This article from previous contributor, journalist Donato Speroni, argues the case for an adjusted GDP measure that excludes socially and environmentally harmful modes of production to give a clearer picture of countries' sustainable growth.
Eleven years after
the 1st OECD World Forum in Palermo, economists and statisticians,
politicians and representatives of civil society will again meet – this time in
Guadalajara, Mexico - on the 13-15
October 2015 for the 5th OECD World Forum on
Statistics, Knowledge and Policy jointly organised by the National Statistics
Office of Mexico (INEGI) and the OECD.
A lot of work has been done in the past decade thanks to OECD,
and I have already written about it in my previous post on ProgBlog.
But I have come to the conclusion, already presented
in my Italian blog on the Corriere
della Sera website, that we are now facing
two different directions of research.
1) The first one is the
production of sophisticated dashboards for measuring progress across all the
components of collective well-being, taking into consideration objective data
and subjective perceptions, the current situation of societies but also their sustainability
into the future, average well-being but
also the range of inequalities in order to evaluate the inclusiveness of societies. This has been the main challenge
in recent years, and has been widely discussed in all the World Forums, from
Palermo to Istanbul, from Busan to New Delhi.
2) The second one is a new way to measure production, in
order to take into account its effects on the different kinds of capital (environmental,
social and human) which together represent the total wealth of a nation. The
purpose is to have a measure of “clean GDP”, or in other words new wealth
produced, net of
consumption of irreplaceable natural resources and of the fraying
of the social fabric.
I say this because, after all the work that has been done, we
have to face an unpleasant truth. Gross domestic product,
the ubiquitous measure of wealth production that influences the policy of all states, will
not be, at least in the short
and medium term, replaced by an all-encompassing measure
of welfare. Neither
the legendary Happiness Index of Bhutan, nor
other complex indexes to measure progress
will undermine GDP.
This does not mean that
progresses made in recent years, including indicators of BES, (Benessere equo e
sostenibile) developed in Italy, are not important. But
indicators of well-being may coalesce into a "dashboard"
presenting many different data with limited impact on politicians and media: in the Italian BES there are 135
indicators. They cannot be synthesized into one composite
indicator. As Nobel Prize Joseph Stiglitz once said, “it would be like pretending
to have in your automobile only one indicator which tells you simultaneously
the speed at which you are going and how much gasoline is left in the tank”.
There are also big difficulties in international comparisons of well-being
dashboards, because what matters most
to an Italian can be very
different from priorities of a
Finnish and even more from those of an Indian person. It is
for this reason, I think, that the OECD Better life index leaves the
choice of the weights of the different dominions of well-being up to the user.
Yet GDP alone is not
enough, as Robert Kennedy had already declared nearly
50 years ago, and it is less and
less useful to measure the actual
progress of a society. The new book by Naomi Klein
"This changes everything", dramatically raises
the issue of the type
of growth that can be compatible
with the increasingly difficult objective of containing
climate change within the limit of two degrees centigrade.
We don’t have to agree with all the political proposals by Ms
Klein to recognize that we have a big problem, which requires an urgent
solution. No one can propose a generalized “degrowth”, because the world certainly
needs more development. But the
opinion of Ms Klein is that the richest 20% of the world should contain their consumption to
leave room for other countries
and decrease their emissions by 8 – 10% yearly.
However, (in my opinion) the reduction of total consumption,
even as a result of virtuous practices,
could result in a disaster for our national economies. Imagine for example the impact of the spread of the “car
sharing” practices, inducing many
families to give up their car. It would result in
reducing car manufacturing and consumption and therefore a significant drop in GDP.
If the parameters of international assessment remain attached to GDP (e.g. financial ratings and ratios between GDP and the stock
of sovereign debt, as in Europe), the country that had courageously
embarked on the path of reducing the use of automobiles would lose
its credibility on the international markets.
Yet, somehow we have to deal with this
problem. We know from the Global
Footprint calculations that mankind actually consumes 1.5
times the resources that the Earth can produce in one year: we already need one
and a half planets to meet our consumption needs and we will need even more
when in the next 20 years the middle class of the world, earning from 10 to 100
dollars a day, will move from 1.8 billion to 4.8 billion people.
It we take GDP as a measure of consumption,
we can calculate that a reduction of one third of the average world per capita GDP
(down to a measure comparable with “consuming” the resources of only one planet
per year) would result in a per capita GDP similar to that of Kosovo or
Mongolia. For a country like Italy, this would mean going back to the GDP per
capita rate of fifty years ago.
How to make this transformation, without falling into a
Great Depression, but rather promoting, to
use the language of Klein,
a ‘Great Transformation’? Probably the first thing to do is to look beyond the aggregate figure of GDP to get a more
accurate picture of production and consumption patterns. In fact there are different kinds of GDP. The quality of our consumption is much different in comparison to
50 years ago. Cars travel more miles on
less fuel and fewer changes of lubricant,
refrigerators require less electricity and can be partially sourced from renewable sources. So, getting back to the GDP level of
50 years ago (or more correctly, to the level of exploitation of planetary resources that was needed to produce the GDP of 50 years ago)
would not necessarily
mean returning to
the quality of life of 50 years ago.
Here is the challenge
that arises for economists and
statisticians. Alongside dashboards measuring overall well-being,
we must have a specific measure of
"good GDP", i.e. that part of the production
of wealth that does not impact on
the environment and corresponds to
an effective progress of the
community. Recall, for example, that
GDP measures not only
the production of goods (which almost always requires the use of natural resources and results in
harmful emissions into the environment)
but also that of services,
which (usually) do
not have these drawbacks. Paradoxically,
if we exchanged poems
on the Internet for a fee, we would
increase GDP.
Of course we cannot
live on poetry: we need goods, starting with food (which
requires consumption of land, water, agricultural machinery and fertilizers) and beyond. But the attempt to measure the production of wealth through the lense of
sustainability deserves more attention,
because “good GDP” could grow even if “GDP overall” might
decrease. In the OECD World Forum
in Busan, in 2009, Stiglitz told the audience that during the Clinton
administration he had proposed a way of measuring GDP net of carbon dioxide
emissions, but said he was stopped
by the reaction of the American oil companies.
Recently, in an interview to an Italian newspaper, Stiglitz
said: “GDP is a good measure for industrial, commercial and financial
production, but measures only the
amount. Instead you must
calculate the quality of production, taking technology into consideration”.
This is precisely
what we mean by "good
GDP": a number
that measures not only the quantity
of goods produced, but also their
technological quality, because a GDP that destroys the resources
of future generations is not real wealth creation.
I don’t underestimate the methodological problems. In practice we would need to calculate a "value added" that not
only subtracts the use of raw materials and semi-finished products
from total production, as happens now,
but also emissions and other negative impacts on the natural and social environment. Of course it is not
easy to “give a price” to the destruction of the environment or to other
negative impacts of production on society, but GDP calculation already includes
difficult estimates (for example the value of the production of the public
sector, or the value of the black economy and of some criminal activities), so
I think that statisticians could do it. The Genuine Progress
Indicator is already an effort in this direction.
Why do I think that this is important?
Because such a revolution in national accounting would change political priorities, with significant consequences in the balance of power, helping the world to
face the difficult challenges of the future.
Donato Speroni
@Dospe
