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.
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- 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