ANALYSIS: Alternatives to the GDP

A Dispatch by SSC Intern Kang Chang

India is not under any obligation to cut emissions, but is making a move the U.S. is only begrudgingly starting to move towards.  Environment Minister Jairam Ramesh said the country would seek to make “green accountingpart of governmental policy.  He goes on to say, “I think certainly by 2015 or thereabouts India should be in a position to provide alternative GDP estimate which account for the consumption of natural resources as well”. 

The reason for these new accounting principles may be obvious to some, but for the newly initiated, here’s the gist.  Our modern economic system defines capital as wealth used to create a good or service.  Typical examples are: financial capital (cash, investments, other financial instruments) and manufactured capital (factories, heavy equipment).  This capital is used to produce most of the things you see around you.  The price you pay for these things is the cost it takes to harvest the raw materials, produce, assemble, package, transport, dispose of intermediary wastes, pay workers, support company etc.  Our current GDP sums up the value of these goods and services produced in one year. 

But something is missing from this picture.  Capitalism, as written in Natural Capitalism, “Neglects to assign any value to the largest stocks of capital it employs – the natural resources and living systems, as well as the social and cultural systems that are the basis of human capital”.  The economies of the world for much of the industrial period have relied on the ecosystems of the world to provide a free waste dumping ground and a variety of other ecosystem services absolutely free.  Hawken and the Lovins’s do not agree that putting a price to these services will solve much, but in the current state, it is agreed that no thing will be used efficiently without an appropriate price tag. 

China and France have been looking into the variety of GDP alternatives that have been developed over the years.  The GPI, or Genuine Progress Indicator, was developed by the public policy think tank, Redefining Progress.  Their indicator takes into consideration, among other things: income distribution, pollution, dependence on foreign assets, crime and changes in leisure time. 

French President Nicolas Sarkozy called the GDP an obsolete way of measuring well-being, but in hindsight, it is unimaginable for it to accomplish anything of the sort.  Making the shift, although initially imperfect, towards a more holistic characterization of the well-being of the state at such a high level will place value on things that were always important, but were never accurately captured by the GDP.  As the state of the science progresses and countries reposition to improve their Gross National Happiness or otherwise, it will undoubtedly have a profound effect on how societies treat the environment and treat one another.