If not GDP, what?
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COMMENTS 
GDP as a measure of progress is being shown the door. But what should take its place? Shruti Sharma reports on the Happy Planet Index and other proposals, but argues that retaining GDP but including within it additional natural capital flows might still be the best way to protect the environment
Many Asian nations, including India and China, have transformed themselves from agricultural economies into global manufacturing and economic powerhouses. The sustained and rapid economic growth resulting from this transformation has helped to lift some sections of the population of these countries out of poverty, improving their standard of living to varying degrees. But this success has been achieved at significant cost to the environment due to accelerated exploitation of natural resources and massive increases in pollutants.
China surpassed Japan as the world’s second largest economy recently to emerge as a superpower. But at what cost? Reports claim that environmental degradation is to blame for China’s recent flood disaster. The flooding, the worst for many years, caused devastation across a wide swathe of heavily populated and productive areas along the Yangtze, with huge economic losses. The director-general of China’s State Environment Protection Agency, Madame Liu Xiuru, admitted that the weather had only been a superficial factor. An official investigation in Beijing concluded that the real cause of the flooding was damage to the environment along the river banks. Deforestation robs the land of its ability to absorb and retain rainwater, and channels it into riverbeds. It also leads to soil erosion which causes riverbeds to rise.
So, can GDP (Gross Domestic Product) alone be a reason for nations to rejoice even as they suffer serious economic losses due to unsustainable development?
A UNEP study on sustainability points out that GDP is not a reliable indicator of happiness or satisfaction. The New Economics Foundation’s (NEF) Happy Planet Index -- calculated on the basis of high life expectancy, high life satisfaction, and low ecological footprint --
reveals that countries with the highest GDP do not rank the happiest (India ranks 35 amongst 143 nations, and Costa Rica tops the list of countries, with the US at 114). Many believe that countries ranked high on the happy index enjoy their status because their citizens lead more sustainable lives. The popular definitions for the latter focus on three key areas -- emissions, resource use, and waste -- that are easier for agrarian economies, that is, underdeveloped or developing countries, to adhere to and follow.
Our traditional definitions of rich versus poor are focused on degree and rate of consumption. An average American spends $7 on food every day compared to the $2 daily income of 70% of India’s population.
And herein lies the contradiction.
Broadly speaking, GDP measures the amount of goods and services produced in a given place (country, region, etc), in a given period of time (year, quarter, etc). Besides being used as a benchmark for international comparisons, it is also used to pilot important economic policies.
Those who use GDP as a good measure of economic progress forget that production is closely linked to destruction. In two ways:
- Production as measured by GDP is often just compensation for a previous destruction (think of booming activity after a flood). If lawyers prosper because there is more crime and more offences, does that mean the country is richer?
- Production is, by definition, destruction: destruction of human and natural capital. What about two countries achieving the same level of standard GDP but one of them doing so by exhausting its natural and human resources? It reminds us of those companies that report profits only by under-reporting depreciation of assets. The case is not just theoretical: Britain and France have roughly the same GDP but British workers work 25% more.
What would happen if we blindly continue using GDP?
Production of goods using non-renewable, energy-intensive methods is unsustainable. Resources will run dry, ultimately halting all production. Absence of recycling would mean that the waste generated from this greedy consumption cycle pollutes our ecosystem.
A new study by scientists at the Carnegie Institution finds that over a third of carbon dioxide emissions associated with the consumption of goods and services in many developed countries is actually emitted outside their borders. Some countries, such as Switzerland, “outsource” over half their carbon dioxide emissions, primarily to developing countries. The study finds that, per person, about 2.5 tonnes of carbon dioxide are consumed in the US but produced elsewhere. For Europeans, the figure exceeds 4 tonnes per person. Most of these emissions are outsourced to developing countries, especially China.
This starts a whole new debate. Developed countries in the West are outsourcing their emissions to developing countries in Asia. By allocating carbon emissions to particular products and sources, the study’s researchers were able to calculate the net emissions ‘imported’ or ‘exported’ by specific countries. It found that products imported by the developed countries of Western Europe, Japan and the United States cause substantial emissions in other countries, especially China. On the flip side, nearly a quarter of emissions produced in China are ultimately exported.
The real challenge
Over a third of carbon dioxide emissions linked to goods and services consumed in many European countries actually occur elsewhere. In Switzerland and several other small countries, outsourced emissions exceed the amount of carbon dioxide emitted within national borders.
Global dialogues on climate policy and emissions control aren’t concerned with the final consumption location of the emissions; rather, they focus on the emitting location. Explanations of trade and boundaries of final consumption during COP meetings are overlooked.
By continuing to use GDP as a benchmark, emissions will continue to spiral and natural resources deplete.
Is there an alternative?
The replacement for GDP is a tool that correctly indicates and measures sustainability. Does it make economic sense to dump an economics-based tool like GDP for an ecological measurement tool? Maybe.
Society is seen as imposing demands on the earth in the form of energy use, consumption, transport, and waste. Land is the ultimate resource capable of meeting these demands sustainably. If all demands could be converted into ‘land requirements’, these could be related to the available land area of a country, region or even city. ‘Ecological footprint’ is an accounting method that is used by environmental groups as a useful lobbying tool. It measures the biologically productive areas necessary to continuously provide their resource supplies and absorb their wastes under the prevailing technology.
The argument at the global level is that global demands cannot exceed global supply. And yet, not too long ago, the world’s ecological footprint was 1.8 times the available surface area -- an unsustainable outcome.
Comparing the ecological footprints of developed nations with their available biological capacity is a good indicator of the transfer of environmental currency resources. The world-average ecological footprint in 2006 was 2.6 global hectares per person. China stood at 1.8 (ecological footprint figures are in global hectares per person; figures are from 2006), India at 0.8, Japan at 4.1 and the Republic of Korea at 3.7. Compare this to the developed countries of the West -- the US has a footprint of 9.0 (which is double its capacity) and UK’s footprint is 6.1 (it exceeds its capacity by 4.5).
Developed countries in the West have exceeded their ecological footprint capacities by importing primary goods like fuel from developing and underdeveloped countries. The impact of trading primary commodities doesn’t only raise emissions levels it also results in the trading of unsustainability. By exporting primary goods, developing and underdeveloped countries are depleting stocks of their natural capital. But does that mean we require demand to be less than local supply for every country, region and city in the world? This would put an immediate stop to the manufacturing hubs of most Asian countries. No more cars from Korea, CDs from Malaysia, or laptops from India? Or does it justify China’s bilateral ties with African countries to import their primary commodities? Should we do unto others what was done to us?
It might not make complete economic sense to use ecological footprint as the sole indicator to measure sustainability. But it would be prudent to keep an eye on it.
A solution
It is a psychological flaw among humans to be able to value only what we can measure. Since we don’t measure our natural resources, we never seem to value our rivers, forests and our mineral-rich landscapes.
TEEB (The Economics of Ecosystems and Biodiversity) is an organisation that attempted to remedy this. It published a report that sought to put a value on ecosystems services like forests, lakes, soils, water quality, and fisheries. Coral reefs, for example, are calculated to provide annual services to humans worth $1.2 million per hectare. The report also explained how this value could be shown in a balance sheet. Planting and protecting nearly 12,000 hectares of mangroves in Vietnam costs just over $1 million but saved annual expenditures on dyke maintenance of well over $7 million.
Retaining GDP but including within it additional natural capital flows is still the best way to protect the environment. By assigning monetary value to the creation/depletion of natural capital, we can size and assess their unstated impacts on the economy, allowing for far more informed decision-making and public debate.
Another alternative to driving demand for lower emissions is making consumers aware. Informed choices by consumers change demand and supply. Eco labels are a form of sustainability measurement directed at consumers, intended to make it easy to take environmental concerns into account when shopping. From this emerges a carbon emissions label which describes the carbon dioxide emissions created as a by-product of manufacturing, transporting, or disposing of a consumer product. This information is important to consumers wishing to minimise their ecological footprint and contribution to global warming made by their purchases. In July 2009, Wal-Mart announced an environmental labelling programme for its products. Their aim is to create, over the next five years, a universal rating system that scores products based on how environmentally and socially sustainable they are over the course of their lives. By using such labels, governments in Asia can slowly modify demand for lower-emissions products and ensure that manufacturers monitor their emissions.
Asian countries need to stop using traditional benchmarks used by western countries to measure their success. Developing countries in Asia cannot allow themselves to commit the same mistakes the West made on their path to development. Asia will continue to be the future for increasing consumption and production. It was Asia’s rising consumption that led the world out of the economic recession of 2008. By focusing on developing cleaner technologies, not allowing the world’s waste to end up on Asia’s shorelines, investing in waste management technologies, and making consumers aware of their choices there is a real possibility of developing sustainably.
(Shruti Sharma works on the British Council’s climate change team. She has worked with the India Today Group, where she studied consumers and took notes. She now leads the media projects on climate change to increase the readership and viewership of climate change stories)
Infochange News & Features, January 2011