MEASURING PROGRESS
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MEASURING PROGRESS
When Bill Clinton promises to "keep growth going" and Bob Dole
promises to "get the economy moving," they both are vowing to
increase Gross Domestic Product, or GDP. GDP is the standard
measure of the nation's total economic activity, and it is
assumed to translate directly into well being. If GDP rises
rapidly (say, 4% per year), things are assumed to be getting much
better, and if GDP rises slowly (say, 1.5% per year), things are
not so good. Government officials first began measuring national
economic activity this way in 1932; ever since then, the nation's
main goal has been to increase GDP. (Actually, up until 1991, we
measured GNP, or Gross NATIONAL Product. In 1991 we shifted to
measuring Gross DOMESTIC Product. GNP and GDP are quite similar
measures, unless you live in a developing country, in which case
they definitely are NOT the same.[1])
Simply put, GDP is a measure of all market activity, all money
that changes hands in a country during a year. GDP measures
total output, the dollar value of all finished goods and services.
Now some economists are asking whether the GDP is an adequate
measure of the nation's well being.[2] When GDP goes up are the
American people necessarily better off? They point out, for
example, that real wages have declined nearly 14% since 1973
while GDP has risen 55% during the same period.[2,pg.7] GDP
seems to be missing what's actually going on. GDP says we are
better off, but are we really? It's a fair question.
A number of economists are rejecting GDP as the basic measure of
the nation's well being, and are proposing an alternative
measure, which they call GPI (genuine progress indicator). Three
economists in particular (Clifford Cobb, Ted Halstead, and
Jonathan Rowe) point to at least 3 major problems with GDP:
1. GDP only counts money transactions, so it leaves out many
"goods" that people provide for each other free. Major parts of
the household economy are ignored. Examples: care for the
elderly and for children, home maintenance and cleaning, food
preparation, and voluntary service for neighborhood, church and
civic groups. GDP assigns all these activities a value of zero.
This can lead to distorted public policies. For example, if the
"Family Leave Act" is criticized because it reduces GDP, such a
criticism is inaccurate because it fails to reflect the increases
in many household economies that the Act initiates.
2. GDP treats all transactions as positive. Crime, divorce,
pollution, and depletion of natural resources are all treated as
gains. Thus GDP treats the breakdown of the social structure,
and the natural environment as gains. If someone buys a car, GDP
goes up. If the car gets into an accident and requires major
repair, GDP goes up. If the driver is hospitalized, GDP goes up.
If a lawsuit follows, GDP goes up again. GDP makes no
distinction between activities that contribute to well being and
those that diminish it. It's like keeping accounts using a
calculator that has an "add" function but no "subtract" function.
So long as money changes hands, GDP increases. Any business
that kept its accounts this way would never know where it stood.
Such a business would have an exceedingly rosy picture of its
condition, but it would be a false picture. So it is with
countries that rely on GDP to measure well being.
3. GDP treats depletion of natural capital (assets) as current
income --an obvious violation of good accounting principles. If
a forest is converted to lumber, or farmland is turned into
parking lots, GDP treats all the money involved as current income
and none of it as capital depreciation. Again, any business that
kept its accounts this way --treating depletion of assets as
current income --would have a very rosy picture of its financial
condition, but the picture would be quite wrong. So it is with
countries that rely on GDP to measure well being.
Much of GDP is made up of three things:
1. FIXING MISTAKES AND SOCIAL FAILURES FROM THE PAST. Superfund
sites are an example. Such cleanups just get us back to where we
once were; they are not real progress. The prison system is
another example. Prisons are a response to earlier failures to
help young people gain a valued place in the economy and society.
Superfund sites and prisons are not progress, yet the GDP treats
them as if they represented real gains in well being.
2. BORROWING RESOURCES FROM THE FUTURE. Agricultural output
grows each year because of enormous chemical use, but this occurs
at the expense of depleted natural capital (fertile soil and
clean water). This represents a borrowing from our children. It
imposes real costs on future generations. GDP treats these costs
as zero or, even worse, as positive contributions to the nation's
well being. Obviously, this is an inappropriate accounting
practice.
3. SHIFTING FUNCTIONS FROM THE TRADITIONAL HOUSEHOLD AND
COMMUNITY TO THE MONETARY ECONOMY.
** Baby sitters and nannies substitute for parents.
** Psychotherapy, TV sets and VCRs substitute for close contact
between friends, neighbors and family members.
** Burglar alarms and police officers substitute for neighbors
keeping an eye on things.
** Burger King and Kentucky Fried Chicken substitute for the home
kitchen.
In each of these cases, free services (free in the sense of not
being compensated by money) have disappeared and, in their place,
a monetary relationship has been established. In many instances,
this represents an INCREASE in GDP but a DECREASE in the strength
of the social fabric that holds communities and families together.
New Measures of Progress
New measures of progress are needed. The GDP is giving us a false
sense of well being. GDP makes no distinction between the secure
skilled worker in a high-paying job and the recently-laid-off
worker who is holding down two jobs without benefits just to make
ends meet. Clearly their incomes do not represent equivalent
levels of well being. GDP treats pollution as a double positive
--it is counted as a gain when it is first created as a byproduct
of some other activity, and it is counted as a gain again when
society pays to clean it up. Several new measures of well being
have been established.[3] The one we like best is called the
Genuine Progress Indicator, or GPI, developed by an organization
called Redefining Progress in San Francisco.[2]
The GPI starts with the same data that underlies the GDP, but
then it is modified by both additions and subtractions.
** The GPI is weighted for income distribution. The GPI accounts
not only for increasing total income, but also for the way income
is distributed within society. The top fifth of American
households took 48.2% of the nation's income in 1993; the bottom
fifth received just 3.6% --an historic record for inequitable
distribution of income in America. GPI takes into account such
inequitable distribution of income.[4]
** Certain defensive expenditures are subtracted. Defensive
expenditures are such things as locks, burglar alarms, and other
security devices, which merely help maintain the status quo but
don't represent real increases in well being. Costs of
automotive repairs after accidents, and household water filters,
fall in this "defensive" category as well.
** The depreciation of natural capital (environmental assets and
natural resources) are subtracted. The following items are
subtracted: Costs of air, water and noise pollution; loss of
wetlands, farmlands, and old growth forests; depletion of earth's
ozone layer. And so on.
The GPI is "conservative" in the sense that it does not go as far
as it could in subtracting negative factors. For example, loss
of species is omitted entirely because the authors couldn't put a
dollar value on species lost. Likewise, many Americans regret
much of their consumption and this could be subtracted from GDP
because it represents a "negative" in many peoples' lives. For
example, half of all Americans believe they are overweight from
eating too much, and 70% of cigarette smokers wish they could
quit. Clearly such "addictive consumption" could be subtracted
from GDP, but GPI does not go this far.
In sum, GPI is an important and reasonable new attempt to measure
well being. It tries to take into account real factors that GDP
ignores --real positives (such as household work) and real
negatives (such as time spent commuting to work) --to give a
better overall measure of the economy as people actually
experience it. Figure 1 shows the result: when social and
environmental costs are take into account, the overall health of
the U.S. economy has steadily declined since the mid-1970s.
--Peter Montague
(National Writers Union, UAW Local 1981/AFL-CIO)
[1] Clifford Cobb, Ted Halstead, and Jonathan Rowe, "If the GDP
is Up, Why is America Down?" ATLANTIC MONTHLY (October, 1995),
pgs. 59-77, explains on pg. 68 that, using GNP, the earnings of a
multinational were counted in the country where the firm was
owned, which is logical because that's where the profits
eventually end up. However, using GDP, which we started doing in
1991, a multinational's profits are counted in the country where
the factory or mine is located, even though the profits won't
stay in that country. The authors comment, "This accounting
shift has turned many struggling nations into statistical boom
towns, while aiding the push for a global economy. Conveniently,
it has hidden a basic fact: the nations of the North are walking
off with the South's resources, and calling it a gain for the
South." See also Clifford Cobb, Ted Halstead, and Jonathan Rowe,
"If the GDP is Up, Why is America Down?" FOCUS: CARRYING CAPACITY
SELECTIONS Vol. 6, No. 1 (1996), pgs. 25 and following pages.
[2] Clifford Cobb, Ted Halstead, and Jonathan Rowe, THE GENUINE
PROGRESS INDICATOR; SUMMARY OF DATA AND METHODOLOGY (San
Francisco: Redefining Progress [4th Floor, One Kearny Street, San
Francisco, CA 94108; Tel. 415.781.1191], September, 1995). $10.00
from Redefining Progress.
[3] See the "index of social welfare" in Herman E. Daly and John
B. Cobb, Jr., FOR THE COMMON GOOD Second edition (Boston: Beacon
Press, 1994), pgs. 443-507. See also, for example, Marc
Miringoff, 1995 INDEX OF SOCIAL HEALTH: MONITORING THE SOCIAL
WELL-BEING OF THE NATION (Tarrytown, N.Y.: Fordham Institute for
Innovation in Social Policy, 1995). And see United Nations
Development Programme, HUMAN DEVELOPMENT REPORT 1995 (New York:
Oxford University Press, 1995).
[4] Jason DeParle, "Census Sees Falling Income and More Poor,"
NEW YORK TIMES October 7, 1994, pg. A16.
. FIGURE 1. GROSS PRODUCTION VS. GENUINE PROGRESS, 1950-1994 .
. .
Dollars per Person .
(inflation-adjusted) .
. .
18000 -- + .
. + .
16000 -- .
. Gross Domestic Product (GDP) + .
14000 -- + .
. + .
12000 -- + .
. + .
10000 -- .
. + + .
8000 -- + .
. * * * .
6000 -- * * * * * .
. * .
4000 -- Genuine Progress Indicator (GPI) * .
. .
2000 -- .
. | | | | | | | | | | .
0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1994.
Year .
...................................................................
Figure 1. Gross Production vs. Genuine Progress, 1950-1994. The .
plus signs (+) represent GDP, the asterisks (*) represent GPI. .
See text for the definition of these measures. Units of GDP and .
GPI are 1982 dollars per capita. Basically this graph shows that, .
when social and environmental costs are taken into account (i.e., .
measuring GPI), the overall health of the economy has steadily .
declined since the 1970s. Adapted with permission from Clifford .
Cobb, Ted Halstead, and Jonathan Rowe, THE GENUINE PROGRESS .
INDICATOR; SUMMARY OF DATA AND METHODOLOGY (San Francisco, .
California: Redefining Progress, September, 1995). Naturally, .
there are rounding errors in this rendition of the graph because .
a text-based graphic does not allow truly accurate placement of .
data points. .
...................................................................
Descriptor terms: quality of life indicators; income
distribution; measuring well being; measuring welfare; genuine
progress indicator; gpi; gross national; products; gnp; gross
domestic product; gdp; national accounts; growth;
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--Peter Montague, Editor
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