The
genuine progress indicator (GPI) is a concept in
green economicsImage:Sustainable development.svg|right|The three pillars of sustainability. Clickable.|275px|thumbpoly 138 194 148 219 164 240 182 257 219 277 263 291 261 311 264 331 272 351 283 366 300 383 316 394 287 408 261 417 224 424 182 426 154 423 119 415 87 403 58 385 40 368 24 347 17 328 13 309...
and
welfare economicsWelfare economics is a branch of economics that uses microeconomic techniques to simultaneously determine allocative efficiency within an economy and the income distribution associated with it. It analyzes social welfare, however measured, in terms of economic activities of the individuals that...
that has been suggested to replace
gross domestic productThe gross domestic product or gross domestic income is a basic measure of a country's economic performance and is the market value of all final goods and services made within the borders of a country in a year...
(GDP) as a metric of
economic growthEconomic growth is a term used to indicate the increase of total GDP. It is often measured as the rate of change of gross domestic product . Economic growth refers only to the quantity of goods and services produced; it says nothing about the way in which they are produced...
.
GPI is an attempt to measure whether a country's growth, increased production of goods, and expanding services have actually resulted in the improvement of the welfare (or well-being) of the people in the country. GPI advocates claim that it can more reliably measure economic progress, as it distinguishes between worthwhile growth and
uneconomic growthUneconomic growth, in human development theory, welfare economics , and some forms of ecological economics, is economic growth that reflects or creates a decline in the quality of life. The concept is attributed to the economist Herman Daly, though other theorists can also be credited for the...
.
The GDP vs the GPI is analogous to the difference between the gross profit of a company and the net profit; the Net Profit is the Gross Profit minus the costs incurred. Accordingly, the GPI will be zero if the financial costs of crime and pollution equal the financial gains in production of goods and services, all other factors being constant.
Motivation
Most economists assess the progress in welfare of the people by comparing the gross domestic product over time, that is, by adding up the annual dollar value of all goods and services produced within a country over successive years. However, GDP was never intended to be used for such purpose. It is prone to
productivismProductivism is the belief that measurable economic productivity and growth is the purpose of human organization , and that "more production is necessarily good".-Arguments for productivism:...
or
consumerismConsumerism is the equation of personal happiness with consumption and the purchase of material possessions. The term is often associated with criticisms of consumption starting with Thorstein Veblen or, more recently by a movement called Enoughism...
, over-valuing production and consumption of goods, and not reflecting improvement in human well-being.
Simon KuznetsSimon Smith Kuznets was a Russian American economist at the Wharton School of the University of Pennsylvania who won the 1971 Nobel Memorial Prize in Economic Sciences "for his empirically founded interpretation of economic growth which has led to new and deepened insight into the economic and...
, the inventor of the concept of the GDP, notes in his very first report to the US Congress in 1934:
...the welfare of a nation [can] scarcely be inferred from a measure of national income...
An adequate measure must also take into account
ecological yieldEcological yield is the harvestable population growth of an ecosystem. It is most commonly measured in forestry; in fact, sustainable forestry is defined as that which does not harvest more wood in a year than has grown in that year, within a given patch of forest.However, the concept is also...
and the ability of nature to provide
servicesNature's services is an umbrella term for the ways in which nature benefits humans, particularly those benefits that can be measured in economic terms. Robert Costanza and other theorists of natural capital conducted extensive economic analysis of nature's services to humanity in the 1990s...
. These things are part of a more inclusive ideal of progress, which transcends the traditional focus on raw industrial production.
Theoretical foundation
The need for a
GPI to supplement biased indicators such as
GDPThe gross domestic product or gross domestic income is a basic measure of a country's economic performance and is the market value of all final goods and services made within the borders of a country in a year...
was highlighted by analyses of
uneconomic growthUneconomic growth, in human development theory, welfare economics , and some forms of ecological economics, is economic growth that reflects or creates a decline in the quality of life. The concept is attributed to the economist Herman Daly, though other theorists can also be credited for the...
in the 1980s notably that of
Marilyn WaringMarilyn Waring, CNZM is a New Zealand feminist, an activist for "female human rights", an author and an academic. She holds a Ph.D. in political economy. A member of the conservative National Party, she became at 22 the youngest member of the New Zealand Parliament in 1975, for Raglan...
who studied biases in the
UN System of National AccountsThe United Nations System of National Accounts is an international standard system of national accounts, the first international standard being published in 1953...
.
By the early 1990s there was a consensus in
human development theoryHuman development theory is a theory that merges older ideas from ecological economics, sustainable development, welfare economics, and feminist economics...
and
ecological economicsImage:Sustainable development.svg|right|The three pillars of sustainability. Clickable.|275px|thumbpoly 138 194 148 219 164 240 182 257 219 277 263 291 261 311 264 331 272 351 283 366 300 383 316 394 287 408 261 417 224 424 182 426 154 423 119 415 87 403 58 385 40 368 24 347 17 328 13 309...
that growth in
money supplyIn economics, money supply or money stock, is the total amount of money available in an economy at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circulation and demand deposits....
was actually reflective of a loss of well-being: that lacks of essential natural and social services were being paid for in cash and that this was expanding the economy but degrading life.
The matter remains controversial and is a main issue between advocates of green economics and neo-classical economics. Neoclassical economists understand the limitations of GDP for measuring human wellbeing but nevertheless regard GDP as an important, though imperfect measure of economic output and would be wary of too close an identification of GDP growth with aggregate human welfare. However GDP tends to be reported as synonymous with economic progress by journalists and politicians and the GPI seeks to correct this shorthand by providing a more encompassing measure.
Some economists, notably
Herman DalyHerman Daly is an American ecological economist and professor at the School of Public Policy of University of Maryland, College Park in the United States....
,
John CobbJohn Cobb may refer to:People* John Cobb , Australian politician* John Cobb , English cabinetmaker* John Cobb , Canadian politician)...
and Philip Lawn have asserted that a country's growth, increased goods production, and expanding services have both "costs" and "benefits"--not just the "benefits" that contribute to GDP. They assert that, in some situations, expanded production facilities damage the health, culture, and welfare of people. Growth that was in excess of sustainable norms (e.g. of
ecological yieldEcological yield is the harvestable population growth of an ecosystem. It is most commonly measured in forestry; in fact, sustainable forestry is defined as that which does not harvest more wood in a year than has grown in that year, within a given patch of forest.However, the concept is also...
) had to be considered to be
uneconomicUneconomic growth, in human development theory, welfare economics , and some forms of ecological economics, is economic growth that reflects or creates a decline in the quality of life. The concept is attributed to the economist Herman Daly, though other theorists can also be credited for the...
. According to the "threshold hypothesis", developed by
Manfred Max-NeefManfred Arthur Max-Neef is a Chilean economist and environmentalist. Mainly known for his human development model based on Fundamental human needs...
, the notion that
when macroeconomic systems expand beyond a certain size, the additional benefits of growth are exceeded by the attendant costs. (Max-Neef 1995.)
According to Lawn's model, the "costs" of economic activity include the following potential harmful effects:
- Cost of resource depletion
Resource depletion is an economic term referring to the exhaustion of raw materials within a region. Resources are commonly divided between renewable resources and non-renewable resources...
- Cost of crime
Crime is the breach of one or more rules or laws for which some governing authority, via mechanisms such as police power, may ultimately prescribe a conviction...
- Cost of ozone depletion
Ozone depletion describes two distinct, but related observations: a slow, steady decline of about 4% per decade in the total volume of ozone in Earth's stratosphere since the late 1970s, and a much larger, but seasonal, decrease in stratospheric ozone over Earth's polar regions during the same...
- Cost of family breakdown
- Cost of air
Air pollution is the introduction of chemicals, particulate matter, or biological materials that cause harm or discomfort to humans or other living organisms, or damages the natural environment, into the atmosphere....
, waterWater pollution is the contamination of water bodies such as lakes, rivers, oceans, and groundwater. All water pollution affects organisms and plants that live in these water bodies and in almost all cases the effect is damaging either to individual species and populations but also to the natural...
, and noise pollutionNoise pollution is displeasing human-, animal- or machine-created sound that disrupts the activity or balance of human or animal life. The word noise comes from the Latin word nausea meaning seasickness....
- Loss of farmland
Farmland may refer to:*Arable land, land used for agriculture*Farmland, Indiana, a town in the United States*Farmland Industries, founded in 1929 as the Union Oil Company, later renamed Consumers Cooperative Association and Farmland Industries, Inc....
- Loss of wetland
A wetland is an area of land whose soil is saturated with moisture either permanently or seasonally. Such areas may also be covered partially or completely by shallow pools of water. Wetlands include swamps, marshes, and bogs, among others. The water found in wetlands can be saltwater, freshwater,...
s
Analysis by
Robert CostanzaRobert Costanza is an American ecological economist and the Gund Professor of Ecological economics and Director of the Gund Institute for Ecological Economics at the University of Vermont.- Biography :...
also around 1995 of
nature's servicesNature's services is an umbrella term for the ways in which nature benefits humans, particularly those benefits that can be measured in economic terms. Robert Costanza and other theorists of natural capital conducted extensive economic analysis of nature's services to humanity in the 1990s...
and their value showed that a great deal of degradation of nature's ability to clear waste, prevent erosion, pollinate crops, etc., was being done in the name of monetary profit opportunity: this was adding to GDP but causing a great deal of long term risk in the form of mudslides, reduced yields, lost species, water pollution, etc.. Such effects have been very marked in areas that suffered serious
deforestationDeforestation is the clearance of naturally occurring forests by the processes of logging and/or burning of trees in a forested area. There are several reasons deforestation occurs: trees or derived charcoal can be sold as a commodity and used by humans, while cleared land is used as pasture,...
, notably
HaitiHaiti , officially the Republic of Haiti , is a Creole- and French-speaking Caribbean country. Along with the Dominican Republic, it occupies the island of Hispaniola, in the Greater Antillean archipelago...
,
IndonesiaThe Republic of Indonesia is a country in Southeast Asia and Oceania. Indonesia comprises 17,508 islands. With an estimated population of around 237 million people, it is the world's fourth most populous country, with the world's largest population of Muslims.Indonesia is a republic, with an...
, and some coastal
mangroveMangroves are trees and shrubs that grow in saline coastal habitats in the tropics and subtropics – mainly between latitudes N and S. The saline conditions tolerated by various species range from brackish water, through pure seawater , to water of over twice the salinity of ocean seawater,...
regions of
IndiaIndia, officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the south, the Arabian Sea on the west, and the Bay of Bengal...
and
South AmericaSouth America is the southern continent of the Americas, situated entirely in the Western Hemisphere and mostly in the Southern Hemisphere, with a relatively small portion in the Northern Hemisphere...
. Some of the worst land abuses for instance have been
shrimp farmA shrimp farm is an aquaculture business for the cultivation of marine shrimp or prawns for human consumption. Commercial shrimp farming began in the 1970s, and production grew steeply, particularly to match the market demands of the U.S., Japan and Western Europe...
ing operations that destroyed mangroves, evicted families, left coastal lands salted and useless for agriculture, but generated a significant cash profit for those who were able to control the export market in shrimp: this has become a signal example to those who contest the idea that GDP growth is necessarily desirable.
GPI takes account of these problems by incorporating
sustainabilitySustainability, in a broad sense, is the capacity to endure. In ecology, the word describes how biological systems remain diverse and productive over time...
: whether a country's economic activity over a year has left the country with a better or worse future possibility of repeating at least the same level of economic activity in the long run. For example, agricultural activity that uses replenishing water resources, such as river runoff, will score a higher GPI than the same level of agricultural activity that drastically lowers the water table by pumping irrigation water from wells.
"Income" vs. "capital depletion"
HicksSir John Richard Hicks was a British economist and one of the most important and influential economists of the twentieth century. The most familiar of his many contributions in the field of economics were his statement of consumer demand theory in microeconomics, and the IS/LM model, which...
(1946) pointed out that the practical purpose of calculating income is to indicate the maximum amount people can produce and consume without undermining their capacity to produce and consume the same amount in the future. From a national income perspective, it is necessary to answer the following question: ‘‘Can a nation’s entire GDP be consumed without undermining its ability to produce and consume the same GDP in the future?’’
"Enjoyment of life" vs. "production of goods"
Fisher (1906) contended that "economic welfare depends on the psychic enjoyment of life," not just the production of goods.
Results
At least 11 countries (including Austria, England, Sweden and Germany) have recalculated their gross domestic product using the GPI. The data for European countries and the United States show a steady decline over the last 30 years
Applying the genuine progress indicator to legislative decisions
The best known attempt to apply a GPI to legislative decisions is probably the
GPI Atlantic indicator pioneered by Ronald Colman for
Nova ScotiaNova Scotia is a Canadian province located on Canada's southeastern coast. It is the most populous province in Atlantic Canada. Its capital, Halifax, is a major economic centre of the region. Nova Scotia is the second-smallest province in Canada with an area of...
, the
Alberta GPI pioneered by economist Mark Anielski to measure the long-term economic, social and environmental sustainability of the province of
AlbertaAlberta is one of Canada's prairie provinces. It became a province on September 1, 1905.Alberta is located in western Canada, bounded by the provinces of British Columbia to the west and Saskatchewan to the east, the Northwest Territories to the north, and the U.S. state of Montana to the south....
and the
environmental and sustainable development indicators used by the
Government of CanadaThe government of Canada is established as a constitutional monarchy, with the powers and structure of the federal government established by the Constitution of Canada, which includes the written part, the decisions of courts, and unwritten conventions developed over time.-Usage:In Canadian...
to measure its own
progress to achieving well-being goals: its
Environment and Sustainable Development Indicators Initiative (Canada) is a substantial effort to justify state services in
GPI terms. It assigns the
Commissioner for the Environment and Sustainable Development (Canada), an officer in the Auditor-General of Canada's office, to perform the analysis and report to the
House of CommonsThe House of Commons is a component of the Parliament of Canada, along with the Sovereign and the Senate.
The House of Commons is a democratically elected body, consisting of 308 members known as Members of Parliament .
Members are elected by simple...
.
This has not satisfied the stricter advocates of GPI, however: Canada continues to state its overall budgetary targets in terms of reducing its
debt to GDP ratioIn economics, particularly macroeconomics, various debt-to-GDP ratios can be calculated. The most commonly used ratio is the Government debt divided by the Gross Domestic Product , which reflects the government's finances, while another common ratio is the total debt to GDP, which reflects the...
, which implies that GDP increase and debt reduction in some combination are its main priorities.
In the
EUThe European Union is an economic and political union of 27 Member States, located primarily in Europe. Committed to regional integration, the EU was established by the Treaty of Maastricht on 1 November 1993 upon the foundations of the pre-existing European Economic Community...
the
MetropoleThe metropole, from the Greek Metropolis 'mother city' was the name given to the British metropolitan center of the British Empire, i.e. the United Kingdom itself...
efforts and the London Health Observatory methods are equivalents focused mostly on urban lifestyle.
The EU and Canadian efforts are among the most advanced in any of the
G8The Group of Eight is a forum, created by France in 1975, for governments of the six richest countries in the world: France, Germany, Italy, Japan, the United Kingdom, and the United States. In 1976, Canada joined the group...
or OECD nations, but there are parallel efforts to measure
quality of lifeThe term quality of life is used to evaluate the general well-being of individuals and societies. The term is used in a wide range of contexts, including the fields of international development, healthcare, and political science. Quality of life should not be confused with the concept of...
or
standard of livingStandard of living is generally measured by standards such as real income per person and poverty rate. Other measures such as access and quality of health care, income growth inequality and educational standards are also used. Examples are access to certain goods , or measures of health such as...
in
healthAt the of the creation of the World Health Organization , in 1948, Health was defined as being "a state of complete physical, mental, and social well-being and not merely the absence of disease or infirmity"....
(not strictly
wealthWealth is an abundance of valuable resources or material possessions. The word is derived from the old English wela, which is from an Indo-European word stem...
) terms in all
developed nationThe term developed country is used to describe countries that have a high level of development according to some criteria. Which criteria, and which countries are classified as being developed, is a contentious issue and there is fierce debate about this. Economic criteria have tended to dominate...
s. This has also been a recent focus of the
labour movementThe term labour movement or labor movement is a broad term for the development of a collective organization of working people, to campaign in their own interest for better treatment from their employers and political governments, in particular through the implementation of specific laws governing...
.
The term
Gross National HappinessThe concept of gross national happiness is an attempt to define quality of life in more holistic and psychological terms than gross national product....
was coined by the king of
BhutanThe Kingdom of Bhutan is a landlocked nation in South Asia, located at the eastern end of the Himalaya Mountains and is bordered to the south, east and west by the Republic of India and to the north by People's Republic of China. Bhutan is separated from the nearby state of Nepal to the west by...
.
Supporting countries and groups
- Netherlands
The Netherlands is a country in Northwestern Europe, constituting the major portion of the Kingdom of the Netherlands. It is a parliamentary democratic constitutional monarchy. The Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east...
- France
France , officially the French Republic , is a country located in Western Europe, with several overseas islands and territories located on other continents. Metropolitan France extends from the Mediterranean Sea to the English Channel and the North Sea, and from the Rhine to the Atlantic Ocean...
- Germany
Germany , officially the Federal Republic of Germany , is a country in Central Europe. It is bordered to the north by the North Sea, Denmark, and the Baltic Sea; to the east by Poland and the Czech Republic; to the south by Austria and Switzerland; and to the west by France, Luxembourg, Belgium,...
- Canada planning applications. GDP has functioned as an "income sheet." GPI will function as a "balance sheet," taking into consideration that some income sources are very costly and contribute a negative profit overall.
- Redefining Progress. Reports and analyses. A non-profit organization with headquarters in Oakland, California. See also: Publications of Redefining Progress
- Minnesota's Progress Indicator
See also
- Ecological footprint
The ecological footprint is a measure of human demand on the Earth's ecosystems. It compares human demand with planet Earth's ecological capacity to regenerate. It represents the amount of biologically productive land and sea area needed to regenerate the resources a human population consumes and...
- Full cost accounting
Full cost accounting generally refers to the process of collecting and presenting information for each proposed alternative when a decision is necessary. It is an conventional method of cost accounting that traces direct costs and allocates indirect costs. A synonym, true cost accounting is...
(FCA) (with relevance to the environment)
- Green gross domestic product
The green gross domestic product is an index of economic growth with the environmental consequences of that growth factored in.In 2004, Wen Jiabao, the Chinese premier, announced that the green GDP index would replace the Chinese GDP index itself as a performance measure for government and party...
(Green GDP)
- Gross domestic product
The gross domestic product or gross domestic income is a basic measure of a country's economic performance and is the market value of all final goods and services made within the borders of a country in a year...
(GDP)
- Happy Planet Index
The Happy Planet Index is an index of human well-being and environmental impact that was introduced by the New Economics Foundation in July 2006. The index is designed to challenge well-established indices of countries’ development, such as Gross Domestic Product and the Human Development Index...
(HPI)
- Human Development Index
The Human Development Index is an index used to rank countries by level of "human development", which usually also implies whether a country is developed, developing, or underdeveloped.-Summary:...
(HDI)
- ISEW (Index of sustainable economic welfare)
- Living planet index
The Living Planet Index is an indicator of the state of global biological diversity, based on trends in vertebrate populations of species from around the world....
- Quality-of-life index
The Economist Intelligence Unit’s quality-of-life index is based on a unique methodology that links the results of subjective life-satisfaction surveys to the objective determinants of quality of life across countries...
- Life quality index
The Life Quality Index is a compound social indicator of human welfare that reflects the expected length of life in good health and enhancement of the quality of life through access to income...
News articles
- “Advantage or Illusion: Is Alberta’s Progress Sustainable?” by Mark Anielski. Encompass Vol. 5, No. 5, July/August 2001.
- "The Growth Consensus Unravels" by Jonathan Rowe. Dollars and Sense, July-August 1999, pp. 15-18, 33.
- "Real Wealth: The Genuine Progress Indicator Could Provide an Environmental Measure of the Planet's Health" by Linda Baker. E Magazine, May/June 1999, pp. 37-41.
- "The GDP Myth: Why 'Growth' Isn't Always a Good Thing" by Jonathan Rowe, and Judith Silverstein. Washington Monthly, March 1999, pp. 17-21.
- "If the GDP Is Up, Why Is America Down?" by Clifford Cobb, Ted Halstead, and Jonathan Rowe. Atlantic Monthly, October 1995, pp. 59-78.
- "Economic Issues" by Lusi Song, Troy Martin, and Timothy Polo. 4EM Taylor, May 28, 2008, pp. 1-3.
- "Why Bigger Insn´t Better: The Genuine Progress Indicator - 1999 Update" by Clifford Cobb, Gary Sue Goodman, and Mathis Wackernagel, Redefining Progress, November 1999
Scientific articles and books
- A. Charles, C. Burbidge, H. Boyd and A. Lavers. 2009. Fisheries and the Marine Environment in Nova Scotia: Searching for Sustainability and Resilience. GPI Atlantic. Halifax, Nova Scotia. Web: http://www.gpiatlantic.org/pdf/fisheries/fisheries_2008.pdf
- Colman, Ronald. (2003). Economic Value of Civic and Voluntary Work. GPI Atlantic. Halifax, Nova Scotia. Web: http://www.gpiatlantic.org/publications/summaries/volsumm.pdf
- Anielski, M, M. Griffiths, D. Pollock, A. Taylor, J. Wilson, S. Wilson. 2001. Alberta Sustainability Trends 2000: Genuine Progress Indicators Report 1961 to 1999. Pembina Institute for Appropriate Development. April 2001.
- Anielski, M. 2001. The Alberta GPI Blueprint: The Genuine Progress Indicator (GPI) Sustainable Well-Being Accounting System. Pembina Institute for Appropriate Development. September 2001.
- Anielski, M. and C. Soskolne. 2001. “Genuine Progress Indicator (GPI) Accounting: Relating Ecological Integrity to Human Health and Well-Being.” Paper in Just Ecological Integrity: The Ethics of Maintaining Planetary Life, eds. Peter Miller and Laura Westra. Lanham, Maryland: Rowman and Littlefield: pp. 83-97.
- Daly, H., 1996. Beyond Growth: The Economics of Sustainable Development. Beacon Press, Boston.
- Daly, H. & Cobb, J., 1989. For the Common Good. Beacon Press, Boston.
- Fisher, I.
Irving Fisher was an American economist, health campaigner, and eugenicist, and one of the earliest American neoclassical economists and, although he was perhaps the first celebrity economist, his reputation today is probably higher than it was in his lifetime...
, 1906. Nature of Capital and Income. A.M. Kelly, New York.
- Hicks
Sir John Richard Hicks was a British economist and one of the most important and influential economists of the twentieth century. The most familiar of his many contributions in the field of economics were his statement of consumer demand theory in microeconomics, and the IS/LM model, which...
, J., 1946. Value and CapitalValue and Capital is a book by the British economist John Richard Hicks, published in 1939. It is considered a classic exposition of microeconomic theory...
, Second Edition. Clarendon, London.
- Lawn, P.A. "A theoretical foundation to support the Index of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator (GPI), and other related indexes". Ecological Economics 44 (2003) 105-118.
- Max-Neef, M. "Economic growth and quality of life". Ecological Economics 15 (1995) 115-118.
- Redefining Progress, 1995. "Gross production vs genuine progress". Excerpt from the Genuine Progress Indicator: Summary of Data and Methodology. Redefining Progress, San Francisco.
- L. Pannozzo, R. Colman, N. Ayer, T. Charles, C. Burbidge, D. Sawyer, S. Stiebert , A. Savelson, C. Dodds. (2009). The 2008 Nova Scotia GPI Accounts; Indicators of Genuine Progress . GPI Atlantic. Halifax, Nova Scotia. Web: http://www.gpiatlantic.org/pdf/integrated/gpi2008.pdf
External links