A Better Way to Measure the Economy

Gross National Product vs. Genuine Progress Indicator

by Ted Halstead

Since its introduction during World War II as a measure of military production, Gross National Product (GNP) has become the foremost indicator of national progress, and its increase has become the foremost priority of national governments. Continuing on this path, however, defies common sense and biophysical reality. Under current methods of economic accounting, maximizing GNP also results in maximizing social and environmental degradation. It is scientifically evident that the human economy, which is a subsystem of the biosphere, has already exceeded numerous biophysical limits to growth. But the central question is not between growth or no growth. We must differentiate the types and purposes of growth-growth of what, for whose benefit, at whose expense, based on what type and rate of resource use.

Since economic growth as measured by GNP does not account for depletion of the natural and social capital on which the future of the economy depends, our perception of increased economic health is a partial delusion. Yet it is this delusion that guides our economic course towards further environmental and social degradation. By valuing the goods and services that ecosystems provide to people and the economy at 'zero', the price system transfers the cost of environmental and social degradation from those responsible to society at large. When this nature-blind and person-blind accounting is combined with capital mobility, the profit motive induces capital to search out the most vulnerable communities and environments.

The Genuine Progress Indicator

At Redefining Progress we have developed a new system of measurement, the Genuine Progress Indicator (GPI), which is a measure of the general well-being and sustainability of the nation. In contrast to the GNP, which is merely a measure of economic production, the GPI takes into account both environmental and social factors. It is intended to give citizens a general guide to how well off we are as a nation, and how our national condition is changing over time. Because the GNP and the GPI are both measured in monetary terms, they can be compared using the same scale. Personal consumption constitutes the single largest element of both the GNP and the GPI. In contrast to the GNP, the GPI adjusts for the following:

1 ) Resource Depletion-A sustainable economy is one that supplies a physical base for economic activity for later generations. The GPI measures the loss of future availability of resources such as wetlands, farmland, and minerals as a current cost when these resources are depleted or degraded.

2) Income Distribution-According to economic theory, the value of additional income to the poor exceeds the value of extra in come to the rich. The GPI rises when the poor receive a larger percentage of national income, and falls when their share decreases.

3) Housework & Non-Market Transactions-Much of what people value are the services we do for ourselves: e.g., childcare, cooking, cleaning and home repairs. These are ignored in official figures such as the GNP.

4) Changes In Leisure Time-As a nation grows richer, people should be able to choose between more output and more leisure. The GPI treats an increase in leisure as a benefit and decrease in leisure as a cost.

5) Unemployment and Underemployment-Many Americans are unable to find a job or work as many hours as they need. The GPI counts the hours of chronic unemployment or underemployment as a cost.

6) Pollution-The GPI subtracts the costs of pollution as measured by damage to human health and the environment.

7) Long-Term Environmental Damage-Greenhouse warming and management of nuclear wastes are two long-range costs of nonrenewable energy use that do not show up in ordinary economic accounts. The GPI treats these deleterious choices as costs.

8) Life Span of Consumer Durables & Infrastructure-It is important to value the service received from durable items rather than the money spent on them. When you buy an appliance, for example, GNP records the value in the year of purchase, yet ignores how long it lasts. The GPI treats money spent to buy capital items as a cost and the value of the service derived from capital items as a benefit. This applies to both private capital items and to public infrastructure.

9) Defensive Expenditures-Funds spent to maintain a given level of service, without increasing the amount of service received, are treated as "defensive expenditures" (i.e., costs) in the GPI. Money spent on the medical and material costs of automobile accidents, and the money households spend on personal pollution control devices such as water filters are examples of defensive expenditures.

10) Sustainable Investments-If a nation allows its capital stock to decline or if it finances its investments out of borrowed capital, it is living beyond its means. The GPI measures net additions to the capital stock as a positive contribution to sustainable well being and treats money borrowed from other countries as reductions in national self-sufficiency and sustainability.

For more information on the Genuine Progress Indicator, contact Redefining Progress, 1 Kearny Street, 4th Floor; San Francisco, CA 94108 (415) 781-1191.

this article is from the book

edited by Kevin Danaher

Common Courage Press
Box 702
Monroe, Maine 04951
phone - 207-525-0900
fax - 207-525-3068

Reforming the System