"[The GDP] measures everything except that which makes life worthwhile."
-Robert Kennedy
How Do You Spell Success?
The Genuine Progress Index
by Linda Pannozzo March/April 2001
It sounded a lot like thunder waking us from a light sleep around 10:30 at night. The next morning we heard the shocking news that the sound that had awoken us was a plane crashing into the Atlantic Ocean not far from where we lived. Swiss Air 111 plunged into the ocean off Peggy's Cove killing all 229 people on board.
It was all we heard on the radio for days. We heard about the rescue efforts by local fishermen. We heard the last words of the pilots played over and over again. We heard about the family members of the dead passengers being flown in from out of town.
The entire city of Halifax mobilized to provide counselling, accommodation and travel for the victim's families. The tragedy was covered by journalists from around the world. It consumed us all.
What we didn't hear, however, was that the crash and death of all those passengers was good for our economy. Yes, you read correctly. It added millions to our Gross Domestic Product (GDP) which is simply the total quantity of all goods and services produced and the total money earned and spent.
It doesn't matter to the GDP whether money is being spent on plane construction or plane crashes, as long as it's being spent.
For instance, the O.J. Simpson trial added about $200 million to the U.S. GDP and the Oklahoma City bombing much more still as government buildings invested heavily in sophisticated security and surveillance devices.
The oil spill of the Exxon Valdez, an environmental disaster of unprecedented proportions, is perhaps one of the best examples of how incorrect our current accounting system is. Ten years ago, the oil tanker spilled about one-fifth of its load, 10.8 million barrels (equivalent to 125 Olympic sized swimming pools) of crude oil off the rugged coast of Alaska near Prince William Sound, killing countless marine mammals. The area has still not fully recovered from the disaster.
To date, $2.1 billion has been spent on the clean-up alone. This is simply added to the GDP, which means that the oil spill was a boon to our economy. What's wrong with this picture?
"The way our economy currently works, places like Chile are held up as a model and a beacon for development in the Third World," explains Ronald Colman, who heads up Genuine Progress Index Atlantic, an organization trying to measure the economy differently.
"But in Chile, they've cut their trees, depleted their fish stocks, people are sprayed with pesticides, and child poverty and infant mortality have increased to levels of African countries."
Colman says the GDP sends inaccurate information because it counts only money exchanges.
"Cleaning your house, taking care of your own children, voluntarily helping the elderly and disabled, count nowhere in our measures of progress, but paying someone else to do these same things makes the GDP go up and is counted as progress."
For the past three years, Colman, a former political science professor at St. Mary's University in Halifax, has been spearheading a project to find a more accurate way of counting the pluses and minuses of economic life. The concept of measuring what is truly happening in the economy isn't new. It has been evolving over the last 20 years as policy makers grew more disenchanted with the limitations of the GDP.
Colman hopes his measures will make a difference in terms of determining public policy.
"The GDP sends misleading signals to policy makers about the state of our environment and our natural resources, which are the true basis of our prosperity."
For example, Colman says the GDP counts huge fish exports and timber sales as growth but it ignores completely the depletion of our fisheries and forests - the natural capital on which that wealth is based.
"This is simply bad accounting," remarks Colman. "Revenue Canada would never accept a business or household income statement that showed the sale of capital assets as pure profit."
The GDP was first introduced as a scorecard for economic policy by Allied planners in the Second World War. At the time, John Maynard Keynes, who played a central role in the British Treasury, penned a famous paper called "The National Income and Expenditure of the United Kingdom and How to Pay for the War." This paper laid the groundwork for the GDP. But even then it was considered a crude indicator of a nation's welfare.
Over the last five decades it has become an end unto itself. Conventional wisdom holds that if the GDP grows, we all should benefit. But this just doesn't jive with the experience of many citizens.
Colman says that if the GDP is booming, it doesn't necessarily translate to a more prosperous and happier society. "This current measure can't make a distinction between what is good for society and what is bad."
A similar argument was pursued in an article published in Atlantic Monthly entitled "If the GDP is Up, Why is America Down?" Authors Clifford Cobb, Ted Halstead and Jonathan Rowe used the 1994 American election to illustrate their point. They pointed out that the strange gap between what economists choose to measure and what Americans actually experience became the official conundrum of the campaign.
"Paradox of '94: Gloomy voters in good times," The New York Times proclaimed on its front page. "Boom for whom?" read the cover of Time Magazine.
The Atlantic article pointed out that the problem goes much deeper than the two-tiered economy that seems to be benefiting those at the top and not those at the bottom.
"It concerns the very definition of prosperity itself. In the apt language of 19th century writer John Ruskin, an economy produces 'illth' as well as wealth; yet the conventional measures lump the two together."
Cobb, Halstead and Rowe were, in fact, the ones who first developed the Genuine Progress Index in 1995 which measured 26 variables.
Now Colman and his crew of researchers in Nova Scotia are trying to make the new index applicable. They hope to create a GPI for Nova Scotia within the next two years.
"We are examining 20 social, economic and environmental indicators to get a truer picture of our well-being and prosperity and to determine whether this region is sustainable over time," explains Colman.
Some of the areas Colman's group are researching that aren't currently measured by the GDP include the value of voluntary work, trends in income distribution, costs of crime, natural resources accounts for forestry, soils, agriculture and wildlife, air and water quality and greenhouse gas emissions.
For instance, in a recent report, GPI Atlantic pointed out that Nova Scotia has traditionally had one of the highest levels of volunteer activity in the country . Over a 10 year period beginning in 1987, however, volunteerism has declined by 7.2%, costing the province $60 million a year in lost services.
The report goes on to say the volunteer sector has been unable to bounce back and compensate for government cuts to public services.
"This loss is not counted in the GDP or in any of our measures of progress, even though it directly affects our quality of life and standard of living," says Colman, who penned the report. "Volunteer work is a tremendous asset to our society and economy, but is invisible in our conventional economic accounts because it is unpaid."
In another report, released last year involving crime in Nova Scotia, it was estimated that crime is costing the province $550 million a year in real economic losses to victims, in public spending on police, courts and prisons and in private spending on burglar alarms, security guards and surveillance systems. This amounted to $600 per person or $1,650 per household in 1997.
"Imprisonment is one of the fastest growing sectors of the US economy. It's the largest employer right after General Motors," says Colman. His report on crime is to illustrate that crime shouldn't just be added to the GDP because it's not a benefit to society. It should be seen as a cost.
When it comes to environmental issues, GPI is currently working on accounts for fisheries and agriculture. The forests account, almost ready for release, has found that the forests of Nova Scotia could go the way of the cod. Under the traditional GDP accounting, however, this loss could take place without actually registering as an economic depletion.
Colman's study looked at the "services" forests supply such as soil and habitat conservation, watershed protection, flood control, and carbon storage. The report refers to these elements as natural capital and tries to give a monetary value to the loss of such capital due to the widespread use of clearcutting in the province.
The study makes a point of noting that GPI isn't trying to replace the intrinsic value of the natural world with monetary values, but that it's just one way to quantify ecological goods and services. The study, so far, has revealed that between 1975 and 1997 employment in forest industries in Nova Scotia declined 15-20% while at the same time the volume being clear-cut has increased by 48%. Less than one percent of old growth forests remain in the province and forests that were once predominantly hard wood and long-lived are being replaced by softwoods for the pulp industry.
"From the GPI perspective, the loss of age and species diversity, invisible in the conventional economic accounts, carries major economic costs representing a decline in natural wealth that will continue to impact future generations unless remedial action is taken," states the report.
The report's author writes, "We need to move away from the view that natural resources are a cheap source of capital to be used for short-term economic gain and towards the view that natural capital can provide goods and services in perpetuity if conserved and used sustainably."
Colman isn't entirely comfortable with the idea of putting a monetary value on everything but he says since the current system is based on this kind of valuation it is the only way to "turn things on their head."
In addition to completing the various accounts, GPI is currently working on what it calls Community GPIs. "We approach communities and ask them what they feel needs to be measured in their community to determine success and then we come up with a model to measure these indicators so that the community can gauge how well it's doing," says Colman.
"We need a new measure of success with people having input into what that is. Otherwise, the measures just don't reflect the things we truly value."
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