Gross Domestic Product Sustainability

World Economic Forum: “Forget GDP.”

On November 13th, Pushpam Kumar — Chief Environmental Economist at the UN — published a text on the “Agenda” blog of the WEF website, cautioning against the use of the GDP as the primary yardstick for economic and societal progress. Titled “Forget GDP – for the 21st century we need a modern growth measure“, he is quite explicit about the GDP’s shortfalls:

GDP provides measurements of output, income and expenditure quite well, and these are needed to understand and devise fiscal and monetary policies. But this measure flatly fails when it comes to wellbeing.

And he quotes a UN report that shows that nature “goes down” while the GDP goes up:

The UN Environment Programme-led Inclusive Wealth Index shows the aggregation through accounting and shadow pricing of produced capital, natural capital and human capital for 140 countries. The global growth rate of wealth tracked by this index is much lower than growth in GDP. In fact, the 2018 data suggests natural capital declined for 140 countries for the period of 1992 to 2014.

As a consequence, he advocates five factors that a better measure for progress should consider: financial and produced capital (these are the more traditional output-based measures, interested in assessing whether more has been produced and earned), plus: skills in the workforce (human capital), cohesion in society (social capital) and finally, the value of our environment (natural capital). The approach is still a very monetary one — he argues in terms of what all this is “worth” to us, financially speaking:

Natural capital assets such as forests and water bodies have only been valued for the products they provide for the market, such as timber and fish. However, these ecosystems offer a much larger suite of services, such as water purification, water regulation and habitat provisioning for species, among many others. These are clearly valuable services.

I am unsure if true change can happen if we keep considering the financial measurement of outputs as a core element of our economic systems, and if we evaluate nature as “but a resource” that provides services which we just haven’t started including in the calculation yet. The chosen vocabulary betrays a viewpoint that still considers the “accumulation of wealth” as the core idea of any economic activity — just a more varied range of “wealth types”. And yet, it seems like a helpful starting point for those who come from a GDP point of view.

Finally, he presents a Canadian approach to measuring progress more holistically, the Comprehensive Wealth Project, which now includes the five factors. And its current results are summarised as follows in the text:

The report raises several red flags, most notably that Canadians’ comprehensive wealth only grew at an annual average rate of 0.2% from 1980 to 2015. In contrast, GDP grew at an annual average rate of 1.31% over the same period.

In other words, if you look at all five facets, the GDP of Canada may have been growing by 1.31% per year on average — so the country keeps making and earning more. But in terms of a more overall approach to wellbeing, the development has been pretty much flat.

In other words, and once again: More GDP does not mean better lives.