Gross Domestic Product is the crack-cocaine of economic indicators. It’s a simple concept, it’s easy for politicians and the media to recite, and it fits in perfectly with society’s single-minded obsession with growth — no matter what the consequences.
It’s time to stop that addiction, say world leaders.
“GDP has always had its limitations. Progress needs to be defined in a way which accounts for the broader picture of human development,” said Helen Clark, administrator of the UN Development Program, speaking at a side event at the Rio+20 summit today.
She was joined by a group of heavy hitters, including Denmark’s Prime Minister Helle Thorning-Schmidt, Zambia’s President Michael Chilufya Sata, former OECD Chief Statistician Enrico Giovannini, and World Bank Environment Program Head Mary Barton-Dock — all of whom called for an end to our overreliance on GDP.
GDP simply measures the volume of economic activity in a given economy. The higher the GDP, supposedly the higher the quality of life. But because it equally values all economic activity — good, bad, and disastrous — it’s a woefully inadequate tool for gauging human and environmental progress.
In 1968, Robert Kennedy made one of the most famous and oft-quoted statements on the limitations of the metric:
“The Gross National Product includes air pollution, and ambulances to clear our highways from carnage. It counts special locks for our doors and jails for the people who break them. The Gross National Product includes the destruction of the redwoods and the death of Lake Superior. It grows with the production of napalm and missiles and nuclear warheads.”
The chart below, one of many put together by Demos, is a stark illustration of why GDP is such a poor measurement tool. As economic output has increased in the U.S., our biocapacity — the availability of natural resources — has fallen in tandem. If looking at the brown line in a narrow context, all is well. When considering the environmental impact of that growth, clearly we have a problem:
For decades, those concerned about sustainability have struggled to make innovative methods of measuring human and environmental well-being stick in the international zeitgeist. But they’ve only had limited success.
It’s not like there aren’t any options. Economists and statisticians have developed plenty of alternatives to measuring social and environmental health over the years. In 1992, the United Nations adopted the Human Development Index developed by Pakastani economist Mahbub ul Haq. It’s the most well-known alternative. However, while it’s been widely used by the UN and has been somewhat effective in challenging traditional ways of thinking, it still hasn’t sparked a major shift away from countries’ addiction to GDP.
So leaders are using this year’s Earth Summit to try to change the dialogue. Today they announced plans to craft a new index through the UN’s Human Development Report Office that would track the cost of human development on future generations, rather than just use the current Human Development Index to track current well-being. It’s the UN’s version 2.0.
But fleshing out that new model is complicated. The UNDP’s Helen Clark expressed the difficulties in establishing a new set of metrics: “What should be measured? And what indicators could be used? What are overriding principles? What do policymakers need to know?”
Answering those questions becomes more difficult the deeper you want to go. The World Bank’s Mary Barton Dock provided a fantastic example of how complicated it can be valuing natural capital.
“The easiest thing we could do is start measuring the depletion of natural resources; the next complicated step is to measure semi-renewable fisheries and forests; and the most complicated measure is ecosystem services,” said Barton Dock.
Suppose you are valuing a mangrove forest. That resource has an easily-identifiable value. But when you factor in the fish it supports, which also helps the local fishing community, the mangrove’s value increases. Then factor in the storm surge protection that mangrove forest provides, which adds another deep layer of value.
“Suddenly, you realize the mangrove forest is far more valuable than the eco-tourism resort you planned to build there,” said Barton Dock. “Countries are getting this more and more.”
However, while countries are picking this up, the challenge in creating new tools for measuring environmental and human development progress remains: It requires entirely new ways of thinking, which complicates messaging for policymakers and the press looking for one simple indicator like GDP.
“Yes, we need to measure better natural, human and social capital. It’s very difficult, sometimes almost impossible to calculate. This complicates because people want one number,” said Former OECD Statistician Enrico Giovannini. “We need to work with the media … need to communicate a framework for policymakers to help them think in different terms.”
Denmark, which now holds the Presidency of the European Union, offers a good example of how prominent policymakers can shape the debate. Denmark’s Prime Minister, Helle Thorning-Schmidt, says her priority is ensuring that “green growth” continues as a “crucial” priority for Europe as it moves through a painful financial crisis. One way of doing that is to frame the debate differently.
“Political decisions are guided by traditional ways of measuring growth … it is difficult to measure the value of the green transition,” said Thorning-Schmidt at the event today. “We need to make sure that we understand that damage done to nature has a very high price tag. We want to move into a new discussion where we supplement GDP with a green GDP. We need to value the cost of inaction thereby we can value the action we need to start.”
The Rio+20 Earth Summit isn’t going to deliver a bold agreement that matches the nature of our global problems. But it does offer the chance for elevating core issues on the international stage. The launching of this new sustainability index at the summit brings prominent voices to the table who can help guide countries away from their addiction to GDP.
This should be a core component coming out of the Rio summit. Finding a way to measure environmental and social well-being is one of the most important things we can do to realize “sustainablity.” If we don’t have a way to track true environmental and human progress, it will be that much more difficult to act on any framework that countries establish in the negotiations.
Stephen Lacey is reporting from Rio this week.