Genuine Progress Indicator

   

The Genuine Progress Indicator (GPI) is a concept in green economics that has been suggested as a replacement metric for gross domestic product (GDP). The GPI measures whether or not a country's growth, increased production of goods, and expanding services have actually resulted in the improvement of the welfare of the people in the country. Accordingly for example, the GPI will be zero if the increases in dollar costs of crime and pollution equal the total dollar rise in production of goods and services, all other factors being constant.

In addition, GPI considers 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 following years. 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.

Motivations for developing a Genuine Progress Indicator

Most economists assess the progress in welfare of the people in a country over time by comparing the gross domestic product over time, that is by adding up the annual dollar value of all the goods and services produced within the country over successive years. However, under the standard application of GDP, ecological disasters such as the Exxon Valdez oil spill improve the GDP, because the calculation of GDP adds as a bonus economic activity the lump sum of labor and capital expenditures required to mitigate the ecological damage to Prince William Sound. [1] (http://www.betterworld.com/BWZ/9610/learn.htm)

In contrast, other economists, notably Herman Daly, John Cobb, [2] (http://www.scottlondon.com/reviews/daly.html) and Philip Lawn [3] (http://www.iisd.org/measure/compendium/DisplayInitiative.aspx?id=1367) 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. That is, these and similar economists concerned over sustainability of current economic activity assert that, in some situations, expanded production facilities and other free market activities damage the health, culture, and welfare of people in ways that conservative free market economists ignore. In particular, Daly, Cobb, and Lawn assert the "threshold hypothesis" that Manfred Max-Neef developed--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.)

Accordingly for example, Philip Lawn has developed a theoretical framework for determining the "costs" of economic activity that balance against the "benefits" of growth in a Genuine Progress Indicator to determine whether economic development improves or harms the welfare of people. According to Lawn's model, the "costs" of economic activity include the potential harmful effects of the following costs:

  • Cost of resource depletion
  • Cost of crime
  • Cost of ozone depletion
  • Cost of family breakdown
  • Cost of air, water, and noise pollution
  • Loss of farmland
  • Loss of wetlands. (Lawn 2003, p. 108, Table 1.)


Theoretical foundation of Genuine Progress Indicator

Hicks: Distinguish "income" from "capital depletion"

Hicks (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?’’

Fisher: Distinguish "enjoyment of life" from "production of goods"

Fisher (1906) contended that "economic welfare depends on the psychic enjoyment of life," not just the production of goods.

Applying the Genuine Progress Indicator to legislative decisions

Despite the efforts of local communities to achieve more sustainable development, Canada lacks a federal Genuine Progress Indicator (GPI), said Green Party of Canada leader Jim Harris. “Measuring well being through GPI is the first step to forming solid solutions to problems facing our communities,” said Harris. “Indicators such as Gross Domestic Product (GDP) show financial growth without taking into account harmful activities such as crime and pollution. A strategy that uses GPI to better reflect our concerns is essential to protecting our health and overall well being.” [4] (http://www.greenparty.ca/lp/tiki-index.php?page=CANADA+LACKS+FEDERAL+GENUINE+PROGRESS+INDEX)


Activists

  • Scandinavia
  • Holland
  • France
  • Germany
  • Canada planning applications (http://www.gpiatlantic.org/clippings/mc_planning.shtml). 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 (http://www.redefiningprogress.org/projects/gpi/). Reports and analyses. A non-profit organization with headquarters in Oakland, California.
    • GDP inaccurately counts the wrongdoings of Enron, Arthur Anderson, WorldCom as healthy activity. "The wrongdoings at Enron alone will contribute up to $1 billion to the US economy, in the form of legal fees, jail time, media frenzy and associated payouts." [5] (http://www.redefiningprogress.org/media/releases/040311_gpi.html)
    • Applications of GPI (http://www.redefiningprogress.org/publications/gpi_march2004update.pdf): Accounting, recent advances in theory, application to San Francisco Bay Area, application to disasters such as wildfires.

Articles

  • "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.

References

  • 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., 1906. Nature of Capital and Income. A.M. Kelly, New York.
  • Hicks, J., 1946. Value and Capital, 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.

See also

External links

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