{"id":762,"date":"2009-08-22T15:56:56","date_gmt":"2009-08-22T09:56:56","guid":{"rendered":"http:\/\/www.bridgetobhutan.com\/blog\/?p=762"},"modified":"2009-08-22T15:56:56","modified_gmt":"2009-08-22T09:56:56","slug":"gross-domestic-product-gdp-vs-gross-national-happiness-gnh","status":"publish","type":"post","link":"https:\/\/bridgetobhutan.com\/blog\/2009\/08\/22\/gross-domestic-product-gdp-vs-gross-national-happiness-gnh\/","title":{"rendered":"Gross Domestic Product (GDP) Vs Gross National Happiness (GNH)"},"content":{"rendered":"

\"\" Should there be alternative to the GDP?<\/strong><\/p>\n

In an email interview with The Nation, US-based historian, Eric Zencey says it’s time to ditch The Gross Domestic Product (GDP) for a more meaningful and inclusive index which can more accurately measure country performances.<\/p>\n

Why should we be thinking of an alternative to the GDP now?<\/p>\n

GDP is a deeply foolish measure of economic progress and well-being. \u00a0It was never designed to measure either of those, and we ought to find a better measure as soon as possible. \u00a0Anytime is a good time to do this, but the downturn we’re facing now makes this an additionally opportune time. \u00a0What we’re seeing economically is in many ways unprecedented, and its resolution will require thinking in ways we haven’t thought before. \u00a0In practical terms, with GDP down worldwide, a change now is easier. \u00a0The new measure could be implemented and could guide policy toward an economic recovery that gives us more of what we really want, which is social well-being, not just economic activity.<\/p>\n

Why is GDP such a “deeply foolish” measure of well-being?<\/p>\n

The first and largest problem is that it doesn’t measure well-being at all; it measures the sum total of the monetary value of market transactions. \u00a0Because of that, it adds together \u00a0things that are costs and things that are benefits, without making much distinction between them. \u00a0That’s foolish. \u00a0And even as a summary of all costs and benefits it fails, because it fails to count costs accurately.<\/p>\n

What does it miss?<\/p>\n

The most significant, in my opinion, are the environmental costs of economic development\u2014the losses in natural capital, and hence natural capital services, that come with the destruction or radical simplification of complex ecosystems. \u00a0No civilization can survive the loss of the natural capital services on which it depends. \u00a0If we fail to account for losses of these services in our basic reckoning of national income accounts, we’ll develop ourselves right into extinction.<\/p>\n

Could you give examples of natural capital services? \u00a0Certainly! The terminology is still rather new, but awareness of the concept is growing. \u00a0We\u2014we humans, in our communities and nations and civilizations\u2014derive direct and undeniable goods and services from nature, outside of any market. \u00a0The economists who talk about these things have come up with various ways of putting natural capital services into categories, but basically there are about a dozen of them. \u00a0Let me run down the list. \u00a0Micro and macro climate moderation; water purification and transport; pollination; flood control and storm moderation; provision of raw materials; absorption (and sometimes detoxification) of our effluents; soil fertility and construction; nutrient recycling; habitat for species; creation and upkeep of a storehouse of genetic possibilities; recreational, aesthetic, spiritual, and educational opportunities for humans. \u00a0Again, this is just one possible way of slicing up the kinds of services that nature offers us. \u00a0I like to note with students that historically the environmental movement has been associated with just the latter category\u2014the image of the environmentalist is that of a tree-hugger, the person who finds aesthetic, recreational, or spiritual value in nature. \u00a0 In part that’s because traditionally economics has said “sure, nature has value; some people will pay money to go see it, so it must have some value.” \u00a0What the concept of natural capital does is reset that frame. \u00a0It says that environmental values aren’t a subset of economic values, but the other way around. \u00a0An economy doesn’t free-float in never-never land, the way the textbooks model it; an economy is rooted in a larger environment. \u00a0It exchanges matter and energy with that environment. \u00a0Which means that economic processes are a subset of environmental processes. \u00a0There’s natural capital and built capital, and our economy draws productive services from both.<\/p>\n

So changing from using GDP is a crucial part of achieving sustainability.<\/p>\n

Yes.<\/p>\n

How can we measure the qualitative side of quality of life, which is what measures like the Gross National Happiness of Bhutan or the National Progress Index for Thailand try to do?<\/p>\n

First, let me say that I don’t think that the US is going to move toward an index that measures such subjective things anytime soon. \u00a0Informed opinion in the US is far behind that of some other countries in thinking about these things. \u00a0Managerial consultants offer us a useful phrase: \u00a0“manage to measure.” \u00a0The idea is that however we choose to define success or progress, the tendency will be to manage affairs to achieve the goal as it is defined. \u00a0I’d add that over time, the whole system tends to evolve to be in congruence with the goal\u2014you’ll see goal-directed behavior throughout the society. \u00a0In the US our measure of economic progress has been GDP, and so it’s no accident that Americans have a reputation for being interested in the bottom line, in reducing everything to economic value. \u00a0The first question an American asks a stranger is likely to be “what do you do?” \u00a0We tend to define ourselves in terms of what we do economically, or what we consume–the brand alliances we have in our patterns of consumption. \u00a0That won’t be changed easily. \u00a0To change it we have to acknowledge that there is more to the quality of life than the quantity or even quality of consumption\u2014and the advertising industry spends billions in order to discourage us from thinking that way. \u00a0I look for other nations to lead the way\u2014nations in which market values haven’t so thoroughly become the definition of all human values.<\/p>\n

Second: \u00a0it isn’t that hard to find objective measurements of subjective satisfactions once those satisfactions have been identified and defined. \u00a0Do you want to include “workplace wellness” as an element, as Med Yones, of the International Institute of Management, proposes? \u00a0You can survey workers directly, sampling them, to see if they are satisfied in their work; or you can choose some variables to represent this value\u2014the number of jobs added or lost in the economy, along with the number of workplace complaints and lawsuits. \u00a0Or you could do both. \u00a0You can find objective metrics that approximate the amount of such intangibles as the amount of avoidable grief and sorrow in the community: \u00a0maternal and infant mortality rates, life expectancy, rates of premature death from disease, war, accident, and so forth. \u00a0You still face the additional difficulty of \u00a0assigning relative weights to the variables that are aggregated in each area, and then \u00a0the difficulty of assigning relative weights to each of these aggregates as they’re amalgamated into the overall index. \u00a0But that too is a solvable problem.<\/p>\n

The UN, World Bank, and so on have all kinds of indices\u2014why are they not popularly used or merged into the main GDP index?<\/p>\n

I have no answer for that. \u00a0Inertia? \u00a0The force of custom? \u00a0The enormous investment that neoclassical economists have made in models that include GDP and only GDP? \u00a0Part of the resistance you see in the US is pure nationalist chauvinism. \u00a0The US is a winner if the metric is per capita GDP; by other measures, like the UN’s Human Development Index, the US comes in below other countries, and I think some of the US resistance to alternative measures is rooted in the desire to be number one. \u00a0 There’s also a bit of a lesson offered by the example of meteorology, of weather reporting. \u00a0Not so long ago weather reports and forecasts would give you just basic information: \u00a0what the temperature will be, whether it would or wouldn’t rain. \u00a0 But some of what we want from a weather forecast is a prediction of human comfort levels, not just the temperature and the chance of rainfall. \u00a0So a full report gives the humidity index, the heating or cooling degree days, the wind chill factor, the ozone reading, and so on, whatever is relevant in that place and season. \u00a0And it tells us if there’s a storm bearing down on us. \u00a0That’s one approach to solving the problem of GDP\u2014put it in context by adding to it additional and supplementary measurements like maternal mortality, life expectancy, expenditures on health care and pollution control, changes in employment and income distribution, and so on, just like the weather report. \u00a0But that demands a lot of attention from its audience, attention that most people aren’t willing to give. \u00a0And unlike the weather, with economic data not many people are familiar with the conceptual framework you’d need in order to organize all that information and make sense of it. \u00a0(It’s not obvious, for instance, that pollution abatement is a cost and not a benefit.) \u00a0And so reporting on the topic gets reduced to a single number\u2014and in the US that number has been GDP.<\/p>\n

What in your view should be included in a new index? \u00a0What should the composition be?<\/p>\n

At a minimum\u2014a minimum\u2014the metric that replaces GDP ought to fix its obvious economic problems. \u00a0Currently GDP measures Gross Domestic Transactions\u2014the amount of economic activity there is in a given economy in a given time period. \u00a0But some of that activity is defensive and remedial\u2014we spend money to repair things, to put things back the way they were, or to keep things from going bad. \u00a0These are expenses that don’t make us better off than we were before we had to undertake them. \u00a0Thus, expenditures on such things as crime prevention, pollution abatement and remediation, repair of storm damage, even health care are a cost, not a benefit. \u00a0The new index needs to subtract all such costs from the ledger, in order to tell us whether we’re economically better off than we were before. \u00a0 And among the costs that need to be subtracted are the cost of lost ecosystem services. \u00a0When an upland forest is cut, the ability of the ecosystem to moderate rainfall runoff is compromised, and you have flooding; the wood-cutter imposes the loss of this ecosystem service on people who live downstream. \u00a0That loss ought to be part of the calculation that economic decision makers make about whether a particular course of action is economically beneficial or not. \u00a0And of course, global climate change is one huge cost that is being imposed on all of us by activity that is economic in essence\u2014activity whose price does not reflect this cost.<\/p>\n

But beyond these problems with GDP as a measure of economic well-being lies that second order of problem: \u00a0how well does economic well-being serve as a measure of overall well-being? \u00a0Economists of the old school can become splenetic when you get near this topic; neoclassical economics prides itself on being objective and scientific, and efforts to measure well-being are inescapably subjective at some level. \u00a0Economists don’t care about the amount of grief and sorrow in a community. \u00a0Most of them don’t yet care about loss of ecosystem services, so things like grief and sorrow or work satisfaction are completely off their map. \u00a0But civic-minded people can and must and do care about such things. \u00a0I think we need to move beyond economics as it is practiced today and return to the concept of an integrated discipline of political economy. \u00a0These “subjective” issues were sliced off from political economy back in the nineteenth century and handed over to the study of politics, in order to give economics the appearance of being a science; economics focused only on maximizing production without worrying about what the production was of or for. \u00a0I think this limitation of our economic thinking to technical, objective, “scientific” questions is now clearly part of the problem rather than part of the solution.<\/p>\n

So, what kind of index would you like to see? \u00a0What should go into it?<\/p>\n

Rather than propose what should or shouldn’t be included in a given country’s measure of its own well-being, I’d propose instead something else: \u00a0every polity ought to decide for itself what the constituent elements of its citizen’s well-being are, and establish metrics to measure them; those metrics could be weighted (again, according to each polity’s preference) to produce a single, easily digestible number that might be called \u00a0Gross National Happiness, or the Genuine Progress Indicator, or the National Progress Index, or Net Economic Welfare, or whatever seems appropriate. \u00a0And the process of coming up with these metrics could be an open, participatory one\u2014the relevant subjective decisions could emerge (or at least be supported by) input from town meetings and city councils, from national referenda or polling, from any and all participatory processes you care to imagine.<\/p>\n

That said, I think the Bhutanese model is a very good one. \u00a0It seems to register and evaluate the elements that Bhutanese themselves feel are important to life satisfaction.<\/p>\n

What would you do if you could tinker with it? \u00a0Well, the Bhutanese index relies heavily on survey data: \u00a0“Is pollution of rivers [and] streams an environmental concern in your area?” \u00a0You could go with hard, scientific data there and in some of the other categories the index cumulates. \u00a0Ultimately the question of whether a river is or isn’t healthy enough to sustain its constituent ecosystems and deliver ecosystem services at the same rate from year to year is a technical question, not something you get from surveying people.<\/p>\n

One criticism of the Bhutanese approach is that the various elements of happiness are subjective and are likely to change, and that this undercuts the ability of such a measure to guide policy over time. \u00a0What makes people happy today isn’t what made them happy a generation ago, and isn’t likely to be what makes them happy a generation from now. \u00a0How do you respond to such criticism?<\/p>\n

For years economists have put together a Consumer Price Index, and it offers useful comparison over years and decades and generations, even though what people choose to consume has changed dramatically from when the CPI was first calculated. \u00a0(There were no I Phones or fast food back in the 1930s.) \u00a0The market basket of goods on which CPI is calculated is revised regularly to reflect innovation and changes in tastes and habits. \u00a0There’s no reason to say that a Gross Happiness Index can’t be treated similarly. \u00a0With this approach, the GHI would track changes in a society’s level of well-being by offering \u00a0a snapshot of the level of well-being at any given point\u2014measured each year in terms of the constituent elements of well-being that the society valued that year. \u00a0 I don’t see any major problem with that.<\/p>\n

All of this brings to mind the question of the future of capitalism in driving the world economy. \u00a0How do you see this evolving? \u00a0Is the financial crisis pivotal to change we are witnessing?<\/p>\n

I’ve written recently about how this financial crisis is a manifestation of our society’s environmental crisis. \u00a0Briefly: \u00a0debt is a claim on the economy’s ability to produce wealth. \u00a0We let debt grow astronomically, but the real, physical wealth that that debt is a claim upon can only grow in two ways: \u00a0by increasing the efficiency with which we use matter and energy from nature, or by using more matter and energy. \u00a0Increasing the throughput of these resources increases the economy’s ecological footprint, and destroys natural capital. \u00a0At some point, trying to grow the economy through growth in throughput has to hit a limit. \u00a0When debt grows exponentially but wealth doesn’t, eventually some trigger event leads to a spasm of debt repudiation. \u00a0People who hold debt as an asset\u2014creditors\u2014have to lose some of their assets. \u00a0Debt repudiation takes a variety of forms: \u00a0bankruptcy, foreclosure, default, stock market crash, inflation, the disappearance of paper assets in any form. \u00a0Back in March Larry Summers told an audience at the Brookings Institution that by his count, we have a crisis every 2.3 years, and he allowed that “we’ve got to do better.” \u00a0We’re not going to do better unless we address the underlying cause of these crises of debt repudiation: \u00a0our system allows debt to grow a lot faster than we can grow the means of paying it back. \u00a0Ultimately, we’ll have to limit growth in debt to the amount that real wealth can grow sustainably.<\/p>\n

Policy planners aren’t talking about this. \u00a0They’re not talking about debt repudiation as the underlying cause of recurring crisis, and I wish they were. \u00a0Still, there’s reason for hope. \u00a0There are signs that this downturn-and-recovery is leading us in the direction of a “greener,” more ecologically sustainable relationship to the planet. \u00a0Recovery money spent on building renewable energy and energy conservation infrastructure\u2014windmills and mass transit and geothermal energy, all of that\u2014is wisely spent. \u00a0We have it in our power to build a thing never seen before in the quarter-million year history of humans on the planet: \u00a0an ecologically sustainable society that has a high material standard of living that is widely and equitably shared among the human population. \u00a0Our present industrial civilization, built on fossil fuel, gives us a high material standard of living that is widely shared\u2014not as widely as many people would like, but more widely than any other previous kind of civilization. \u00a0The problem is it’s not ecologically sustainable. \u00a0I hope that as we come out of this crisis we build the infrastructure we’ll need for such a society.<\/p>\n

And the future of capitalism? \u00a0Well, I like to quote Oystein Dahle: \u00a0“Socialism failed because it did not let prices tell the economic truth. \u00a0Capitalism will fail if it does not let prices tell the ecological truth.” \u00a0Getting our basic index of economic well being right is one part of getting prices to tell the truth.<\/p>\n

How did you come to be interested in this subject and are you doing research in it?<\/p>\n

As an undergraduate back in the 1970s, I lived through the US gas crisis, as it was called then\u2014after US domestic oil production peaked in 1971, OPEC exercised its new-found market power and set a market-demand proration for oil that raised its price significantly in the US. \u00a0It was, for some Americans, the first clear intimation that energy isn’t just another commodity and that there are limits to our ability to exploit past solar energy\u2014fossil fuel\u2014to make wealth in the present. \u00a0Another formative experience was majoring in politics and economics, which at my university were housed in different departments, different colleges. \u00a0In studying those subjects I was trying to understand what we were doing to the planet and what we were thinking while we did it\u2014the idea being, we need to change the way we think if we’re going to have an ecologically sustainable society. \u00a0I pursued those two questions through graduate school and have been thinking and working in this field since then. \u00a0 Currently I’m working on my next book, \u00a0“Factory Planet: \u00a0Preserving Democracy in an Era of Ecological Constraint.” \u00a0The American political and economic system is built on the assumption that we can have infinite economic growth, and when we come up against limits, as we are, it’s clear that some things have to change. \u00a0So I’m trying to do Green Political Economy–showing where and how our theories in politics and economics, and the institutions built on that thinking, have to change as we recognize that we can’t have infinite economic growth on a finite planet.<\/p>\n

Eric Zencey is Associate Professor of Historical and Political Inquiry at Empire State College, State University of New York. \u00a0He is the author of Virgin Forest: \u00a0Meditations on History, Ecology, and Culture, and a novel, Panama. \u00a0This interview is a full length version while the newspaper version was edited for length and conciseness.<\/p>\n

Courtesy: The Nation (www.nationmultimedia.com)<\/p>\n","protected":false},"excerpt":{"rendered":"

Should there be alternative to the GDP? In an email interview with The Nation, US-based historian, Eric Zencey says it’s time to ditch The Gross Domestic Product (GDP) for a more meaningful and inclusive index which can more accurately measure country performances. Why should we be thinking of an alternative to the GDP now? GDP … Continue reading Gross Domestic Product (GDP) Vs Gross National Happiness (GNH)<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,8,11,14],"tags":[205,609,610,1351],"class_list":["post-762","post","type-post","status-publish","format-standard","hentry","category-environment","category-gross-national-happiness","category-news","category-sustainable-development","tag-bhutan","tag-gross-national-happiness","tag-gross-national-happiness-gnh","tag-sustainable-development"],"_links":{"self":[{"href":"https:\/\/bridgetobhutan.com\/blog\/wp-json\/wp\/v2\/posts\/762","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bridgetobhutan.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bridgetobhutan.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bridgetobhutan.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bridgetobhutan.com\/blog\/wp-json\/wp\/v2\/comments?post=762"}],"version-history":[{"count":0,"href":"https:\/\/bridgetobhutan.com\/blog\/wp-json\/wp\/v2\/posts\/762\/revisions"}],"wp:attachment":[{"href":"https:\/\/bridgetobhutan.com\/blog\/wp-json\/wp\/v2\/media?parent=762"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bridgetobhutan.com\/blog\/wp-json\/wp\/v2\/categories?post=762"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bridgetobhutan.com\/blog\/wp-json\/wp\/v2\/tags?post=762"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}