Thursday, 21 February 2013

General Progress Indicator

From Wikipedia, the free encyclopedia
Jump to: navigation, search
General Progress Indicator, or GPI, is an index of national progress which rethinks economic indicators "such as people in poverty receive government funding on a larger scale causes the nations GPI to rise and then dropping in GPI when the nation's poor take in a smaller contribution to the nation's wealth (Turk & Bensen, 2011). GPI is an alternative metric system which is an addition to the national system of accounts that has been suggested to replace, or supplement, gross domestic product (GDP) as a metric of economic growth. The GPI is used in green economics, sustainability and more inclusive types of economics by factoring environmental footprints and carbon footprints produced or eliminated by businesses. "Among the indicators factored into GPI are resource depletion, pollution, and long-term environmental damage" (Turk & Bensen, 2011). GDP gains double the amount when pollution created is on a rise and then gains again while it is cleaned up, whereas GPI counts this gain of pollution as a loss rather than a gain. "Earthster-type databases could bring more precision and currency to GPI's metrics" (Turk & Bensen, 2011). "Another movement in economics that might embrace such data is the attempt to "internalize externalities"-that is, to make companies bear the costs" and the responsible entity to clean up the pollution they create vs. having the government of that particular country "by taxing their goods proportionally to their negative eco-impacts" (Turk & Bensen, 2011).
Although, it sounds great in theory, this is a heavy price to think that businesses are going to want to partake, let alone most governments at that. However, marketplace ecological transparency creates this buildup of pollution and toxins. The reputation cost of a brand or company would "substitute market force for government action, which—given political realities—may be both more realistic and quicker" (Turk & Bensen, 2011). Essentially, GPI is an attempt to measure whether a country's environmental impact of the products produced and consumed are either a negative or positive factor from an environmental stance and also accounts for the amount of people currently dependent on the government for support. Businesses are beginning to expand services/products that have actually resulted in the improvement of the environment and starting to take ecological transparency seriously enough to embed it in their strategic thinking of the people in the country. GPI advocates claim that it can more reliably measure economic progress, as it distinguishes between the overall "shift in the "value basis" of a product, adding its ecological impacts into the equation" (Turk & Bensen, 2011). Turk, J. & Bensen, T. (2011) Contemporary Environmental Issues; Bridgepoint Education, Inc.;ISBN 10: 1935966-14-6; Chapter 10.3[1].
The GDP vs. the GPI is comparable to the difference between the gross profit of a company and the net profit; the Net Profit is the Gross Profit minus the costs incurred environmentally and culturally. Accordingly, the GPI will be zero if the financial costs of poverty and pollution equal to that of the financial gains in production of goods and services, all other factors being constant.


[edit] Motivation

Most economists assess the progress in welfare of the people by comparing the gross domestic product over time, that is, by adding up the annual dollar value of all goods and services produced within a country over successive years. However, GDP was never intended to be used for such purpose. It is prone to productivism or consumerism, over-valuing production and consumption of goods, and not reflecting improvement in human well-being. It also fails to distinguish between money spent for new production and money spent to repair negative outcomes from previous expenditure. For example, one million dollars spent to build new homes may be an indication of progress but one million dollars spent in aid relief to those whose homes have been destroyed is not the same kind of progress. This becomes important especially when considering the true costs of development that destroys wetlands and hence exacerbate flood damages. Simon Kuznets, the inventor of the concept of the GDP, notes in his very first report to the US Congress in 1934:
...the welfare of a nation [can] scarcely be inferred from a measure of national income...
An adequate measure must also take into account ecological yield and the ability of nature to provide services. These things are part of a more inclusive ideal of progress, which transcends the traditional focus on raw industrial production.

[edit] Theoretical foundation

The need for a GPI to supplement biased indicators such as GDP was highlighted by analyses of uneconomic growth in the 1980s notably that of Marilyn Waring who studied biases in the UN System of National Accounts.
By the early 1990s there was a consensus in human development theory and ecological economics that growth in money supply was actually reflective of a loss of well-being: that lacks of essential natural and social services were being paid for in cash and that this was expanding the economy but degrading life.
The matter remains controversial and is a main issue between advocates of green economics and neo-classical economics. Neoclassical economists understand the limitations of GDP for measuring human wellbeing but nevertheless regard GDP as an important, though imperfect measure of economic output and would be wary of too close an identification of GDP growth with aggregate human welfare. However GDP tends to be reported as synonymous with economic progress by journalists and politicians and the GPI seeks to correct this shorthand by providing a more encompassing measure.
Some economists, notably Herman Daly, John B. Cobb[1] and Philip Lawn[2] have asserted that a country's growth, increased goods production, and expanding services have both "costs" and "benefits"—not just the "benefits" that contribute to GDP. They assert that, in some situations, expanded production facilities damage the health, culture, and welfare of people. Growth that was in excess of sustainable norms (e.g. of ecological yield) had to be considered to be uneconomic. According to the "threshold hypothesis", developed by Manfred Max-Neef, the notion that when macroeconomic systems expand beyond a certain size, the additional benefits of growth are exceeded by the attendant costs. (Max-Neef 1995.)
According to Lawn's model, the "costs" of economic activity include the following potential harmful effects:[3]
Analysis by Robert Costanza also around 1995 of nature's services and their value showed that a great deal of degradation of nature's ability to clear waste, prevent erosion, pollinate crops, etc., was being done in the name of monetary profit opportunity: this was adding to GDP but causing a great deal of long term risk in the form of mudslides, reduced yields, lost species, water pollution, etc. Such effects have been very marked in areas that suffered serious deforestation, notably Haiti, Indonesia, and some coastal mangrove regions of India and South America. Some of the worst land abuses for instance have been shrimp farming operations that destroyed mangroves, evicted families, left coastal lands salted and useless for agriculture, but generated a significant cash profit for those who were able to control the export market in shrimp: this has become a signal example to those who contest the idea that GDP growth is necessarily desirable.
GPI takes account of these problems by incorporating sustainability: whether a country's economic activity over a year has left the country with a better or worse future possibility of repeating at least the same level of economic activity in the long run. For example, agricultural activity that uses replenishing water resources, such as river runoff, will score a higher GPI than the same level of agricultural activity that drastically lowers the water table by pumping irrigation water from wells.

[edit] "Income" vs. "capital depletion"

Hicks (1946) pointed out that the practical purpose of calculating income is to indicate the maximum amount people can produce and consume without undermining their capacity to produce and consume the same amount in the future. From a national income perspective, it is necessary to answer the following question: Can a nation's entire GDP be consumed without undermining its ability to produce and consume the same GDP in the future? This question is however largely ignored in contemporary economics, but fits under the idea of sustainability.

[edit] Applying the genuine progress indicator to legislative decisions

The best known attempts to apply the concepts of GPI to legislative decisions are probably the Atlantic indicator[4] invented by Ronald Colman for Atlantic Canada, the Alberta GPI[5] created by ecological economist Mark Anielski[6] to measure the long-term economic, social and environmental sustainability of the province of Alberta and the environmental and sustainable development indicators used by the Government of Canada to measure its own progress to achieving well-being goals: its Environment and Sustainable Development Indicators Initiative (Canada)[7] is an effort to justify state services in GPI terms. It assigns the Commissioner for the Environment and Sustainable Development (Canada),[8] an officer in the Auditor-General of Canada's office, to perform the analysis and report to the House of Commons. However, Canada continues to state its overall budgetary targets in terms of reducing its debt to GDP ratio, which implies that GDP increase and debt reduction in some combination are its main priorities.
In the EU the Metropole efforts and the London Health Observatory methods are equivalents focused mostly on urban lifestyle.
The EU and Canadian efforts are among the most advanced in any of the G8 or OECD nations, but there are parallel efforts to measure quality of life or standard of living in health (not strictly wealth) terms in all developed nations. This has also been a recent focus of the labour movement.

[edit] Calculation formula of GPI

The calculation formula of Genuine Progress Indicator presented in the simplified form is the following:
GPI = A + B - C - D + I
A is income weighted private consumption
B is value of non-market services generating welfare
C is private defensive cost of natural deterioration
D is cost of deterioration of nature and natural resources
I is increase in capital stock and balance of international trade
The GPI indicator is based on the concept of sustainable income, presented by economist John Hicks (1948). The sustainable income is the amount a person or an economy can consume during one period without decreasing his or her consumption during the next period. In the same manner, GPI depicts the state of welfare in the society by taking into account the ability to maintain welfare on at least the same level in the future.

[edit] The components of GPI

Individual components, that increase (+) and decrease (–) the value of GPI, are the following ones:
+ Personal consumption weighted by income distribution index
+ Value of household work and parenting
+ Value of higher education
+ Value of volunteer work
+ Services of consumer durables
+ Services of highways and streets
- Cost of crime
- Loss of leisure time
- Cost of unemployment
- Cost of consumer durables
- Cost of commuting
- Cost of household pollution abatement
- Cost of automobile accidents
- Cost of water pollution
- Cost of air pollution
- Cost of noise pollution
- Loss of wetlands
- Loss of farmland
-/+ Loss of  forest area and damage from logging roads
- Depletion of nonrenewable energy resources
- Carbon dioxide emissions damage
- Cost of ozone depletion
+/- Net capital investment
+/- Net foreign borrowing

[edit] Development of the GPI in the United States

The calculation methodology of GPI was first adopted to US data in late 1990s.[9] According to results, the GDP has increased substantially, but at the same time the GPI has stagnated. Thus, according to GPI theory, the economic growth in the USA i.e. the growth of GDP, has not increased the welfare of the people during last 30 years. So far, GPI time-series have been calculated for USA and Australia as well as for several of their states. In addition, GPI has been calculated for Austria, Canada, Chile, France, Finland, Italy, the Netherlands, Scotland and UK.

[edit] Development of the Finnish GPI

The GPI time-series 1945 to 2011 for Finland have been calculated at the Statistics Finland. The calculation has followed closely the US methodology. According to results in 1970s and 1980s the economic growth, measured by GDP, clearly increased the welfare, measured by the GPI. After the economic recession of early 1990s the GDP continued to grow, but the GPI stayed on a lower level. As can be observed there a widening gap between the trends of GDP and GPI that arose in the early 1990s. In 1990s and 2000s the growth of GDP has not benefitted the welfare of an average Finn. If measured by GPI, the sustainable economic welfare has actually decreased due to environmental hazards that have cumulated to environment. The Finnish GPI time series[10] have been updated by Dr. Jukka Hoffrén at Statistics Finland.

[edit] Development of Finnish regional GPI's

Within EU's Interreg IV C FRESH Project (Forwarding Regional Environmental Sustainable Hierarchies) -project GPI time-series have been calculated to Päijät-Häme, Kainuu and South-Ostrobotnia (Etelä-Pohjanmaa) regions in 2009-2010.[11] During 2011 these calculations were completed with GPI calculations for Lappland, Northern Ostrobothnia (Pohjois-Pohjanmaa) and Central-Ostrobothnia (Keski-Pohjanmaa) regions.

[edit] Criticism

GDP is held up as a value neutral measure. It is relatively straightfoward to measure compared to GPI. Competing measures like GPI define well-being to mean things that the definers ideologically support. Therefore, opponents of GPI claim that GPI cannot function to measure the goals of a diverse, plural society. Supporters of GDP as a measure of societal well-being claim that competing measures such as GPI are more vulnerable to political manipulation.[12]
Finnish economists Mika Maliranta and Niku Määttänen write that the problem of alternative development indexes is their attempt to combine things that are incommensurable. It is hard to say what they exactly indicate and difficult to make decisions based on them. They can be compared to an indicator that shows the mean of a car's velocity and the amount of fuel left.
They add that it indeed seems as if the economy has to grow in order for the people to even remain as happy as they are at present. In Japan, for example, the degree of happiness expressed by the citizens in polls has been declining since the early 1990s, the period when Japan's economic growth stagnated.[13]

[edit] Supporting countries and groups

  • Canada planning applications.[14] GDP has functioned as an "income sheet". GPI will function as a "balance sheet," taking into consideration that some income sources are very costly and contribute a negative profit overall.
  • Redefining Progress.[15] Reports and analyses. A non-profit organization with headquarters in Oakland, California.[16]
  • Beyond GDP[17] is an initiative of the European Union, Club of Rome, WWF and OECD.

[edit] See also

[edit] References

  1. ^ Daly and Cobb book reviewed
  2. ^ P. Lawn at
  3. ^ Lawn, Philip A. (2003). A theoretical foundation to support the Index of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator (GPI), and other related indexes. 44. pp. 108.
  4. ^ GPI Atlantic
  5. ^ Alberta GPI
  6. ^ Mark Anielski
  7. ^ Environment and Sustainable Development Indicators Initiative (Canada)
  8. ^ Commissioner for the Environment and Sustainable Development (Canada)
  9. ^ [1]
  10. ^ Finnish GPI time series
  11. ^ [2]
  12. ^ GDP and its Enemies, Centre for European Studies, September 2010
  13. ^ "Politiikanteon ohjaamiseen ei tarvita 'onnellisuusmittareita'", professor Mika Maliranta and research manager Niku Määttänen, Helsingin Sanomat 2011-02-06, page C6
  14. ^ Canada planning applications
  15. ^ Redefining Progress
  16. ^ Publications of Redefining Progress
  17. ^ Beyond GDP

[edit] Further reading

[edit] News articles

[edit] Scientific articles and books

  • A. Charles, C. Burbidge, H. Boyd and A. Lavers. 2009. Fisheries and the Marine Environment in Nova Scotia: Searching for Sustainability and Resilience. GPI Atlantic. Halifax, Nova Scotia. Web:
  • Colman, Ronald. (2003). Economic Value of Civic and Voluntary Work. GPI Atlantic. Halifax, Nova Scotia. Web:
  • Anielski, M, M. Griffiths, D. Pollock, A. Taylor, J. Wilson, S. Wilson. 2001. Alberta Sustainability Trends 2000: Genuine Progress Indicators Report 1961 to 1999. Pembina Institute for Appropriate Development. April 2001. (see the Alberta Genuine Progress Indicators Reports)
  • Anielski, M. 2001. The Alberta GPI Blueprint: The Genuine Progress Indicator (GPI) Sustainable Well-Being Accounting System. Pembina Institute for Appropriate Development. September 2001. (see the Alberta Genuine Progress Indicators Reports)
  • Anielski, M. and C. Soskolne. 2001. "Genuine Progress Indicator (GPI) Accounting: Relating Ecological Integrity to Human Health and Well-Being." Paper in Just Ecological Integrity: The Ethics of Maintaining Planetary Life, eds. Peter Miller and Laura Westra. Lanham, Maryland: Rowman and Littlefield: pp. 83–97.
  • Daly, H., 1996. Beyond Growth: The Economics of Sustainable Development. Beacon Press, Boston.
  • Daly, H. & Cobb, J., 1989. For the Common Good. Beacon Press, Boston.
  • Fisher, I., 1906. Nature of Capital and Income. A.M. Kelly, New York.
  • Hicks, J., 1946. Value and Capital, Second Edition. Clarendon, London.
  • Lawn, P.A. (2003). "A theoretical foundation to support the Index of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator (GPI), and other related indexes". Ecological Economics 44: 105–118. doi:10.1016/S0921-8009(02)00258-6.
  • Max-Neef, M. (1995). "Economic growth and quality of life". Ecological Economics 15: 115–118. doi:10.1016/0921-8009(95)00064-X.
  • Redefining Progress, 1995. "Gross production vs genuine progress". Excerpt from the Genuine Progress Indicator: Summary of Data and Methodology. Redefining Progress, San Francisco.
  • L. Pannozzo, R. Colman, N. Ayer, T. Charles, C. Burbidge, D. Sawyer, S. Stiebert, A. Savelson, C. Dodds. (2009). The 2008 Nova Scotia GPI Accounts; Indicators of Genuine Progress . GPI Atlantic. Halifax, Nova Scotia. Web:

[edit] External links

No comments:

Post a Comment