Media Clipping — June 5, 2004, Saturday Night Magazine

Measurement Matters

By Sean Butler

In a world divided by religion, politics, and culture, there is at least one thing that unites us. From Washington to Pyongyang, Bombay to Berlin, Mecca to Rome, government and business the world over worship this one thing with absolute devotion. Legions of acolytes track its progress and prophesize its future course, believing wholeheartedly that growth in this thing is the road to salvation, and decline in it the path to damnation. This thing is a number. The number is Gross Domestic Product.

Often thought of as the total value of all the goods and services produced in a country in one year, it is also a measurement of the total income or total expenditures of a country; the three different ways of looking at it yield nearly equal results. Basically, GDP can be thought of as an indicator of the amount of economic activity going on in a country. We call an increase in activity "economic growth" and a protracted slowdown in that increase a "recession". GDP is the pulse of the economy, and Statistics Canada takes it once a month.

Although GDP was never intended as a measure of societal well-being, the belief that economic growth equals an improved quality of life is a widely accepted truism. While GDP is good at what it does - adding up economic activity - equating mere activity with well-being is problematic. "There is probably no more pervasive and dangerous myth in our society than the materialist assumption that 'more is better'," writes Canadian political scientist Ron Colman. He points out the obvious: "The GDP is a quantitative measure of size. How can that, by definition, measure quality of life?"

John Kenneth Galbraith recently highlighted the shortcomings of GDP as one of the most important issues of "unfinished business" facing economics. Roy Romanow makes his opinion of GDP clear when he calls it the "Gross Distortion of Prosperity". And even our new PM, Paul Martin, commented in his 2000 budget speech that, "the current means of measuring progress are inadequate."

But criticisms of the limitations of GDP are nothing new; they go all the way back to its conception, in the Second World War. Nobel Prize winning economist Simon Küznets, the GDP's principle architect, became one of its most vocal critics. He cautioned that, "the welfare of a nation can scarcely be inferred from a measurement of national income as defined by the GDP," and spent much of his life advocating reform of the framework he had helped to create.

GDP diverges from actual well-being in two major ways. First, it counts as "progress" things that any common sense definition of the word would exclude; pollution, divorce, problem gambling, security costs, disease, loss of free time - all these cause an increase in spending, and a corresponding rise in GDP. The Exxon Valdez oil spill contributed more to Alaska's GDP - in spending on clean-up costs, lawsuits, and media coverage - than the oil itself would have had it been delivered safely to port. Car crashes alone add $57 billion a year to the U.S. economy - making it an "industry" of equivalent value to Canada's entire agriculture, forestry, fishing, hunting, mining, oil, and gas sectors combined. "The nation's central measure of well-being," write Clifford Cobb, Ted Halstead, and Jonathan Rowe in the Atlantic Monthly, "works like a calculating machine that adds but cannot subtract." As the magazine Adbusters is fond of chiding, "Economists must learn to subtract."

The second main digression GDP makes from true well-being is to exclude every contribution to society made outside of the market. There's a lot more that can't be bought besides love: strong families, robust communities, healthy ecosystems, fit bodies, wise hearts. As Robert Kennedy once observed, the GDP "measures everything, in short, except that which makes life worthwhile."

Sometimes referred to as the "love economy", volunteering and household work contribute the equivalent of an estimated $325 billion a year in services to Canadians - one-third our GDP. "In Canada," says Colman, "we've seen a 12.3 percent decline in volunteer work, and it's not a blip on the radar screen of any policy-maker because no money changes hands."

Similarly, the contributions of the natural environment go unnoticed and unappreciated. For instance, forests are typically valued only for their GDP-boosting timber. But if we consider their value in protecting watersheds and biodiversity; guarding against erosion and flooding; regulating climate and sequestering carbon; and providing recreation and spiritual enjoyment, we might think twice about cutting them down.

"Parents do real work," writes Canadian economist Mark Anielski. "So do neighbours, communities, open spaces, rivers and oceans, the atmosphere, and trees. Anyone who doubts this might try getting along without them... Yet the GDP regards these life-sustaining functions as worthless." Because these services are performed outside the monetized economy, we tend to assume they are less important - if we even think about them at all. They are then more easily sacrificed, in the name of continued economic expansion.

"Much of what is recorded as economic growth," writes Colman, "is merely a shift in work from the unpaid household economy to the paid economy." Ditto for the ecological economy. Parenting becomes childcare, shade trees become air conditioners, road hockey becomes PlayStation, clean water becomes a Brita filter, community cohesion becomes locks on the door, and free time becomes a second job to pay for all these things that were once provided free. Every time, the GDP goes up - but does our well-being? "Growth," write Cobb, Halstead, and Rowe, "can be social decline by another name."

Little wonder that through the myopic lens of GDP, building highways through neighbourhoods, clear-cutting old growth forest for toilet paper, and working people to an early grave all seem to make good economic sense. Just count the fallout as a benefit, ignore the human, social, and ecological assets you're bulldozing, and watch the economy grow.

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In 1995, four-hundred leading economists issued a joint statement, urging policy-makers, fellow economists, the media, and international agencies to "cease using the GDP as a measure of progress and publicly acknowledge its shortcomings," notably adding that, "new indicators of progress are urgently needed to guide our society." In so doing, they joined a growing international chorus calling for reform. GDP, write economists Manfred Max-Neef, Antonio Elizalde and Martin Hopenhayn, tallies, "the quantitative growth of objects," when what we should be doing is measuring "the qualitative growth of people."

Joe Jordan, Liberal MP for Leeds-Grenville, is trying to get us to do just that. This past June, his private member's bill - the Canada Well-Being Measurement Act - finally wound its way to a vote in the House of Commons. In his speech before the vote, Jordan, whose background is in teaching business, argued that, "the flawed assumption in how we measure well-being is that economic activity and even economic growth directly correlate to improved quality of life and well-being in this country," and welcomed, "anything we can do to shed some light on the ridiculous notion that somehow, if we take care of the economy, everything else will take care of itself."

The bill called for the government to "develop and report annually on a set of social, environmental and economic indicators of the health and well-being of people, communities, and ecosystems in Canada." Together, the stats would add up to an alternative to GDP as a measure of well-being; they would create a GPI - a Genuine Progress Index.

It passed by a large majority, and although it didn't create any new legislation, it was a powerful sign of broad non-partisan support for the idea. Canadian Alliance MP John Duncan told the House that, "GDP is definitely a poor way to determine how well human beings are actually doing," and said he was "generally supportive" of the Motion, while Joe Comartin of the NDP congratulated Jordan for bringing it forward. Even the Bloc Quebecois, which voted against it on the grounds that it interfered with provincial jurisdiction, thought the basic idea "worthwhile", according to MP Pauline Picard. Rarely have our elected representatives had so little to argue about.

Jordan, in drafting his proposed legislation, included the provision that the measuring and reporting be managed by the Auditor General's Office. When it comes to the choice of indicators, the Act calls for public input, as well as advice from Canadian and international experts.

Support for the idea goes right to the top - Paul Martin has backed the idea for years. In 2000, Jordan's bill caught his attention and he earmarked $9 million in that year's budget for what was called the Environment and Sustainable Development Indicators Initiative. In his budget speech, Martin predicted that, "these environmental indicators could well have a greater impact on public policy than any other single measure we might introduce."

The Initiative produced a set of five environmental indicators - for water, air, greenhouse gasses, forests, and wetlands - and one social, measuring educational attainment. It recommended that these indicators be added to Canada's System of National Accounts, making it a much more robust analytical framework for incorporating long-term considerations into economic decision-making. It remains to be seen if the recommendations will be implemented.

Although a mere six indicators falls far short of the sort of GPI envisioned by the creators of the Well-Being Measurement Act, it's a good start for a relatively new idea to Canadian politics. Its lineage can be traced to a series of all-candidate debates during the 1997 federal election campaign, where Jordan found himself agreeing with some of the arguments of Green Party candidate Peter Bevan-Baker. After he was elected, Jordan invited his former opponent to help draft the Well-Being Measurement Act, but Bevan-Baker had four kids and a dental practice, and deferred to another Green Party member, Mike Nickerson.

Nickerson, a custom furniture maker living in Merrickville, Ontario, runs the Seventh Generation Initiative, an advocacy group predicated on the Native American tradition of considering the implications of current actions on descendants seven generations from now.

"What we count and what we measure signifies what we value," writes Nickerson in a booklet promoting the Act. "Refining our measuring practices to reflect what we value would be like gaining new senses and would provide additional insights for guiding the governing process."

For now, he, Jordan, and others can only wait and see if Paul Martin will use his new powers to bring the Act forward as a government bill. But whether Martin implements it or not, Nickerson is confident that the movement towards better indicators has a future: "With this thing, anytime I stop for anything, I've got to run to catch up, because there's people going at it from all sorts of different directions."

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Not everyone is waiting for the government to move. GPI Atlantic, a non-profit research group based in Halifax, has been developing since 1997 an index of sustainable development and well-being for Nova Scotia. So far, it has completed indicators for 16 of the 22 areas it set out to measure. In another 18 months, says the group's founder, Ron Colman, it hopes to have all 22 indicators finished.

Yet the index's work-in-progress status hasn't stopped the group from grabbing headlines in Halifax papers over the past few years with reports that put a dollar value on things not usually measured monetarily; costs such as crime, clear-cutting, and smoking, and benefits like volunteer work and childcare.

Their GPI, explains Colman, a former Assistant Professor of Political Science at St. Mary's University and speechwriter for the United Nations, "uses monetary values as a communications strategy to demonstrate the economic value of non-market goods and services." It does this by calculating what it would cost to purchase those non-market goods and services in the market economy, or, conversely, how non-market costs adversely affect the economic bottom-line.

For example, Nova Scotians volunteer more than anywhere else in Canada, to the tune of 140 million hours a year. "People might say, 'That's very nice.' But then if we say that's the equivalent of $1.9 billion worth of services - 10% of our GDP and larger than all government services combined - then the politicians take notice."

"If you don't measure it," he points out, "the real message you're conveying is it has no value. If you measure it properly, it has value, it gets attention, it changes behaviour. Indicators are tremendously powerful that way."

In a way, Colman's strategy is: if you can't beat 'em, join 'em. Policy-makers are so used to looking at things in monetary terms that he, in effect, shows them the money - for everything of value. He speaks their language.

While monetization of life's intangibles may be a useful way to make a point, he recognizes it is only a tool: "Ultimately, a materialist criterion cannot adequately assign value to the non-material values which give life meaning."

Conventional economics has been loath to assign dollar values to social and environmental factors that lie outside the market, because to do so would be to break from the scientific ideal of value-free objectivity. Instead, economists have focused on money and the market's determination of value.

But, argue Cobb, Halstead, and Rowe, the decision to follow the money to the exclusion of everything else is "far from value-free. To leave social and environmental costs out of the economic reckoning does not avoid value judgments. On the contrary, it makes the enormous value judgment that such things... count for nothing in the economic balance."

They suggest that, "the challenge is simply to start to develop values that are more reasonable than zero... An approximation of social and habitat costs... would produce a more accurate picture of economic progress than does ignoring such costs entirely."

If the focus of GDP on money alone represents a value judgment, then the choice of what a GPI would focus on is also a reflection of values. It is crucial, therefore, that those values are as accurate a reflection as possible of the real values of Canadian society. But how do we settle on a common set of values in a pluralistic nation like Canada?

Ron Colman believes that his 22 indicators do reflect fundamental Canadian values. "One of the key criteria that we used for indicator selection was that these indicators had to reflect consensus values. In other words, if there was an indicator that was acceptable to the Right and not the Left, or vice-versa, then these things would never be accepted by Canadians."

After consultations with government and community groups, Colman and his colleagues decided to measure such areas as the value of leisure time, sustainable transportation, soils and agriculture, income distribution, and human freedom. He considers the 22 indicators to still be incomplete; for example, they don't have one for arts and culture. But he doesn't see the GPI as ever being a finished product. Instead, he hopes it will evolve over time to better reflect society as it changes. "For example," he says, "before Walkerton, hardly anyone thought much about water quality. These days, people think a lot about it!"

He says that his group's work has been well received in Nova Scotia, because its conclusions make "intuitive sense to people. They seem to realize that this is just common sense economics."

One way he applies common sense to economics is to take the concept of capital - usually thought of as the total assets of a company - and extend it to humans and the ecosystem. "Human capital," he explains, "includes the health of the population, their educational attainment and skills, their productivity, and so forth. Natural capital is our natural wealth - our forests, our soils, our water resources, fish stocks and so forth." Natural and human capital is like money in the bank - conserve it and you'll receive income from the interest in perpetuity.

Yet currently, write Cobb, Halstead, and Rowe, "the more a nation depletes its natural resources, the more the GDP increases. This violates basic accounting principles, in that it portrays the depletion of capital as current income. No businessperson would make such a fundamental error." Mark Anielski agrees. "If Coca-Cola operated its accounts the way we operate our System of National Accounts," he says, "they'd be bankrupt." The former World Bank economist Herman Daly has said that the current national accounting system treats the Earth as a business in liquidation. In liquidating the assets of the Earth, we may in fact be borrowing from the wealth of future generations - perhaps even jeopardizing their very survival.

Current economic measures obscure the fact that we've been on a spending spree with this accumulated capital for years - running an ecological and social deficit akin to the budgetary deficits of governments in the 1970's and 80's. We eventually learned the value of living within our means in that case. If we can believe the latest ecological footprint analysis - which shows that humanity is currently outstripping the Earth's capacity to sustainably support life by about 20 percent - we may be making the same mistake again, this time on a global scale.

Ron Colman doesn't think we have much time. "I would say that we are at a turning point or a juncture in human history where the window of opportunity is quite small... When I was my daughter's age, we didn't dream that a whole fish stock could collapse... I think there are a lot of places where we don't have much time or luxury to fool around anymore, and until we actually measure these things, we'll only have words."

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At just over $40,000, the Canadian per capita GDP all-star is Alberta. Over the past 10 years, its economy has grown at an average rate of 4.2 percent - the highest in the country. Per capita investment, exports, and population are all growing faster than the Canadian average, while unemployment rates continue to undercut the rest of the country. All the standard economic indicators forecast smooth sailing and the captain of the ship, eyes fixed on the speedometer, shouts a hearty, "Full steam ahead!"

But down in the bowels of that vessel, a group called the Pembina Institute for Appropriate Development has been poking around the engine room, trying to see if the machinery is really functioning as well as the gauges up top suggest.

Borrowing many ideas from GPI Atlantic, but going into less detail, a team of researchers at Pembina assembled in a year and a half a GPI of 51 indicators for Alberta, and published their results in 2001.

Taking data from 1961 to 1999, they found that, while per capita GDP has risen at an average rate of 2.2 percent a year, the GPI has actually fallen by an average of 0.5 percent yearly, although it has been holding steady for the past 20 years.

They were able to compare the raw statistical data of indicators as disparate as household infrastructure, income distribution, and forest fragmentation by converting it into a score from 0 to 100, where 100 represents the best year's performance, and deviations from that are plotted as movements towards zero. With this common denominator in hand, their GPI can compare indicators with each other, with GDP (also converted to a 0 to 100 index), or add them together (with equal weighting) to create composite indices for economic, personal-societal, and environmental indicators.

The composite index for Economic Well-Being faired slightly better than the overall GPI, but still fell far short of GDP growth, at an average gain of only 0.4 percent a year. Through the 1960's and 70's it rose in concert with GDP, but since the recession of 1981, it has stagnated, despite continued strong growth in GDP. This, says Anielski, "was a key turning point, where the notion that a rising tide of GDP lifts all boats was, according to our numbers, not true."

The Personal-Societal Well-Being Index is a virtual mirror of the GPI - decline followed by stabilization in the mid-1980's, with an average yearly contraction of 0.7 percent over the 40 year period. Dragging it down are such factors as increased underemployment, obesity, suicide, and poverty, along with reduced hours spent with children and the elderly, and diminishing voter participation. Slowing the decline, however, are positives like lowered commuting time and auto crash fatalities, and improved life expectancy (second-highest in the world for women; third-highest for men), and educational attainment (second-highest in Canada, after the Yukon).

Interestingly, the Personal-Societal Index seems to have an inverse relationship with the Economic Index - while the former declined, the latter increased, until both plateau in the mid-1980's.

The sharpest decline was seen in the Environmental Sustainability Index - an average of one percent a year. Furthermore, unlike the others, its downward trend shows little sign of abating. Up: overall air quality, oilsands reserves that remain abundant, and recycling rates (although they're still the lowest in Canada). Down: conventional oil and gas reserves, timber sustainability, wildlife populations, wetlands, and increasing production of hazardous waste. Albertans' ecological footprint - the amount of productive land and resources needed to sustain one's lifestyle - has swelled 66 percent since 1961, and is now the fourth largest on the planet, after the United Arab Emirates, Singapore, and the United States. "Albertans," writes Anielski in the report, "are not living off the interest of their natural capital and are, therefore, not living sustainably."

While these composite indices can provide a glimpse of well-being, they are too general to be of much use to policy-makers. It's easy to try to simplify things, says Anielski, "but the world is not simple." Anielski, as much as anyone, realizes the complexities of measuring well-being. He's a Senior Fellow with the San Francisco-based economic think-tank, Redefining Progress - the group that invented the term Genuine Progress Indicator - and helped them update their U.S. GPI for 1999. Now, between teaching business at the University of Alberta and ecological economics at the Bainbridge Graduate Institute in the U.S., he runs a consultancy business, helping communities, businesses and governments develop sustainability measures that reflect their unique needs and values.

A closer look at just a few of the economic indicators is more revealing: over the past 40 years, there has been a 31 percent reduction in the number of paid work hours per household. At the same time, household disposable income rose 58 percent - meaning that Albertans now work fewer hours for more money. While this is certainly good news, it is somewhat offset by the fact that, as a percentage of employed workers, overemployment has increased from 26 percent in 1976 to 38 percent in 1999, while both unemployment and underemployment have risen significantly since 1961. So, while average work hours have declined, the distribution of the remaining work is less equitable.

Meanwhile, disposable income has been frozen for the past two decades, while personal expenditures, taxes, and debt have all been gaining from behind - personal and household debt even surpassed disposable income for the first time ever in 1997. These trends all threaten the movement in Alberta towards fewer work hours for more pay.

The challenge, concludes Mark Anielski, is to, "think about the world as a system - a complex, integrated system - rather than dividing the world up into portfolios." The universe doesn't work in the orderly linear way we'd perhaps like it to. Instead, it's more like an interconnected web, where cause becomes effect, and effect becomes cause, and a butterfly flapping its wings can trigger a hurricane on the other side of the globe.

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The attempt to look beyond money and measure the real well-being of people and ecosystems has taken many forms over the years. One of the best known is the UN's Human Development Index, which has been around since 1990. Canada was in first place for much of the 1990's, but the most recent report now puts Norway first, with Canada in eighth place. But the HDI is extremely limited, looking at only four indicators: life expectancy, literacy, school enrolment, and per capita GDP. Lesser known UN measurements include the Human Poverty Index, which pits rich countries against each other in the areas of poverty, illiteracy, unemployment, and life expectancy (Sweden is first; the U.S. last), and the Gender Empowerment Measure, which measures women's participation in politics and business (Botswana, Costa Rica, and Namibia rank higher than Greece, Italy, and Japan). The World Bank has also recognized the importance of five kinds of capital - financial, physical, human, social, and natural - for sustainable development.

Nevertheless, no state has yet incorporated anything like a GPI into its national accounts. Ron Colman, who lived in Australia and the U.S. before immigrating to Canada, thinks Canada is well positioned to be the first. "Statistics Canada is ranked as the best statistical agency in the world by The Economist magazine year after year," he says, "so we have everything it takes to be a world leader in this field."

Of course, measurement is a means, not an end; the implications of a more holistic concept of wealth are many. For example, the GPI's "human capital" approach could change the national discourse around healthcare, by showing the importance of prevention. Numerous studies have shown that a dollar spent on preventing ill health - particularly on ensuring that children grow up in healthy environments - goes much further than a dollar spent on treating an illness once it has begun. If we concentrated on preventative measures, we could - over the long run - reduce health care expenditures, and, more importantly, reduce the suffering caused by ill health.

Another persistent problem is how to reconcile economic growth with protecting the ecosystem. Yet this dilemma is actually an illusion - a distortion in the flawed lens of the GDP. Viewed through the glass of a GPI, conserving natural capital stocks isn't bad for the economy; on the contrary, it's as essential to a healthy economy as a capital reserve is to the future of a business. GPI accounting could change the perception of conservation as a mere luxury to sound economic sense.

By bringing costs to society and the environment into the equation, a GPI might show us that the benefits of some activities are simply not worth the costs. In 1994, the Clinton administration suggested the baby step of subtracting resource depletion from the GDP. The coal industry was aghast. If the costs of air pollution were also subtracted, said Congressman Alan Mollohan of West Virginia, "somebody is going to say... that the coal industry isn't contributing anything to the country." Exactly.

Without a GPI, Colman sees a real difficulty in implementing the Kyoto Protocol. "So long as we measure the burning of fossil fuels as a contributor to economic growth," he predicts, "nothing much is going to happen."

A GPI could help us answer one of the most difficult questions we're currently faced with: what is sustainable? "Sustainability" is commonly defined as a level of exploitation that doesn't compromise the ability of future generations to thrive and survive. As a guiding principle, it sounds nice, but it doesn't exactly tell us how much is too much. Writes Anielski: "A sustainable society could be defined as one in which all four forms of capital - human, social, natural, and produced - are managed so they are in equilibrium; that is, they are stable at sufficient levels over time."

Perhaps most importantly, a GPI could cause us to question our unhesitating acceptance of economic growth, and instead ask ourselves, Growth towards what? "In some cases, growth may be very destructive," says Colman. "In other cases, growth might be very beneficial. There's no way you can make a blanket judgment... It's always a question of what's growing."

In changing how we think about wealth on a macro scale, we will inevitable alter how we define it on a personal level. Our rush to accumulate material things often leaves us no happier; one study reported by the Worldwatch Institute showed that the number of people in the U.S. who describe themselves as "very happy" has fallen from 35 to 30 percent in the past 40 years - despite a doubling of per capita income. Perhaps happiness can be better found in such things as job satisfaction, friends and family, and community. As Tom Samuels, a landscape designer and North America's leading advocate of "living streets", puts it, "It's not just about getting back to Mother Nature. It's about getting back to human nature..."

Mike Nickerson compares the growth of a society with the growth of an organism: in the early years, physical growth in important, but there comes a time when it naturally ends - from then on we call growth "obesity". He believes that, "as a culture, we are in late adolescence."

But the end of physical growth needn't signal the end of all growth. Indeed, freedom from the need to add bulk can allow us to focus on what we most enjoy - sometimes referred to as the three L's: Learning, Love, and Laughter - and nurture those things that are commonly thought of as the hallmarks of an advanced civilization. "The development of skills, scholarship, art, music, sport, dance, friendship, spiritual aspiration, parenting and service were the essence of human culture before the commercial era pressed acquisition to its current place of prominence," writes Nickerson. As children's author Maurice Sendak puts it, "There must be more to life than having everything." Maybe, by redefining wealth, we can all become immeasurably richer.

Copyright © 2004, Saturday Night Magazine

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