1st Apr 2023

Brussels wants greener, happier economic yardstick than GDP

  • Tashichoedzong, Thimphu, seat of the Bhutanese government (Photo: Wikipedia)

The traditional way to measure an economy - that triptych of letters, GDP, that regularly peppers the financial pages of the newspapers and the speeches of politicians - is getting a little outdated, according to the European Commission.

Instead, Brussels wants to come up with a new set of metrics that go beyond just what is valued by markets, and integrates those things that are a little less hard to pin a price tag on such as protecting the environment, an inclusive society and even happiness.

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Gross Domestic Product is a measure of a country's, or in Europe's case, a continent's economic performance represented by the market value of all final goods and services made in a year.

But, as the commission said in announcing a fresh effort to devise what it believes will be a better way of gauging progress, the price of ‘stuff' alone misses out on other qualities that a society may value.

"GDP was not intended to be a measure of well-being. It doesn't pick up on issues that are vitally important to the quality of our lives such as a clean environment, social cohesion or even how happy people are," the EU executive said in a statement on Tuesday (8 September).

"It is not in itself a sufficient guide for modern policy making that covers social and environmental objectives. This becomes a problem when GDP is understood as the unique yardstick for progress."

In a position paper submitted to member states and the European Parliament, the commission said it hopes to see the piloting of an environmental index, to be proposed in 2010, that will cover areas such as greenhouse gas emissions, loss of natural landscapes, air pollution, water use and waste generation. This would complement rather than replace GDP.

Brussels also plans to develop a "European Sustainable Development Scoreboard" in order to allow the identification of environmental trends and a benchmarking of best practices and is working to complement GDP and national accounts – which present production, income and expenditure in the economy – with environmental and social accounts.

The commission also wants to see more accurate reporting on inequality.

Alongside this, the commission says it aims to produce environmental and social data more rapidly. At the moment, this sort of data is usually published after two to three years while key economic figures are released after just a few weeks.

"When a country cuts down all its forests and sells them as timber, this will increase GDP," environment commissioner Stavros Dimas told reporters upon publication of the document, " but in the medium to long term, destroying this natural capital will not be beneficial for the country, the environment or the people."

"Hurricane Katrina caused some 1,800 deaths and over $100 billion in damages," the commissioner continued, giving another example of the blindspots of the GDP metric. "But the economic activity that followed as a GDP indictor showed positive growth."

Civil society groups have long criticised GDP as an accurate measurement of standard of living.

Primary amongst their arguments is that GDP does not take disparity in incomes between the rich and poor into account and ignores externalities such as damage to the environment.

The measurement is indifferent to what good or service is being produced, so lots of sick people requiring health care and medicines is seen as boosting economic activity even though this is not desirable.

And the measurement also excludes the vast array of activities that are not provided through the market, from housework often performed by women to the development of open source software, often produced by volunteers. If a government decides to switch to open source software from proprietary works produced by Microsoft for example, GDP actually records this as an economic decline. The underground economy is likewise ignored.

All talk

Despite the moves to develop a better ‘yardstick', some NGOs noted that talks on moving beyond GDP have been going on a long time and very little change has occurred.

"15 years have passed since initial discussions and we are no closer to implementing measures for environmental sustainability, societal progress and well-being," saidTony Long, director of green pressure group WWF's European Policy Office.

Mr Long also lamented that other indices developed by academics, such as its own metric, the "Living Planet Index", and the "Ecological Footprint" are not getting much of a look-in.

A world away, the Himalayan kingdom of Bhutan has for a number of years employed a metric it developed entitled "Gross national happiness" that considers living standards, health, education, eco-system diversity and resilience, cultural vitality and diversity, time, good governance, sense of community and psychological well-being - a set of indicators that is prioritised above GDP.

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