US GPI Reports

These are the original 1999 US Genuine Progress Indicator Reports that I prepared for Redefining Progress, an economic think-tank based in San Francisco.

US GPI 1998 summary report

“Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information.”

T.S. Eliot

The release of the first U.S. GPI (Genuine Progress Indicator) in 1995 enlightened us with knowledge that the GDP, our traditional measure of economic prosperity, was like a faulty calculator that could only add and not subtract. The GDP makes no distinction between economic transactions that add to our nation’s well-being and those which diminish it. GDP completely ignores those values which most people would consider important to their quality of life including the non-monetary contributions of family, volunteerism, communities and our environment. The GDP does not distinguish between spending that adds to well-being and quality of life and spending that merely avoids deterioration or actual degrades our social and environmental infrastructure. Thus, the

GDP, as the key yardstick of prosperity, implies that many values important to the wellbeing of households count for nothing.

The intent of the GPI is to provide a more honest accounting of the well-being of the nation — accounting for real benefits and costs associated with values important to households. The GPI may provide a guidance system to rediscover the knowledge we have lost in information and the wisdom we have lost in knowledge. The GPI is an attempt to address the challenge Simon Küznets left us with in 1965 when he stated “investigators interested in quantitative comparisons will have to take greater cognizance of the aspects of economic and social life that do not now enter national income measurement; and that national income concepts will have to be either modified

or partly abandoned, in favour of more inclusive measures, less dependent on the appraisals of the market system……The eventual solution would obviously lie in devising a single yardstick”1

The GPI is one step towards the creation of a new inclusive measuring stick replacing an old and outmoded yardstick (the GDP) that was originally conceived 60 years ago as a means of helping to finance war efforts.

All decisions are ultimately made for political reasons, including the design of the GDP and national income accounting. Most of us are unaware of the origins of our current national accounting system and the goals which it served. The original GNP was conceived by John Maynard Keynes who in 1939 asked Richard Stone to co-design a national income accounting system that would support the needs of the United Kingdom would be adopted by the US and by the United Nations.

A young economist, Simon Küznets was also involved in this effort. Küznets wisely recognized the inherent shortcomings of the new national accounting system. He acknowledged that a system designed to address war fiscal policy was inadequate as a system for measuring the welfare or well-being of a nation. Despite spending his life raising concerns about the shortcomings of the GNP/GDP accounting system, few have heeded his call or took on the challenge of devising a more appropriate and inclusive yardstick in a post-war era. Ironically and sadly after over 50 years virtually every nation on earth still uses the original GNP/GDP national accounting system. The GDP is the yardstick for comparing the economic prosperity of every nation. One must ask, is this accounting system still appropriate as an economic yardstick given that the true meaning of the word economy relates to the management of the household or state? Is not the well-being of the nation’s households more important than simply counting up the expenditures by consumers, government and business?

Most politicians, economists, statisticians and media have forgotten this history and by virtue of inertia and naivete sustain the use of the GDP yardstick to measure progress and prosperity.3 Undoubtedly, most Americans would agree intuitively that an appropriate accounting system is needed as a tool in managing for the well-being of the nation.

If economic indicators, like the GDP, do not provide a full accounting of the welfare of a nation, then such accounting systems cannot provide the necessary feedback that is required to manage for the improved well-being of the households of the nation and the environment upon which our welfare depends. Using a faulty yardstick, that ignores fundamental social and environmental values, will inevitably lead us down a path of undesirable and possibly irreversible outcomes.

What is needed is a new yardstick the resonates with the intuitive sense of well-being held by citizens.

The GDP is synonymous with its colloquial term “growth” and is the sum total of allmonetary transactions in the consumption of goods and services in our economy. It includes the personal consumption expenditures of households, government spending and investment by business in the “economy.” Elevated to a stature of theological importance, the GDP, as our primary yardstick of success, implies that by spending more money to consume more goods and services makes us better off. An increasing rate ofGDP growth, by definition, requires continual increases in personal consumption even ifthat consumption becomes both unnecessary and unsustainable, in both financial and environmental terms. While materially richer we may indeed be compromising real wealth of our households, our community and our environment that ultimately provides for real quality of life and well-being.

 

Many of us feel fatigued trapped in a circular race. Juliet Schor (1997) calls this “capitalism’s squirrel cage” — an insidious cycle of work and spend where families work longer hours to support a material lifestyle that is always slightly beyond their reach.

Many families lament spending too much time on the job, too much time commuting to the office, with too little time left for family, friends, parenting, chores, or leisure. Schor (1997) points out that since the 1960s, increasing numbers of American households experience their lives as hectic, rushed and pressured and this subjective reality may be transforming our pattern of civic engagement and indeed social cohesion. The GDP is silent on such issues.

We have become addicted to ‘more’ growth and incapable of accepting slow, negative or zero GDP growth even if an honest account would show that, while consumption has waned, the development of our quality of life has remained steady.

Intuitively we know that quality of life and our well-being, by any measure, is more than the sum total of our expenditures on goods and services. As long as we fail to understand that we are using a faulty calculator (the GDP) as a tool to manage the economy we will continue to go blindly along our path of naivete.

In 1995 Redefining Progress offered an alternative approach to measuring changes in the well-being of the nation: the Genuine Progress Indicator (GPI). The GPI captured the attention of the media and average citizens unlike previous efforts of accounting for sustainable economic welfare. The GPI’s intuitive appeal is that it offers an alternative accounting system to address the lament of Robert F. Kennedy and the challenges of Simon Kuznets.

Following from the pioneering work of Zolotas, Nordhaus and Tobin, and Cobb in attempting to measure sustainable economic welfare, the GPI represents an importantstep towards an inclusive yardstick for measuring genuine progress and the well-being.

The GPI follows from the original pioneering work of Cliff Cobb in developing the Index for Sustainable Economic Welfare (ISEW) which appeared in For the Common Good by Daly and Cobb (1994).4 Numerous efforts are now underway internationally to develop new accounts of economic welfare including the development of a GPI for Australia and Canada and an Index for Sustainable Economic Welfare (ISEW) for the United Kingdom,Germany, Austria, Sweden, Netherlands, Italy, Australia, Chile, and Korea.

 

Our hope in offering the GPI as an alternative to the GDP as well as providing preliminary estimates of genuine well-being, as an average household might account, may inspire politicians, policy advisors, economists and statisticians to take up the challenge. The success of the original GPI (released in 1995) in attracting both positive and negative reaction, is a testament that the basis for our pioneering work resonates intuitively with many people.

As in any pioneering effort the tilling of new ground by estimating, even rhetorically, the social and environmental values that contribute to our well-being is daunting and humbling. We acknowledge the difficulty of the task at hand, yet the pursuit of a better yardstick is certainly as important if not more important today than it was in 1939 when the current GDP war-time yardstick was conceived. For the current and future well-beingof the nation, our goal must be to redesign a system that can provide better feedback as to genuine state of the nation.

Mark Anielski
Senior Fellow
Redefining Progress

 

 

 

 

6 Responses to US GPI Reports

  1. Gregory Friedman says:

    Hi, Mark.
    I’m putting together a course for international students in the summer program at UC Berkeley focused on new economy initiatives. Of course we’ll be critically assessing GDP and looking at alternative measures, so I’m very interested in your work on GPI. I was browsing the Summary report, but I could not see the actual GPI graphs. They seem to be missing. like it was a draft version of the report. Is there a different version around somewhere?
    Also, since many of my students will be from China, I am VERY interested in what you’ve done there. I fully expect (and welcome) skepticism from some of these students regarding this stuff, so I’m curious whether you’ve engaged with people in China who were not already interested in environmental economics/sustainability, and how that went.

    • Hi Greg, perhaps you did not click on the download link of the US GPI Summary report which has the GPI/GDP graph on page 5. I will also send you via regular email a better graphic of the US GPI. As for China, you can tell your Chinese students that my book The Economics of Happiness: Building Genuine Wealth was published in China in 2010 in Mandarin. The Chinese book was championed by Prof. Jianguo Qi, one of Chinas’s most prominent economists at CASS (the Chinese Academy of Social Sciences). For three years 2003-2006 I worked with Qi serving as a senior advisor to CASS and the Chinese Government in establishing a Green GDP accounting system as well as guiding them in the development of their Xiaokang Societal Well-being indicator system that is used to assess the triple-bottom-line performance of every major municipal government in China. Xiaokang is a Confucian term meaning ‘society of moderately well-off citizens” or a ‘society of moderation’ (my paraphrase). Xiaokang society and economy has been China’s key national economic policy since the early 1990s. For China to have advanced such a progressive ‘well-being’ indicator system and to adopt my methods of portraying indicators as ‘flower graphics’ (my signature work) is impressive, to say the least. I have a lot of respect for my Chinese colleagues. Moreover they were the first country to estimated a revised GDP to account for the cost of environmental pollution.

      Mark

      • Gregory Friedman says:

        Hi. I guess it was just the “GPI column data” at the end that seem to be missing. (It says, “insert column data”, but there isn’t anything shown.) It’s not a big deal, because there’s a lot of other valuable info in there I can use.
        About China, where can I find out what is happening these days with their experimentation with triple bottom line accounting? Are they really using it, have there been results, etc. I sincerely apologize for having some skepticism; it’s just that many governments and institutions often adopt green or other progressive policies merely as a matter of window dressing. Everything I read about how China operates, from the local level to the national level, indicates that very little attention is paid to anything other than growth in the traditional (single bottom line) sense–to be obtained by any means necessary. As a result, environmental priorities in particular are out the window, and the level of contamination there is off the charts. I would love to know that this is not always the case, at least in some parts of the country.
        Thanks.

        • Hi Gregory, yes the data tables were not included in the report but I can send them to you. About China, I haven’t been back there since 2006 when I worked on their Green GDP efforts. They were the first country to estimate a green GDP by considering the cost of pollution as an adjustment. I believe because of the politics of China being the only country to have done so, there was internal pressure within the Communist party to not release an ‘official’ green GDP numbers. That said they have adopted the Xiaokang (economic, social, environmental) well-being indicator system as a basis of assessing the triple-bottom-line performance of municipalities. I also worked on these Xiaokang indicator system when I was there. There too the political sensitivities in that some Western resource-intensive cities were sensitive to having poorer environmental performance relative to other municiaplities without resources and environmental damages. Given that these indicators were to be used as a basis of remuneration of mayors who are part of the Communist Party there were obvious political sensitivities to receiving a lower ‘performance’ score because of these comparative advantages (or disadvantages) due to geography. I usually note to my Western friends that ‘imagine if Canadian cities all had the same performance criterion upon which they would be evaluated and tax transfer payments were made, such as China has developed?’

          Xiaokang has been their national economic policy since 1991; originally this was set at a GDP/capita target of US$4000/capita. Today China’s average GDP per capita is over US$7000. My reflection is ‘what country in the world actually established a GDP/capita target that is connected to an ancient Confucian philosophy of ‘moderation’ (xiaokang?”) That would be like the US and Canadian governments establishing their economic development policies based on Plato’s four virtues for Western Civilization: wisdom, courage, justice and moderation.

          I do agree that in spite of these efforts at measuring performance and progress more holistically, China, as a whole, continues to be focused on maintaining a healthy GDP growth. Their politics are no different, in many respects, than our own.

  2. George Hoguet says:

    Mark, I just attended the 2012 Slow Living Summit in Brattleboro, VT and was sharing your book with some new friends there (I’d been reading it on the Amtrak). Great work! Thanks again for your efforts. There was a Gross National Happiness session on the tools of GPI, and your book was also mentioned in that. Vermont has adopted what they are calling GPI Plus, to include additional social measurement; what you would call Genuine Wealth. The Summit was very encouraging. I went on from there to a Buddhist Mindfulness Community developing nearby in New Hampshire. I made my first real Social Investment by using a self-directed IRA to help with the roads. With metta,

    • Hi George, great to hear from you. I’m pleased Vermont is proceeding with GPI Plus (Did you know that the State of Maryland has also adopted the GPI supported by the State Governor O’Malley). I believe that is Josh Farley’s initiative (originally inspired by Costanza). . I was with Josh a few weeks ago at a future of money conference in Claremont,CA with my mentor John Cobb Jr. (co-author of For the Common Good with Herman Daly). Four of my colleagues just founded Genuine Wealth Institute to advance this new well-being economy and well-being analytics using the Genuine Wealth model. You may not know this but the original idea for Genuine Wealth accounting/assessment came out of my work on the US GPI for Redefining Progress in the late 1990s. It was something I actually pitched to Redefining Progress as their prospective director of sustainability measurement. Genuine Wealth is a more comprehensive accounting system for measuring and optimizing well-being out of which indicators like the GPI can be drawn. GPI as it is currently structured is a monetary metric of sustainability adjusting the GDP whereas the Genuine Wealth accounting model uses the conventional accounting structure of ledgers, balance sheet and income statement for well-being; the GPI is the ‘income statement’ portion of the Genuine Wealth accounting system. I find it increasingly useful to conduct full cost accounting of public policy issues as the GPI does. I’m curious about your Social Investment self-directed IRA and how it works. I’m involved in similar initiatives here in Edmonton. cheers!

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