June 13, 2010

COEXISTing with GDP

Among other things, prisons are included in GDP (Gross Domestic Product). Of course prison itself doesn’t work, which is why we keep on building them and why the re-offending rate is so high, but prisons, among other things, are measured as an economic output and are therefore perversely considered to be an indicator of how well we are doing. Also, positive values to events that actually detract from a country’s well-being, like hurricanes and floods actually boost GDP through reconstruction costs. The logic is terrifying.

One could be forgiven for glazing over at the very mention of GDP but it would be a mistake, for GDP governs our attitude to ourselves in many ways. Government announces that GDP is up and we are all supposed to rejoice because this purported measure of prosperity announces our wealth. Conversely when it is down we are all supposed to be gloomy and work harder. Most of us simply don’t get it because the way we feel is entirely linked to how happy we are. If a factory closes down with hundreds of job losses, it is no comfort to the workforce to be told that GDP is up that month. Government often mistakes the nation’s economic activity for its citizens’ well-being.

We have plenty of numbers about economic consequences but none of the numbers about social consequences. The time has surely come for a better balanced, more relevant measure given that economic growth is not possible in a world of finite resources.

GDP has not only failed to capture the well-being of a 21st-century society but has also skewed global political objectives toward the single-minded pursuit of economic growth. The main barrier to progress are that statistical agencies around the world are run by economists and statisticians. Achieving a sustainable economy, and a sustainable society, may prove impossible without new ways to evaluate national progress.

There are good reasons for reviewing the way we measure our relative prosperity. For example, the health effects of social isolation are of the same magnitude as smoking. If we can care about people smoking, because that reduces their well-being and life expectancy, then why not think about social isolation too?

A new measure should account for carbon emissions and build in a depletion charge for the natural resources such as oil, gas, timber and fisheries. Happiness should be measured too. It is also logical to subtract from GDP the cost of health problems - asthma and early deaths for instance, caused by air pollutants like sulfur dioxide we breathe in every day. It may be hard to put a monetary value on alteration of the climate system, loss of species and the consequences that might come from those, but surely not impossible.

We have to decide to measure something difficult before we can come up with a technique for measuring it.

Even if GDP was revised and updated, the tendency may still be to equate economic growth with progress on a planet that is already overburdened by human consumption and pollution. A different approach is needed. One single measure is not the best way to identify human progress and repair imbalances in the economic and environmental systems we devise, and it has been suggested that a ‘dashboard’ of indicators would better do the job.

A national dashboard of indicators could lead to very different policies from those we have now. The dashboard in your car gives you several pieces of information at a glance. It is no good knowing that your oil pressure is OK if you have run out of petrol. Similarly it is not enough to know that manufacturing output is up if the health costs of maintaining your workforce have gone through the roof. Happiness and well-being are important to measure as it has been estimated that the 10 percent of people who spend the most time suffering account for almost half of the total amount of suffering. Huge social and economic gains could therefore be made by dealing with mental-health problems, such as depression. We would also like to see new measures of emotional well-being to enable a more enlightened perspective on the complex relationship between money and happiness.

So far only one measure has succeeded in challenging the hegemony of growth-centric thinking. This is known as the Human Development Index. The HDI is a ranking that incorporates a nation’s GDP and two other modifying factors: its citizens’ education, based on adult literacy and school-enrollment data, and its citizens’ health, based on life-expectancy statistics. The HDI, which happens to be used by the United Nations, has plenty of critics, but it is at least a start.

A dire omission to the information gathered today is the amount of “natural capital” (stocks of clean air and water, biodiversity etc.) we need to conserve to maintain our economies and our quality of life. If we push the world’s natural capital below a certain level we may so radically alter the system that it has a long-term impact on human welfare and even survival. If we were to pass that point - and at present we have no measurement to indicate whether we already have -then we couldn’t compensate for our error through technological innovation or energy breakthroughs because by then it would be too late.

For more information of details being worked through by Joe Stiglitz and others please go to http://www.nytimes.com/2010/05/16/magazine/16GDP-t.html?pagewanted=all

Human Development Index stats at http://hdr.undp.org/en/statistics/
Contributions are always welcome.
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5 comments:

  1. great post! as usual from Coexist

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  2. 知識可以傳授,智慧卻不行。每個人必須成為他自己。......................................................................

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