GDP misses critical information on trends
By Hazel Henderson
The GDP results, however revised for the final quarter of 2010, will remain unreliable in charting recovery and progress in Europe, the USA and most other countries. GDP is now a Grossly Distorted Picture! The new survey Beyond GDP, for release by GlobeScan and Ethical Markets (USA and Brazil), polled in Australia, Brazil, Canada, China, France, Germany, India, Italy, Kenya, Russia, the UK and USA, reaffirms the large majorities favoring reform of money-based GDP with many available indicators of health, education, infrastructure, poverty gaps and environmental quality found in their 2007 survey for the European Commission.
Statistical agencies are still on automatic pilot, grinding out GDP, an inaccurate “rearview mirror,” omitting vital indicators of future trends. The chorus of critics of “GDP fetishism” now point to many more accurate indicators forecasting national wellbeing, 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 Wellbeing.
The Beyond GDP survey’s implications 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, as I reported. The Commission made a good start – but did not address the worst aspect of GDP’s distorted picture: the lack of an asset account. This continues GDP’s over-statement of indebtedness, still causing trouble in EU countries, including Ireland, Greece, Portugal, Italy, Spain and recently Belgium – not to mention the USA (with many states facing deficits). So, the Grossly Distorted Picture in current GDP only records levels of public debt for vital infrastructure and public services (police, fire protection, teachers, etc.). Omitted is an asset side to account for valuable taxpayer investments in public infrastructure: transport, ports, railways, schools, etc., many of which last for over 50 years and should be carried on the books, just as they are on corporate balance sheets. Imagine trying to run a company this way!
If GDP included an asset account (as many economists favor [see my “Statisticians of the World United!”]) this would reduce nations’ perceived public debt levels substantially – and so also reduce their interest rate on sovereign bonds! Instead, financial markets and “bond vigilantes” are buying credit default swaps (CDSs), speculating that several EU countries will default and betting on the fate of the euro. This raises interest rates on sovereign bonds and “deficits” even higher – leading to tragic, unnecessary “austerity” cuts.
Reasons this “GDP fetishism” continues include deregulation, the growing influence of money and finance in politics. Special interests and their allies in politics and in ministries of finance, economic development, trade, central banks and stock markets grew to dominate governments’ policies. They focus on 24-7 global stock and bond markets in mainstream media. Financial players benefit from GDP measures of growth, which ignore future trends, infrastructure, social and environmental costs, while mainstream economists claim fixing GDP is too difficult.
Yet, many companies, CSR and SRI investors have shifted to “triple bottom line” accounting. They and the public in this survey can see real wealth and the bigger picture: well trained work forces, efficient public infrastructure and productive ecosystems in EU and other countries – all counted at zero in GDP!
GDP’s macro-economic, money-denominated, over-aggregated methods ignore “externalities”… a relic unnecessary in our Internet age, which enables multi-disciplinary “dashboards” of indicators and metrics. GDP is superseded by these new systemic scorecards (www.calvert-henderson.com and www.greentransitionscoreboard.com) – with websites displaying all vital areas of quality of life and true progress.
About Hazel Henderson
Hazel Henderson, author, president of Ethical Markets Media (USA and Brazil), co-developed with the Calvert Group the Calvert-Henderson Quality of Life Indicators (updated regularly at www.calvert-henderson.com) and co-authored “Qualitative Growth” (2009), Institute for Chartered Accountants of England and Wales (www.icaew.com), downloadable at www.ethicalmarkets.com, and advises many projects and conferences including the European Commission’s Beyond GDP, November 2007, and its first survey in 10 countries by Globescan and Ethical Markets Media.
Talkback Reader: How would you fix GDP? Does your company use triple-bottom accounting? If not, why not? Share on Talkback!