Why do we rely on GDP as a measurement of economic growth, when it continues to go up while communities continue to deteriorate?
“At present we are stealing the future, selling it in the present, and calling it Gross Domestic Product. We can just as easily have an economy that is based on healing the future instead of stealing it.” — Paul Hawken, 2009 Commencement Address to the University of Portland
Gross Domestic Product (GDP) is the traditional method of measuring economic growth. It has consistently risen over the years, supposedly demonstrating healthy expansion, but an increase in output does not necessarily mean a more vibrant community. GDP fails to account for the distribution of wealth across communities or the impact of production on the environment. It includes weapons, war and complex financial instruments – none of which create real value to society. GDP is an inadequate indicator at best, and if it keeps going up the consequences will be disastrous.
Profitability as the sole bottom-line also can create huge detrimental impact. Businesses focus almost exclusively on profitability (which is especially true for corporations who are required by law to attempt to yield higher returns for their shareholders) which often results in damaging social and environmental practices. For instance, hiring cheap labor in another country becomes a much more attractive alternative than employing someone who costs more and lives down the street because it saves the business money.
The money leaving the community can end up undermining local schools, business, infrastructure, food production, and home values while also undermining the communities in other countries who earn inadequate wages from off shore corporations.
The impacts of production on the environment are also often unaccounted for. A cheap sofa, for example, may appear to be the best option available to the consumer but the price fails to reflect the pollution emitted in the transportation process, the use of finite resources that were not revitalized by the company, and the long-term health effects on the producers, consumers, and the environment from the flame retardants sprayed on the sofa.
There are better alternatives. Check them out below.
Opportunity for new inclusive indicators that give humanity more accurate feedback, to ward off statistical manipulations, and grant the clearest, most accurate picture of the economic climate possible.
In order to have a healthy, thriving civilization it requires feedback that accurately assesses the state of communities, countries, regions and the world at large. GDP certainly doesn’t do that, but a number of new measurement systems do, and they seem to be improving all the time. The Genuine Progress Indicator and Quality of Life Indicators are two compelling models to learn from – you can explore them below. More and more businesses are adopting triple bottom line practices, accounting for ecological and social performance in addition to economic performance.
Genuine Progress Indicator (GPI)
The organization, Redefining Progress, has come up with an alternative to GDP, called the “Genuine Progress Indicator” that “takes inequality, environmental degradation, and debt into account as well as the benefits associated with housework, parenting, volunteering, and higher education.” [1] It periodically publishes this information, giving us a more accurate reflection of how we’re really doing. Redefining Progress also has guidelines and programs for creating community and regional indicators. Alberta, Canada has created a comprehensive indicator system for its own region, measuring up to 51 different factors including income distribution, crime rates, resource depletion, pollution, and much more.
Calvert-Henderson Quality of Life Indicators
The Quality of Life Indicators “are a contribution to the worldwide effort to develop comprehensive statistics of national well-being that go beyond traditional macroeconomic indicators. A systems approach is used to illustrate the dynamic state of our social, economic and environmental quality of life. The dimensions of life examined include: education, employment, energy, environment, health, human rights, income, infrastructure, national security, public safety, re-creation and shelter.” [2] This approach provides a much more comprehensive and accurate view of society which allows us to make more informed choices and adjust as needed.
What can you do?
Apply triple bottom line principles to your business and encourage those with whom you do business to do the same. Triple bottom line businesses account for the people, planet, and profit. To learn more about it, click here.
[1] http://www.rprogress.org/sustainability_indicators/about_sustainability_indicators.htm
[2] http://www.calvert-henderson.com/
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