These are the original 1999 US Genuine Progress Indicator Reports that I prepared for Redefining Progress, an economic think-tank based in San Francisco.
“Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information.”
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.