Beyond GDP Indicators: Covid-19 and the Opportunity of a Greener Recovery

Ian Granit

June 24, 2020

 

The Covid-19 pandemic has caused and continues to create immense suffering. One positive aspect arising from the pandemic, at least for environmentalists, was the initial environmental impacts. A shut-down of economic activities significantly reduced emissions and pollution, receiving praise in the media. Once countries started opening up again, the temporary environmental benefits quickly disappeared. Furthermore, it became evident that the environmental benefits had not been as great as initially estimated. To create a sustainable future, completely stopping social life is not the solution. A reconstruction of our socio-economic system is needed instead.

There are numerous root-causes to why our current socio-economic system creates immense environmental degradation. One is how we measure progress on a national and global scale. Measuring progress is critical and can help governments evaluate their policies and whether their citizens' lives improve. When measuring progress, national performance indicators are common. The current most widely used performance indicator is the Gross Domestic Product (GDP). Measuring a country's progress using the GDP indicator, however, has serious flaws.

The development of the GDP indicator occurred in the 1930s and 1940s, after the great depression. GDP was an innovative and well-thought-out measurement and a sign of progress. Increased economic activity was associated with providing employment and income, whereas the GDP indicator measures the levels of goods and services produced – a critical factor when measuring economic activity. However, Simon Kuznets, the inventor of the GDP indicator, did warn about using GDP to measure citizen welfare. Kuznets recognized that GDP did not measure everything humans value. In today's world, the emphasis on GDP fuels environmental and social instability while limiting countries' ability to achieve sustainable development.

GDP primarily measures the total value of a nation's goods and services. However, it ignores social costs, environmental impacts, and income inequality. For example, GDP positively accounts for the number of cars produced, but not for the subsequent emissions. The cleaning up of pollution is, however, accounted for, since it creates economic output. Both the creation and cleaning up of pollution hence accounts as positive progress according to the GDP indicator.

Since the 1930s and 1940s, researchers have created substantial improvements to progress indicators. Moreover, several national governments consider using GDP alternatives to measure progress. Such increasing consensus of the GDP indicators' inability to fully measure a country's progress creates an opportunity for other welfare indicators to take hold. In a post-Covid-19 world, and as part of a greener recovery package, governments should combine their efforts and solve such root causes of environmental degradation and inequalities.

The Genuine Progress Indicator (GPI) is an alternative macroeconomic indicator to GDP. The GPI takes everything GDP use into account but adds figures that represent the adverse effects related to economic activity, i.e., the externalities. The GPI metric attempts to measure whether the environmental impact and social costs of economic production and consumption are positive or negative in overall health and wellbeing, e.g., the cost of ozone depletion, natural resource depletion, or crime. Both the United States and Canada calculate GPI; however, due to the widespread use of GDP, the US and Canada still report their economic performance in GDP. In the United States, Maryland, Vermont, Washington, and Hawaii have passed state government initiatives to consider GPI in government planning.

Besides GPI, other government initiatives are emerging around the world to substitute or replace GDP. Iceland, New Zealand, and Scotland officially launched the Wellbeing Economy Governments partnership (WEGo) in November 2018, reinforced by the OECD. The WEGo partnership attempts to initiate progressive means to contribute to people's wellbeing through a low-impact economy with high living standards. Instead of replacing the GDP, the WEGo initiative aims to go beyond the sole use of the GDP as a key parameter and implement new environmental and social indicators in the countries planning process.

The Kingdom of Bhutan was the first nation to test a Gross National Happiness (GNH) Index in 2008. The GNH measure factors such as psychological health, living standards, community vitality, and environmental and cultural resilience. Such indexes allow national governments to evaluate whether their economic production improves people's lives or if they should rethink certain public policies. India launched an Ease of Living Index (EoLI) and Municipal Performance Index (MPI) at the end of 2019 to assess whether the cities in India make progress. The EoLI three main criteria are quality of life, financial ability, and sustainability, with 14 further subcategories and 50 indicators.

The United Kingdom produced the Measuring National Well-Being Program (MNWP) in November 2010. The MNWP includes indicators covering health, social relationships, economic security, education, the environment, and subjective wellbeing measures. Furthermore, the UK uses the indicators to examine whether the environment improves according to the Draft Environment Bill and the 25 Year Environment Plan. Sixty-five system indicators and 15 headlines compose the framework and serve as a comprehensive attempt to estimate whether the UK makes societal and environmental improvements.

Moreover, international organizations attempt to help countries improve the way progress is measured. The United Nations developed the Human Development Index (HDI) to emphasize that people and their capabilities should be the criteria for assessing a country's development, not solely focusing on economic growth. The HDI does, however, not account for environmental sustainability. To incorporate the sustainability dimension of development, Biggeri and Mauro (2018) introduced an expanded version of the HDI – the Sustainable Human Development Index (SHDI) in their article "Towards a more 'Sustainable' Human Development Index: Integrating the Environment and freedom" in the journal Ecological Indicators. The SHDI adds environmental and freedom indicators to the index, allowing an assessment of how countries perform regarding environmental protection, human rights, and civil and political rights.

Both national governments, international organizations, and researchers are making adequate attempts to go beyond GDP to measure progress. Such attempts are critical to reconstructing nations and our global society. Changing how a society's progress is measured would significantly improve the way people view environmental degradation and social issues and help governments evaluate and improve their policies. The Covid-19 pandemic causes immense suffering and disarray in our societies but offers an opportunity for new thinking and subsequent societal improvements. Since several governments, researchers, and scientists emphasize green recovery packages, such green recoveries should include improvements in how we measure a country's progress. Instead of using an almost century-old measurement, which was initially not intended to estimate welfare, an index or indicator adjusted to the 21st century should be implemented. The impact of this would ensure that citizens became increasingly aware of whether their governments improve their nation, and would help governments make better policy decisions.

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