GENUINE PROGRESS INDICATOR (GPI) is a metric that has been suggested to replace, or supplement, gross domestic product (GDP) as a measure of economic growth . The GPI is designed to take fuller account of the well-being of a nation, only a part of which pertains to the health of the nation's economy, by incorporating environmental and social factors which are not measured by GDP. For instance, some models of GPI decrease in value when the poverty rate increases.
The GPI is used in ecological economics , "green" economics, sustainability and more inclusive types of economics. It factors in environmental and carbon footprints that businesses produce or eliminate, including in the forms of resource depletion , pollution and long-term environmental damage. GDP is increased twice when pollution is created, since it increases once upon creation (as a side-effect of some valuable process) and again when the pollution is cleaned up; in contrast, GPI counts the initial pollution as a loss rather than a gain, generally equal to the amount it will cost to clean up later plus the cost of any negative impact the pollution will have in the mean time. While quantifying costs and benefits of these environmental and social externalities is a difficult task, "Earthster-type databases could bring more precision and currency to GPI's metrics." It has been noted that such data may also be embraced by those who attempt to "internalize externalities" by making companies pay the costs of the pollution they create (rather than having the government or society at large bear those costs) "by taxing their goods proportionally to their negative ecological and social impacts".
GPI is an attempt to measure whether the environmental impact and social costs of economic production and consumption in a country are negative or positive factors in overall health and well-being. By accounting for the costs borne by the society as a whole to repair or control pollution and poverty, GPI balances GDP spending against external costs. 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". :Ch. 10.3 Comparatively speaking, the relationship between GDP and GPI is analogous to the relationship between the gross profit of a company and the net profit; the net profit is the gross profit minus the costs incurred, while the GPI is the GDP (value of all goods and services produced) minus the environmental and social costs. Accordingly, the GPI will be zero if the financial costs of poverty and pollution equal the financial gains in production of goods and services, all other factors being constant.
* 1 Motivation
* 2 Theoretical foundation
* 2.1 "Income" vs. "capital depletion"
* 3 In legislative decisions * 4 Calculation * 5 Components * 6 Development in the United States * 7 Development in Finland * 8 Development in Finland regions * 9 Criticism * 10 Supporting countries and groups * 11 See also * 12 References
* 13 Further reading
* 13.1 News articles * 13.2 Scientific articles and books
* 14 External links
Most economists assess progress in people's welfare 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 not 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 does not distinguish between money spent for new production and money spent to repair negative outcomes from previous expenditure. For example, it would treat as equivalent one million dollars spent to build new homes and one million dollars spent in aid relief to those whose homes have been destroyed, despite these expenditures arguably not representing the same kind of progress. This is relevant for example when considering the true costs of development that destroys wetlands and hence exacerbate flood damages. Simon Kuznets , the inventor of the concept of GDP, noted in his first report to the US Congress in 1934:
the welfare of a nation can scarcely be inferred from a measure of national income. If the GDP is up, why is America down? Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.
Some have argued that an adequate measure must also take into account ecological yield and the ability of nature to provide services , and that these things are part of a more inclusive ideal of progress, which transcends the traditional focus on raw industrial production.
The need for a GPI to supplement biased indicators such as GDP was
highlighted by analyses of uneconomic growth in the 1980s, notably
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 neoclassical economics . Neoclassical economists understand the limitations of GDP for measuring human well-being 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
According to Lawn's model, the "costs" of economic activity include the following potential harmful effects:
* Cost of resource depletion * Cost of crime * Cost of ozone depletion * Cost of family breakdown * Cost of air , water , and noise pollution * Loss of farmland * Loss of wetlands
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
GPI systems generally try to take 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, would score a higher GPI than the same level of agricultural activity that drastically lowers the water table by pumping irrigation water from wells.
"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 largely ignored in contemporary economics but fits under the idea of sustainability .
IN LEGISLATIVE DECISIONS
The best-known attempts to apply the concepts of GPI to legislative
decisions are probably the Atlantic indicator invented by Ronald
The EU and Canadian efforts are among the most advanced in any of the
The calculation of GPI 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
The Genuine Progress Indicator is measured by 26 indicators which can
be divided into three main categories: Economic, Environmental, and
Social. Some regions, nations, or states may adjust the verbiage
slightly to accommodate their particular scenario. For example, the
GPI template uses the phrase "Carbon Dioxide Emissions Damage" whereas
the state of
+/- INDICATOR BRIEF EXPLANATION
+ Personal Consumption Expenditures The bulk of GDP as well, consumption informs the baseline from which the rest of the indicators will be added or subtracted.
(PCE/IDI)*100 Adjusted Personal Consumption Formula=(Personal consumption/IDI) x 100. Forms the base number from which the remaining indicators are added or subtracted.
- Cost of Consumer Durables Calculated as a cost to avoid double counting the value provided by the durables themselves.
+ Value of Consumer Durables Household appliances, cars, etc. are not used up in one year and are considered a part of household capital. Their value is depreciated over a number of years.
- Cost of Underemployment Encompasses the chronically unemployed, discouraged workers, involuntary part-time workers and others with work-life restraints (lack of childcare or transportation).
+/- Net Capital Investment Capital investment in foreign markets minus incoming investments from other countries. If lending (+) if borrowing (-).
Cost of Water
Cost of Air
Cost of Noise
- Loss of Wetlands Valuates the services given up when wetlands are lost to development i.e. buffering of weather, habitat, water purification.
- Loss of farmland, soil quality or degradation Due to urbanization , soil erosion and compaction . This indicator is measured cumulatively to account for all years of production lost as it compromises self-sufficient food supply.
- Loss of Primary Forest and damage from logging roads Loss of biodiversity , soil quality, water purification , carbon sequestration , recreation etc. Cumulative affect year over year.
- CO2 Emissions Increases in severe weather is causing billions in damages. A value of $93USD/metric ton of CO2 emitted is used, based on a meta-analysis study by Richard Tol (2005) of 103 separate studies of costs of economic damages.
- Cost of Ozone Depletion Our protective layer in the atmosphere. Depletion can lead to increased cases of cancer, cataracts and plant decline. Weighed at $49,669USD/ton
- Depletion of Non-Renewables These cannot be renewed in a lifetime. Depletion is measured against cost of implementing and substituting with renewable resources.
+ Value of Housework and Parenting Child care, repairs and maintenance are valued equivalent to the amount a household would have to pay for the service.
- Cost of Family Changes Social dysfunction presents itself early in family life. Care is taken to avoid double counting goods and services duplicated due to split-parent households.
- Cost of Crime Medical expenses, property damages, psychological care and security measures to prevent crime are all included in this indicator.
Cost of Household
+ Value of Volunteer Work Valued as a contribution to social welfare. Neighborhoods and communities can find an informal safety net through their peers and volunteer work.
+ Value of Higher Education Accounts for the contribution resulting knowledge, productivity, civic engagement, savings, and health; a "social spillover," set to $16,000 per year.
+ Value of Highways and Streets Annual value of services contributed from the use of streets -webkit-column-width: 30em; column-width: 30em;">
Broad measures of economic progress
* ^ A B C D E Bensel, Terrence; Turk, Jon (2011). Contemporary
Environmental Issues. Bridgepoint Education. 1935966154.
* ^ "Beyond GDP International Conference" (PDF). OECD. Organisation
for Economic Cooperation and Development. Retrieved 13 December 2014.
* ^ "For the Common Good by
Herman Daly & John Cobb Jr. - A Book
Review by Scott London". scottlondon.com.
* ^ "Initiative Details". iisd.org.
* ^ Kubiszewski, Ida; Costanza, Robert; Franco, Carol; Lawn,
Philip; Talberth, John; Jackson, Tim; Aymler, Camille (30 April 2013).
"Beyond GDP: Measuring and achieving global genuine progress".
Ecological Economics. 93: 57–68. doi :10.1016/j.ecolecon.2013.04.019
* ^ Deaton, Angus. "Ph.D.". Gallup. Gallup. Retrieved 10 December
* ^ Lawn, Philip A. (2003). "A theoretical foundation to support
the Index of Sustainable Economic
* "Advantage or Illusion: Is Alberta's Progress Sustainable?" by
Mark Anielski. Encompass Vol. 5, No. 5, July/August 2001.
* "The Growth Consensus Unravels" by Jonathan Rowe. Dollars and
Sense, July–August 1999, pp. 15–18, 33.
* "Real Wealth: The Genuine Progress Indicator Could Provide an
Environmental Measure of the Planet\'s Health" by Linda Baker. E
Magazine, May/June 1999, pp. 37–41.
* "The GDP Myth: Why 'Growth' Isn't Always a Good Thing" by Jonathan
Rowe, and Judith Silverstein.
SCIENTIFIC ARTICLES AND BOOKS
* A. Charles, C. Burbidge, H. Boyd and A. Lavers. 2009. Fisheries
and the Marine Environment in Nova Scotia: Searching for
* v * t