy began a three- year multi-stakeholder program aimed at developing a small set of indicators to track whether Canada’s economic activities threatened the way of life for future generations. The Environment and Sustainable Development Indicators (ESDI) Initiative marked the first time a federal finance minister acknowledged the need for such measures.

As increasing numbers of citizens understand that we need to account for the costs of economic growth, alternatives to the traditional GNP/GDP indicator are being created and used as tools to help us create well-being rather than borrow it from future generations.

This article first appeared in Natural Life Magazine in 2009.
copyright (c) Wendy Priesnitz 2010

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