GDP: Misleading governments, banks
Statistical agencies use GDP, an inaccurate way that omits vital indicators of future trends.
The Gross Domestic Product (GDP) results for the final quarter of 2010 are an unreliable gauge of recovery and progress in Europe, the US, China, Brazil, and most other countries.
A new survey by GlobeScan and Ethical Markets, titled ‘Beyond GDP,’ reaffirms that large majorities favour reforming the money-based GDP economic yardstick and adopting many of the available indicators of health, education, infrastructure, poverty gaps, and environmental quality found in the survey for the European Commission. Yet statistical agencies still use GDP, an inaccurate ‘rear view mirror’ that omits vital indicators of future trends.
The chorus of critics of ‘GDP fetishism’ now point to many more accurate indicators forecasting national well-being, sustainability, and quality of life. Britain's David Cameron has ordered his office of national statistics to develop new measures by 2012, similar to Canada's Index of Well-being.
The survey's conclusions mirror those of the 2009 Stiglitz-Sen commission to French president Nicholas Sarkozy: that GDP had become a ‘fetish’ and it was time to move on. Reasons for the continued use of GDP include deregulation and the growing influence of money and finance in politics. In OECD countries, special interests and their allies in politics and in ministries of finance, economic development, trade, central banks, and stock markets grew to dominate government policies.
The survey showed that many companies, investors, and much of the public recognise that in GDP a well-trained work force, efficient public infrastructure, and productive ecosystems are all counted at zero.
The fallout from the continued reliance on GDP is considerable: as deregulation and privatisation became widespread, infrastructure (ignored in GDP) was short-changed, while ministries of education, health, social welfare, consumer, and environmental protection lost influence. Their support and that of NGOs for overhauling GDP accounts was insufficient to breach the bastions of macroeconomics.
In the 1992 Earth Summit in Rio, 170 countries signed Agenda 21 Article 40 and so pledged to overhaul GDP to reflect infrastructure, social capital, unpaid work, and environmental assets. Indicators proliferated on infrastructure assets, environmental quality, resource depletion, loss of biodiversity, public health, access to clean water, education, poverty gaps, social welfare, and quality of life.
Yet, all these well-researched indicators have remained sidelined from GDP accounting and designated ‘satellite accounts,’ which devalued their importance and relegated them to academia, NGOs, and the margins of society. mass media, financed by advertising, still focuses on driving mass consumption, GDP, and other macro-economic indicators.
Stressing the need for ‘faster growth,’ most fail to clarify that they and politicians use GDP-growth as the tacit definition of overall progress. Other indexes of national progress include the UN's Human Development Index since 1990, the Living Planet Index of WWF, and the Ecological Footprint to measure global conditions.
Meanwhile, the rise of socially-responsible business and investment has led to new corporate accounting standards -beyond earlier ‘efficient market’ models- to measure performance by environmental, social, and governance standards (ESG), the ‘triple bottom line.’
The new breed of micro-economists corrected company balance sheets and incorporated the new indicators. But macro-economists, the fossilised incumbent industries they serve, and their allies in politics and government agencies still seek to preserve their freedom to externalize social and environmental costs. They benefit from the view of progress in GDP-measured growth.
Thus, our economies continue to pump out carbon and other pollutants while ignoring social and environmental assets, hiding poverty gaps as well as infrastructure assets, all of which are missing in GDP. Financial markets wager on the future of the euro and bet on member countries’ sovereign bonds, while demanding ‘austerity,’ forcing taxpayers to pay again for bankers' follies. Calls by European leaders for bondholder ‘haircuts’ are fiercely opposed.
As distrust, anger, resentment at the unfairness of the bailouts emerge in the US and Europe, indicators on public infrastructure, environment, health, education, and quality of life are even more important for our future. Nations can find new paths out of austerity and recession as casino finance is curbed and returned to its former, proper role in serving the world's real economies.