GDP is a poor measure of progress – it increases as we destroy the natural capital of the planet.
We need economic growth, but we cannot continue to measure it using GDP. We need a ‘quality adjusted’ GDP linked to transactions which recognise how much social and natural capital they are building.
Although the International Energy Association reported that carbon emissions stabilised for 3 years in the 2014-2016, the best estimates for 2017, which are waiting formal confirmation, are that they increased 2%. This is in the context ofChristina Figueres, former chair of the UN Framework Convention on Climate Change, together with leading scientists, saying that we have “three years for carbon emissions to peak and drop rapidly to avoid catastrophic climate change”. That was June 2017. We now have two years.
Despite the urgency of the situation, we still talk about the economic and business case for sustainability. Let’s face it – there can be no economic (or indeed business case) for true sustainability until we start accounting for environmental and social impacts properly, systematically and fully. The system is rigged. It is not possible for us to live sustainably, let alone happily, whilst we are wedded to GDP growth.
No one has designed it, but the economic paradigm which has come to dominate has done so though the emergence of a set of self-reinforcing, interconnected and interdependent systems. A cycle of consumption and debt drives growth at all costs.
Money is lent to people and growth is needed to repay the debt created. Consumerism has emerged as the way to promote growth. The advertising industry has grown as it both promotes and benefits from consumerism– with advertising subliminally affecting our brains and stimulating the parts of our brains which make us unhappy by telling us that we, or our lives, are not good enough. We try to relieve the pain of being told we’re not good enough through retail therapy – by buying things or experiences. We borrow money to pay for our retail therapy and increase indebtedness. Back to where we started. And to cap it all, political systems are geared towards driving GDP growth and are increasingly dependent on money for their survival.
Like a building cyclone, this super-system gains energy, commandeers resources, depletes the planet’s resources, pollutes it and, because of the way we create money, accumulates wealth in the hands of few. Whilst some people benefit more than others, no one is in control. Everyone is a victim. Even our brains and the connections created within it have been co-opted to become part of this super system.
This paradigm, which continues to grow, regardless of the environmental or social cost – most notably climate change and growing wealth inequality. Adam Smith’s “invisible hand” is not working in the way we need it to work. The problem runs deep and can’t be solved unless we look at the world differently.
Let us promote enterprise, reward wealth creators and recognise the role of market. But wealth creation is not just the creation and accumulation of financial capital – it is also the creation of environmental and social capital.
Already there are good methodologies for measure true progress. For example, the Genuine Progress Indicator , or GPI, takes GDP and corrects it for various social and environmental factors such as inequality, costs of underemployment and costs of pollution. I like to call indicators such as GPI, Quality Adjusted GDP and we certainly should start using them.
Will it be enough to start using Quality Adjusted GDP? May be. We can use them to communicate failures in our economy hidden by GDP and to correct these market failures through government regulation, taxes and incentives, for example by banning polluting activities or setting minimum wages – but these measures can be crude, blunt, depend on political will and public goodwill.
But we can do better. Imagine, instead, using information which already exists to track every transaction in our economy on the basis of the good it is doing (ie how much it contributes to social and environmental good), as well as the value it brings it brings to the two parties in the transaction. When I buy a cup of organic, fairtrade coffee, I am not only serving a selfish want for coffee and the barista’s need to earn a living, but I am also building environmental and social capital. I may feel a reward from the warm glow inside from helping a coffee farmer and helping environment, but I am not rewarded in any formal sense. Now if I buy a cheap cup of non-organic, non-fairtrade coffee, I am rewarded by paying less even though I am freeloading by depleting social and natural capital.
On a small, increasingly interdependent and interconnected world facing social and environmental crises, this is no longer acceptable.
Today we could, if we wanted, ‘quality adjust’ every product or service transacted in our economy based on its contribution to doing good, ie building social and natural capital: what I like to call ‘Quality Adjusted Dollars’ recognising that not every dollar transaction has the same value or quality. A dollar spent on renewable energy invests in the future, while a dollar spent on fossil fuel energy depletes it. Thus, conceptually we can, as economists, say “integrate the externalities” – but crucially at the point of transaction, rewarding good transactions in such a way that our brains are stimulated to do good.
We can further imagine adding all these quality adjusted transactions together, giving us the sum total of activity as a Quality Adjusted GDP. This will link the money in people’s wallets with a national and global indicator of genuine progress.
If we get this right, not only can we heal the damage we have done to the planet and to parts of our society, but we can regenerate them and let them evolve freely into the future in ways we cannot imagine – but in ways which we can trust.
A pipe dream? Of course, creating such a system is not trivial, but we can easily conceive of it given the way digital technology is developing. What a wonderful world that would be: people purchasing what they need or want at the same time as being rewarded for being good, directly in proportion to the good they are doing.
We have the opportunity to harness technology to make Adam Smith’s Invisible Hand visible – and infinitely more powerful at the same time.
We have no time to lose. It is time to shift the paradigm and to create a market where social and environmental externalities are completely internalised, right down to the level of the transaction. It is time to change the rules of the game and reward people for doing good.
About the Writer:
Pooran Desai, Co-founder, BioRegional Development Group