GPI: Surpassing GDP as a measure of welfare.
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At the very beginning itself, Simon Kuznets, widely accepted as the creator of GDP, cautioned the world by stating, “the welfare of a nation can scarcely be inferred from a GDP” (Kuznet 1934). Regardless, GDP is regularly referred by leading economists, politicians, top-level decision makers, and the media as though it represents overall progress or welfare. For example, a report released by the World Bank says that nothing besides long-term high rates of GDP growth can solve the world’s poverty problem (Commission on Growth and Development, 2008). Politicians love nothing more than to boast about the “booms” and “expansions” that GDP registers on their watch. They all promise "rapid" or "double-digit" yearly increases in the GDP, as if that is an unquestionably desirable thing. GDP rankings of countries are taken as primary scorecard of nation’s economic health and well-being. The greater the GDP, and especially the faster it grows, the better a country is said to be doing. No wonder, economic policies for more than a half century have typically concentrated on increasing GDP only. But now, it is being realized that GDP is a flawed measure of welfare. It is simply a tally of all monetary exchanges that take place in a given year. As such, it does not differentiate between economic activities that add to our well‐being and ones that undermine our quality of life. In this way, needless expenditures triggered by crime, accidents, toxic waste contamination, preventable natural disasters, prisons and corporate fraud count the same as socially productive investments in housing, education, healthcare, sanitation, or mass transportation. Many attempts have been made to redefine progress, and replace GDP with new indicators of progress and welfare. In the international community, perhaps the biggest nudge has come from French President Nicolas Sarkozy, who commissioned a report by marquee-name economists, including Nobel laureates Joseph Stiglitz and Amartya Sen, to find alternatives to what he calls "GDP fetishism". One of the most advanced and commonly discussed indicators among these alternatives is GPI. It is designed to take fuller account of the health of a nation's economy by incorporating environmental and social factors which are not measured by GDP. It attempts to shift prevailing definition of progress from economic growth to people's sense of quality of their lives. The GPI assigns value to the life-sustaining functions of households, communities and the natural environment so that the destruction of these and their replacement with commercialized substitutes, no longer appears as growth and gain. This seminar deals with the limitations of GDP as a measure of welfare and gives a brief overview of GPI. Important studies related to calculation of GPI for various parts of the world are also presented.
Transcript of GPI: Surpassing GDP as a measure of welfare.
- 1. GPI SURPASSING GDP AS A MEASURE OF WELFARE PRESENTED BY GUNJAN BHANDARI MAJOR ADVISOR Dr. B.V. CHINNAPPA REDDY
- 2. OUTLINE GDP and welfare GDP boosters and diminishers GPI : Overview Formula of GPI Components of GPI Applications of GPI Conclusion 2 3/3/2014
- 3. GDP DEBATE TAKES VIOLENT TURN, AS BOTH PARTIES FIGHT OVER IT 3 3/3/2014
- 4. 4 3/3/2014
- 5. WHAT IS GDP? GDP = GROSS + DOMESTIC + PRODUCT Gross Domestic Product is the market value of all final goods and services produced within a geographical entity within a given period of time. 5 3/3/2014
- 6. WELFARE/ WELL BEING/ DEVELOPMENT/ PROGRESS Etymology : Old English wel faran "condition of being or doing well. Availability of resources and presence of conditions required for reasonably comfortable, healthy, and secure living. Comprises our physical, mental, spiritual health, the social cohesion of our households and communities, and the integrity of the natural environment. 6 3/3/2014
- 7. BOOSTERS AND DIMINISHERS 7 3/3/2014
- 8. THE STABILIZER CASE 8 THE LAWYERS CASE THE GANGES CASE 3/3/2014
- 9. 3/3/2014 Source: Deutsche Bank Research, 2007 Fig. 1: Elements of happiness and well-being. Not everything that counts can be counted, and not everything that can be counted counts. (Albert Einstein) 9
- 10. If the GDP doesnt count them, does the GDP counts?? 10 3/3/2014
- 11. THEN WHAT NEXT???? 11 3/3/2014
- 12. BALANCE BETWEEN ECONOMIC ENVIRONMENTAL SOCIAL GPI 12 3/3/2014
- 13. . 13 Source: Kubiszewski et al., 2013 3/3/2014 Fig. 6: Trends in global GPI/ capita and global GDP/capita
- 14. GPI : OVERVIEW Genuine Progress Indicator Quantity and quality. Comprehensive indicator. Proposed in 1989 by Daly and Cobb in their book For the Common Good. Renamed by Redefining Progressin1995. NGOs and academic interest. 14 3/3/2014
- 15. FORMULA OF GPI GPI+ W D+ G + W -N S E - N = Cadj S E D Where Cadj = personal consumption expenditures adjusted for income inequality, G = non-defensive government expenditures, W = non-monetarized contributions to welfare, D = defensive private expenditures, S = social cost E = costs of environmental degradation, and N = depreciation of natural capital base. 15 3/3/2014
- 16. Table 1: Components of the .Genuine Progress Indicator ECONOMIC Personal consumption expenditures (+). Income inequality (+/-). Adjusted personal consumption. Services of consumer durables (+). Cost of consumer durables (). Cost of underemployment (-). Net capital investment (+/-). Cost of water pollution (-). Value of house work (+). Cost of air pollution (-). Cost of family changes (-) Cost of noise pollution (-). Cost of crime (-). Cost of net wetlands change (-). Cost of personal pollution abatement (-) Cost of net farmland change (-). Value of volunteer work (+). Cost of net forest cover change (-). Cost of climate change (-). Cost of ozone depletion(-). Cost of nonrenewable energy source depletion (-). 16 SOCIAL ENVIRONMENTAL Cost of lost leisure time (-) Value of higher education (+). Services of highways and streets (+). Cost of commuting (-). Cost of motor vehicle crashes (-). Source:http://www.green.maryland.gov/mdgpi/indicators.asp 3/3/2014
- 17. IMPORTANT STUDIES 17 3/3/2014
- 18. STUDY-I WORLD SCENARIO 18 3/3/2014
- 19. Table 2: Studies of the GPI at the national scale listed by country. Sl. No. Country Study Study period 1 Hamilton, 1997 1950-1996 Hamilton, 1999 1950-1996 Hamilton and Denniss, 2000 1950-2000 Lawn 2008 1967-2006 Australia 2 Austria Stockhammer et al., 1997 1955-1992 3 Belgium Bleys, 2006 1970-2000 Bleys, 2008 1970-2004 4 Castaneda, 1999 1965-1995 5 China Wen et al., 2008 1970-2005 6 Czech Republic Scasny, 2002 7 France Nourry, 2008 1990-2002 8 Germany Diefenbacher, 1994 1950-1990 9 India Lawn, 2008 1987-2003 10 19 Chile Italy Guenno and Tiezzi, 1998 3/3/2014 1960-1991
- 20. Sl. No. Country Study Study period 11 Makino et al., 2003 1955-2000 Makino, 2008 1970-2003 Rosenberg and Oegema, 1995 1950-1992 Bleys, 2007 1971-2004 Forgie et al. 2008 1970-2005 Forgie et al. 2007 1970-2005 12 13 Japan Netherlands New Zealand 14 Poland Gil and Slezynski, 2003 1980-1997 15 Scotland Moffatt and Wilson, 1994 1980-1991 Hanley et al. 1999 1980-1993 Jackson and Stymne, 1996 1970-2005 Jackson and Stymne, 1996 1950-1992 16 Sweden 3/3/2014 20
- 21. Source: Posner, 2010. Sl. No. Country Study Study period 17 Thailand Clarke and Islam, 2004 1975-1999 Clarke and Shaw, 2008 1975-2004 Jackson and Marks, 1994 1950-1990 Jackson, 2004 1950-2002 Anielski and Rowe, 1999 1950-1997 Venetoulis and Cobb, 2004 1950-2002 Talberth et al. 2007 1950-2004 18 19 UK US 20 Vietnam Hong et al. 2008 1992-2004 21 Wales Midmore et al. 2000 1970-1996 Matthews et al. 2003 1990-2000 Jones et al. 2007 1990-2005 21 3/3/2014 Source: Posner, 2010.
- 22. 8 9 10 11 12 20 15 16 17 18 19 13 14 2 1 12 France 13 Netherland 14 Italy 15 Poland 16 Germany 17 Czech Republic 18 Belgium 19 Austria 21 20 USA 21 Chile 22 5 4 1 India 2 China 3 Japan 4 Vietnam 5 Thailand 6 Australia 7 New Zealand 3 8 Sweden 9 Scotland 10 UK 11 Wales 6 Fig. 3: Countries for which GPI study has been done. 7 3/3/2014 Source: Presenter.
- 23. 23 Source: Kubiszewski et al., 2013. Fig. 4: Trends in GDP/capita for 17 countries. 3/3/2014
- 24. 24 Source: Kubiszewski et al., 2013 Fig. 5: Trends in GPI/capita for 17 countries. 3/3/2014
- 25. Source: Kubiszewski et al., 2013 Fig. 6: Trends in global GPI/ capita and global GDP/capita. 25 3/3/2014
- 26. Source: Kubiszewski et al., 2013 Fig. 7: A plot of global GDP/capita versus estimated global GPI/capita. 26 3/3/2014
- 27. Source: Kubiszewski et al., 2013 Fig. 8: Comparison of trends in Japanese GDP/capita and GPI/capita. Indexed to 1990 = 100 27 3/3/2014
- 28. STUDY II THE STORY OF MARYLAND 28 3/3/2014
- 29. The story begins.. Chesapeake Bay : largest and most productive 29 estuarine systems in the world. Value: Between $360 million and $1.8 billion (2001). Marylands fisheries : $1 billion to the states economy, sustained around 4,000 jobs, and generated more than $22 million for government coffers. (2005) 3/3/2014
- 30. Constant threat from population growth, land conversion, and short-term economic pursuits. State of the Bay Report,2010: functioning at 31 percent of its historical potential. University of Maryland gave the Bay : Grade C- 2010. 2004 : Bays cleanup cost at $28 billion. MDNRE : 2011 budgets ,around $575 million. 30 3/3/2014
- 31. GPI GAINED MOMENTUM Proper welfare indicator. Composite index. Familiar terms and issues. Data available, recognized, and accepted. Easily convey the core elements of sustainability. Link between past and future. 31 3/3/2014
- 32. PLANNING... State and Center for Integrated Environmental Research (CIER) at the University of Maryland, College Park. Working group : State agencies such as business and economic development, natural resources, and crime prevention. 32 3/3/2014
- 33. EXECUTION Calculated the MD-GPI from 1960 to 2010. Model from 2010 to 2060. Evidence of the validity of Marylands GPI results: Close fit. February 2010, the MD-GPI was publicly unveiled accompanied by web based interactive tool. 33 3/3/2014
- 34. RESULTS Source: http://www.green.maryland.gov/mdgpi/indicators.asp Fig. 9: Trends in GDP and GPI of the State of Maryland 34 3/3/2014
- 35. Fig. 10: Web- based interactive tool launched by the State of Maryland. 35 3/3/2014
- 36. USING THE INDICATOR... Inducing parallel policy efforts in pursuing a more 36 restorative, healthy economy. Planning and land-use decisions. Promoting private ventures in environmental restoration. Assess and rank proposed funding projects. State purchasing the land. 3/3/2014
- 37. HOPES GPI outpace the GSP around 2025. By 2060, the difference between the two metrics will be in billions of dollars. 37 3/3/2014
- 38. STUDY- III GLIMPSE OF INDIA 38 3/3/2014
- 39. GENUINE PROGRESS IN INDIA Lawn,2008 : 17 years (1987-2003) b. 5 parameters: Weighted consumption expenditure. Services by infrastructural capital. Value of unpaid labor. Social cost. Value of lost natural capital services. a. 39 3/3/2014
- 40. STUDY LIMITATIONS Value of volunteer labor was excluded. Cost of underemployment was excluded. Cost of family breakdown was overlooked. 40 3/3/2014
- 41. 9000 8000 BILLION RUPEES (1993) 7000 6000 WCE 5000 SIC UL 4000 SC NCD 3000 2000 1000 0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 YEARS 41 Fig. 11: Trends in major components of GPI of India. Source: Presenter. 3/3/2014
- 42. 16000 14000 12000 RUPEES (1993) 10000 8000 GPI pc GDP pc 6000 4000 2000 0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 YEARS 42 Fig. 12: Trends in GPI/capita and GDP/capita of India. Source: Presenter. 3/3/2014
- 43. 9000 8000 7000 6000 GPI/capita 5000 GPI pc vs GDP pc 4000 3000 2000 1000 0 0 2000 4000 6000 8000 10000 12000 14000 16000 GDP/capita Fig. 12: A plot of GPI/capita versus GDP/capita of India. All data are in 1993 rupees. Source: Presenter. 43 3/3/2014
- 44. IMPLICATIONS Approaching threshold level. Higher GPI : Lower population, better quality output and better equity. Maintaining moderate GPI : Population stabilization, increase resource use efficiency, limit natural capital depletion & ensure equitable distribution of its growth in economic output among its citizens. 44 3/3/2014
- 45. CONCLUSION Economic growth has become desirable by definition. GDP has become the de facto universal metric for 45 'standards of living'. Time to go beyond GDP. GPI provides an alternative to GDP. Alternative measures needs to be supported by media, international organizations and policy makers. India also needs to quicken its pace and move forward in the way of sustainability. 3/3/2014
- 46. 46 3/3/2014
- 47. THANKS The day will come when nations will be judged not by their military or economic strength, nor by the splendour of their capital cities and public buildings, but by the well-being of their people: by their levels of health, nutrition and education; by their opportunities to earn a fair reward for their labours; by their ability to participate in the decisions that affect their lives; by the respect that is shown for their civil and political liberties; by the provision that is made for those who are vulnerable and disadvantaged; and by the protection that is afforded to the growing minds and bodies of their children. (United Nations Childrens Fund (UNICEF), The Progress of Nations, 1998) 47 3/3/2014
