Media Clipping — 28 February 1999, Catholic New Time

Taking a new look at the bottom line

Blayne Haggart

The gross domestic product (or its cousin the gross national product) doesn't exactly spring to mind as one of the pillars of our society. Yet this dull number the sum of the goods and services bought and sold in a country (everything from skateboards to oil spill cleanups) helps set government policy on everything from jobs to health care.

It underpins every business decision. When it goes up, leaders boast of their wisdom; they pray it doesn't fall during an election year

Since its creation some 60 years ago (though it's hard to imagine a time before it), the GDP has become the universal benchmark for societal progress. A rising GDP means that the economy is growing; growth defined by a rising GDP is progress; and progress is good.

Now, however, a rising chorus is wondering what kind of progress the GDP is moving us toward, and whether what it's measuring is progress at all.

IT SEEMS THAT EVERYBODY has a favourite metaphor for what's wrong with the GDP. For some, it's a broken calculator that can only add, never subtract. Laszlo Pinter, of the Winnipegbased International Institute for Sustainable Development, likens it to a thermometer.

"A thermometer is a simple instrument to measure temperature. If you want to use a thermometer to measure your weight, it's completely useless," he says. In the same way, the GDP "wasn't really created to track national welfare. ... It was created to track the production processes related to the war effort."

The gross domestic product was largely the work of the brilliant mind of British economist John Maynard Keynes, who also invented the modern welfare state. His system of national accounts, says Pinter, "was fairly successful for a country in crisis, where all the public and private goods had to be mobilised to fight a war."

Keynes' work was complemented in the United States by a young economist named Simon Kuznets; the final result was approved by the United Nations and adopted world-wide.

Eventually, though, GDP as simple adding machine became GDP as Holy Grail of progress, to Kuznets' dismay. "He spent the rest of his life pointing out some of the weaknesses of the GDP, that it's not a true measure of wellbeing of society and it should not be construed as one," says Mark Anielski, an Edmontonbased senior fellow with Redefining Progress, the pioneering American think tank that has produced a measure of welfare called the Genuine Progress Indicator (GPI).

Unfortunately, at the time it was created there was no sense that unfettered growth could lead to environmental degradation or that the link between GDP growth and increased employment could become unhinged. Now, with the rise of the environmental movement and the idea of sustainable development (loosely defined as development that does not come at the cost of others or future generations), people like Anielski are trying to come up with a better definition of progress.

Redefining Progress' GPI, calculated in 1995, painted a stark picture. While the U.S. GDP has risen since the 1950s, its GPI, which adjusts GDP for such factors as income inequality and resource use, has been falling since the 1970s. (Anielski has just completed an update of those numbers.)

The paradox of this situation where only what is bought and sold counts as progress was illustrated in a seminal October 1995 article in the Atlantic Monthly titled "If the GDP is Up, Why is America Down?"

The article, by Clifford Cobb, Ted Halstead and Jonathan Rowe, observed that: "By the curious standard of the GDP, the nation's economic hero is a terminal cancer patient who is going through a costly divorce. The happiest event is an earthquake or a hurricane.

The most desirable habitat is a multibilliondollar Superfund site. All these add to the GDP because they cause money to change hands. It is as if a business kept a balance sheet by merely adding up all 'transactions,' without distinguishing between income and expenses, or between assets and liabilities."

Says Canadian Auto Workers labour economist Jim Stanford, "When you just look at how fast the economy is growing you're assuming that growth equals progress and that everyone shares in that progress. On both counts that assumption is fundamentally wrong."

That's not to say growth is unnecessary, warns Stanford. Though you can't equate growth with progress, Stanford notes that "it has been when economies have been growing that the potential for human progress and higher standards of living has been there."

RON Colman IS AN UNLIKELY PERSON to be leading the assault on this pillar of economics. When asked if he is an economist he replies, laughing, "No, heavens! Other people say to me, you could never do this work if you were an economist."

By day, Colman is a professor of political science at St. Mary's University in Halifax. He's been teaching international politics, and political theory and philosophy at the university level "for close to 20 years." On the side, he's the director of GPI Atlantic, a nonprofit research group currently constructing a Genuine Progress Index for Nova Scotia, integrating social and environmental factors into its economic accounts.

"It doesn't take anything to take a Nova Scotian to say, 'If you don't take care of your natural resources, it's going to come back to the economy,"' he relates. "We lost 40,000 jobs in this region when the fisheries collapsed, so an argument for including natural resource accounts doesn't meet with much resistance here."

Like so many others who have found themselves in the field, it was the Atlantic Monthly article that inspired him to think about ways of measuring progress. What started as a project for a finalyear politics of international trade course has turned into a multiyear program that has garnered support from Statistics Canada and the Nova Scotia Department of Economic Development and Tourism.

"I don't think it's a matter of blame, it's just that the current system of accounts has been sending the wrong message to everybody," he says of the GDP. 'The policy makers have been getting the wrong messages, so they're embarking on policies that are not wise, which have actually increased inequality and job security, resource depletion."

Colman hopes to change this with his work. In contrast to Redefining Progress, GPI Atlantic is building its index from the bottom up; a final, GDPtype number would almost be a secondary, final result. Already he's completed work on unpaid household and voluntary work and the cost of crime.

Hans Messinger, director of Statistics Canada's Industry Measures and Analysis Division, which puts out the monthly GDP numbers, is an advisor to GPI Atlantic. Messinger, who has nothing but praise for Colman's work, says Statistics Canada is looking at GPI Atlantic with the possibility of replicating their work throughout the country.

For him, working to a final number 'might be a mistake.

"That's where the U.S. GPI got into a lot of trouble, by trying to boil a lot of different indicators down into one number," he says.

"To add something up to a bottom line, you have to have a common denominator for everything. And of course when we measure something like gross domestic product, it's somewhat easy because we're measuring all sorts of transactions in the marketplace and it all has a market price so you can value everything in dollars and add it up to a bottom line."

Jim Stanford also warns against over dependence as a metaphor for reality.

He has created his own index the Economic Freedom For the Rest of Us index for the Canadian Centre for Policy Alternatives. Stanford says it was inspired by the rightwing Fraser Institute's Economic Freedom ranking, which equates freedom with low taxes and minimal government intervention. In contrast, his index looks at issues like unionisation rates and income disparity.

"No number is going to sum up the various dimensions of policies and institutions that affect how the economy does and how people do," observes Stanford. "And that's a danger that's as great for our study as it is for the Fraser Institute's study.

"The use of these things is very much tailored by the nature of the ideological and political battles which they are a part of. We try to boil everything down to one number because that helps make for a punchy report and get some punchy media coverage. But we would be mistaken to say that that sums up the whole state of being. But on the other hand, if those numbers make us think about a problem, and maybe make us think differently about a problem, then they're still playing a useful role."

One example of how attaching a number (even if it's not an catchall number) to something that isn't usually approached that way is Colman's recent finding that Canadians are volunteering less time per capita now than in 1989. As he notes, a lot of government cutbacks have proceeded on the assumption that volunteers would pick up the slack, an assumption he has just proven false.

"If volunteer services were being offered at the same rate now as they were 10 years ago, we would have $1.83 billion worth of volunteer services more per year," he says.

"Now, that's a significant number, and then the conventional economists have to take note. If you can say that, they can no longer say that you're a bleeding heart."

DESPITE THE INTHREST THAT'S BEEN EXPRESSED in his work, Colman's funding is drying up. "We're still continuing but it's slower than I would like. That's where it's quite clear that we're not mainstream yet," he says, laughing. "When it comes to funding it's pretty obvious."

Colman may not be mainstream, but the field is definitely getting crowded (see box). Some of the big hitters include the United Nations' Human Development Index and the ecological footprint analysis developed at the University of British Columbia that has determined we would need three Earths to sustainably produce all the energy we're using.

Statistics Canada has even gotten into the act, says Messinger.

As with Colman, Messinger says that the Atlantic Monthly article caught both his and StatsCan's attention. This led him to complete, on the side and at StatsCan's request, "a simple replication" of the GPI for Canada.

Messinger says that Statistics Canada has done several studies of "extended or reconfigured estimates of GDP," covering estimates of household production ~d environmental accounting. And though, he points out, it is important for Canada to have a GDP measure that can be compared with other countries, "it does not preclude ourselves (from) putting out alternative measures to that.

DESPITE ALL THE WORK THAT'S BEING DONE, the GDP isn't going anywhere anytime soon. As Ron Colman notes, "It's the dominant system, and that's exactly why we're trying to develop this alternative. It's not going to happen overnight."

Talking with Colman and the others, though, one gets a sense of inevitability that the GDP will eventually be dethroned. Just as the world has changed immeasurably since World War II, so will the reliance on the GDP. And the importance of this shift toward measuring social indicators can't be underestimated. As Laszlo Pinter remarks, "We measure what we value, but we also learn to value what we measure."

Alternative indicators all the rage

For the past three years, the government of Alberta has published an annual report entitled "Measuring Up." The report details progress on 27 "core performance" measures which are related to 17 government goals which were outlined in the government's threeyear business plan. The stated purpose of the report is to hold government accountable to Albertans and to help policy makers improve the quality of programs and services.

Statistics Canada has developed the "Canadian System of Environmental and Resource Accounts" to track the wealth that we possess in forests, minerals and land, how much is being spent on environmental protection and the intensity with which waste is produced.

When it is completed, "Taking Toronto's Vital Signs" will be "an annual report card" that will allow Torontonians to see if "things are getting better or worse," says program co-ordinator Mary Rowe. The initiative is headed by the Toronto Community Foundation. Rowe says they are in the process of choosing which indicators to measure, and should have the first "report card" ready by June.

Blayne Haggart and Through a Different Lens: Alternative Indicators and Our Work for Economic Justice, Ecumenical Coalition for Economic Justice, Oct. 1998.

See also: Government of Canada, Depository Services Program
The Gross Domestic Product and Alternative Economic and Social Indicators
Prepared by: Blayne Haggart, Economics Division, 1 December 2000

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