New Scorecards for Real National Progress

by Hazel Henderson

http://www.hazelhenderson.com (November 2007)


Ever since the Earth Summit in Rio de Janeiro in 1992, when 170 governments signed Agenda 21 agreeing to correct the errors in Gross National Product (GNP) and its domestic version (GDP), statistical offices have labored to comply.

Grassroots groups for social justice, human rights, consumer and environmental protection forced the issue of correcting GNP and GDP onto reluctant politicians, businesses, financiers as well as economists and statisticians. All have financial and intellectual investments in this ubiquitous scorecard of economic growth equated everywhere with "progress".

What are the shortcomings of GNP/GDP as scorecards of national progress and why were grassroots groups from so many different constituencies demanding corrections? Why does GNP/GDP short change all their agendas from health, education and the environment to human rights, social justice and peace?

First, a look back. Economist Simon Kuznets, who developed GNP/GDP never saw it as an overall scorecard of a country's progress: "The welfare of a nation can ... scarcely be inferred from a measurement of national income" (1932 testimony before US Congress). This money-measured index came into full use during World War II as a way to measure war production, adding up all the production of tanks, airplanes, automobiles and all the other goods and services exchanged in a nation's cash economy.

Today in most industrial economies, services have grown faster than goods - and statisticians are constantly revising GDP components to account for our evolving societies and technologies. But since GDP only includes money-measured production, these national scorecards ignore many of the social and environmental costs of production - as do corporations. Economic textbooks refer to these costs borne by society and future generations as "externalities" which could be omitted or "externalized" from company balance sheets - and therefore from GDP as well.

But by the 1960s, grassroots groups began to notice the perverse effects of corporate profit-making activities. They saw how GDP scorecards also ignored all wider aspects of national progress and even tacitly encouraged bad behavior. For example, since ecological assets like forests and ocean fish stocks are not valued in GDP, a country could chop down its forests and record the sale of the wood as additions to GDP with no losses recorded anywhere.

In the past decade, companies began accounting for the social and environmental costs of their production - internalizing them in "triple bottom line" balance sheets now used by over 600 global corporations. But, similar corrections have not been made to GDP. Following economics textbooks, GDP still sets at zero the value of vital ecological assets: clean air, water and biodiversity, as well as the value of healthy, productive citizens and their unpaid work (raising children, maintaining households, caring for the sick and elderly, serving as volunteers, et cetera) which accounts for some fifty percent of all production, even in industrial societies.

So since the Earth Summit, citizens' groups have been pushing their local officials, academics and statisticians to create broader indicators of progress and quality of life. Many cities around the world from Jacksonville and Seattle in the USA to Sao Paulo and Shanghai now have indexes of their quality of life - using metrics beyond money and economics from many fields: public health, environmental sciences, data on poverty gaps and human rights.

Yet, mainstream media still slavishly report on GDP, unaware of all its deficiencies. Many of these new broader indicators of quality of life can be tracked on websites, measuring the "ecological footprint" of consumerist societies; carbon emissions of energy-gulping activities; poverty gaps; maps of distribution of rich and poor enclaves; and percentages of citizens in jail in various countries.

Meanwhile, macro-economists, statisticians and their bureaus and academic allies continue to drag their heels, collecting research grants to compile data on environmental damage and social costs. But instead of subtracting all these costs from GDP accounts, they keep them separate as "satellite" accounts. Thus, media and the public think these accounts are unimportant. They are also ignored by powerful government ministries catering to business and financial markets' shared goal of GDP growth. Weak ministries, usually in education, health, welfare, civil rights and the environment, care about these "satellite" accounts but are no match for finance and economic ministries, central banks, let alone powerful corporations - all intent on retaining GDP which "externalizes" those social and environmental costs.

Today, these costs are visible and mounting: global warming, desertification, fires, floods, droughts and environmental destruction, so challenges to GDP have reached political agendas worldwide. Predictable battles erupt between the politicians and interest groups who benefit from GDP's view of "progress" and the rest of societies which bear the costs and risks of continuing the GDP-growth recipe. China's "Green GDP" initiated in 2004 is challenged by local leaders and businesses rewarded by the GDP-growth formula - even while Chinese citizens fight pollution and losses of their lands to developers. Bhutan's Gross National Happiness indicator sparked worldwide studies in how societies can measure and promote happiness.

Even some economists have joined the critics of GDP such as Joseph Stiglitz and psychologist Daniel Kahneman (both winners of the Bank of Sweden Prize, often mis-labeled a "Nobel"). Many call for creation of asset accounts in GDP to carry valuable public infrastructure investments (road, airports, colleges, hospitals) at their true value. This would balance the public debts incurred for their creation. Since such assets are ignored in GDP, this overstates countries' indebtedness and raises interest rates on their sovereign bonds. Likewise, GDP treats education as a cost, instead of the basic investment societies make in developing educated, productive citizens.

If you think by now that GDP is crazy - you are correct. However, the tide is turning. The European Parliament is holding a conference "Beyond GDP" November 19-20 in Brussels. Perhaps the 27 nations of the EU will be the first to move beyond the GDP-growth model and adopt all the available statistics on health, education, poverty gaps and human rights languishing in those "satellite" accounts. Such a new GDP can integrate all the factors that comprise our quality of life. We now know that when we intentionally blind ourselves to all those "externalities" they create ticking time bombs of risk which mathematician Nassim Taleb describes as "Black Swans".

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Hazel Henderson is author of Ethical Markets: Growing the Green Economy and other books. She co-created the Calvert-Henderson Quality of Life Indicators with the Calvert Group and is on the Organizing Committee for the Beyond GDP conference in the European Parliament (www.beyond-gdp.eu.)

Contact: Hazel Henderson's Library
PO Box 5190, St Augustine, Florida 32085
Tel: 904/ 826-1381 | Fax: 904/ 826-0325

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