Media Clipping — November 16, 1997, The Sunday Daily News

Measuring economic growth

Former SMU prof tries to find a better way

By Stephen Bornais, The Daily News

WHEN UNIONIZED construction workers burned down a partially completed apartment building in Sydney earlier this year it led....

1. to a jump in the economie activity in industrial Cape Breton
2. a decrease.

The answer, perversely, is "a." Despite the negative impressions this incident ereated across Canada, by traditional methods of measuring the eeonomy, it was a gain. Firefighters had to buy gas to get their trucks to the scene, the developer had to purchase new supplies to rebuild, lawyers piled up hours in the subsequeut teals. Someone even made money hauling away the burned wreckage.

Lots of money changed hands and value was added to the island's Gross Domestic Product, the accepted measure of how our economy is functioning. But no Cape Bretoner viewed this as a good thing. They may have understood the anger that lead to the outburst, but nobody would think this did anything but harm the island's economy.

But tomorrow, an audience at the Coady Institute in St. Francis Xavier University will learn of a Nova Scotian effort to find a better way, a way to truly gauge what is happening in the economy. And to measure what Nova Scotians think is important.

Ronald Colman, a former political science professor at St. Mary's University, is leading the project. He and two graduate students are using a $31,000 grant from the province plus $2,000 from The Daily News to study a new way of measuring economic activity, one that tries to account for the unaccounted.

It is called the Genuine Progress Index, and it has been evolving over the last 20 years, as policy makers grew more disenchanted with the limitations of the GDP.

Its proponents consider the new method a more accurate measurement of what the economy is actually doing to the citizens who live with it.

The GDP is a leftover from the Second World War. Even when it was first introduced by Allied war planners, it was thought to be a crude indicator of a nation's welfare. But given that most of the activity it was designed to measure was being channelled in one direction— winning the war—it was sufficient, perhaps even vital, in the final victory over the Axis powers.

Over the last five decades however, it has become an end unto itself. Conventional wisdom holds that if GDP grows, we all should benefit.

Colman says GDP is measure of total economic activity, nothing more. In its current configuration, it is incapable of making a distinction between what is good for society and what is bad.

"It's hard to put a price or a dollar value on things that really matter to people," Colman says.

The various GPI models try to do exactly that. They attempt to place value on all aspects of an functioning society and environment, adding them up to find the true benefits and costs of economic activity.

John Odenthal is an economist working as policy analyst with Department of Economic Development and the project officer for Colman's grant.

He says the department is always interested in developing a better way to measure the "outcomes" of economic activity.

This especially important for governments to properly gauge the Impact o~ its policies.

"The GDP is good, but it's not enough," he says.

For its money the government hopes to get some guidelines on where to go next, and how to get there, as well as a way to compare this province to other areas. Odenthal says without this first phase the next step is impossible.

"What we're doing is to at least make a little bit of a down payment into looking at how ... we can start to come up with some other measures that are reliable, that mean something," he says.

While acknowledging the flaws in the GDP, Odenthal says most economists are cautious about simply throwing it out. Massive amounts of data arc gathered to feed it, not all of which may be useful or needed in a new system.

"It means changing a helluva a lot stuff," he says.

The creation of a GPI for this province would bring about a "real balance sheet" approach to economic development in Nova Scotia he says.

The GDP has a much narrower focus, it simply adds up everything that has been bought and sold. It doesn't matter how that money is spent. Whether it's on gambling or groceries, prisons or schools, its all a gain to the GDP Colman says. It creates even more distortion by ignoring huge aspects of society and the environmcat that make a direct contribution to the welfare of the province.

A parent who stays home to look after their child or do their own housework does not contribute to the GDP.

"The economy grows because you pay strangers to look after your kids or clean your house, but parenting has no value, ~ he says.

The GDP also makes no allowances for the worth of volunteer work, which can be of tremendous value to any society.

"It's not just that the GDP misses important things, it can count outright harmful activities as growth," Colman says.

Pollution can be counted two or three times. Once as an aspect of production, another time to clean it up and finally as the money spent to treat those who succumb to its toxic effects. Divorce, Colman says, is calculated to add S4 billion to Canadian economy.

'' A fear of crime can boost the GDP. People spent money on security systems, more on insurance. Prisons get built and must be serviced.

GDP also counts the exploitation of natural resources as a straightforward bookkeeping exercise. Every tree cut down or fish caught is a gain. This depletion of capital would be unacceptable to any accountant but to the GDP its again. It has no way of measuring the view of tree in protecting the soil or providing habitat to wildlife.

"More is not always better; that's really the background to understanding what is wrong with the GDP," Colman says.

From this distorted perspective, economists and politicians grow impatient with Canadians who persist in a gloomy view of the economy despite the upbeat trend of the GDP.

"The question is are Canadians' experiences wrong or is there something wrong about the way we measure progress," Colman says.

By measuring the sale of everything the GDP can send "misleading signals" to government leaders, economists and to the general public.

"People take their signals from the economy and if the economy sends out the wrong signals then people respond in unproductive ways," he says.

Colman pointed to recent studies on the unsustainable practices underway in the nation's private woodlots. Owners are cutting far too much wood in response to these signals since there are currently "no rewards for doing the right thing," such as investing in silviculture which takes a much longerterm view.

"Some kinds of growth are good, some kinds are harmful we've forgotten to make that distinction."

"No wonder ... we're stumbing into the new millennium without any real sense of direction," he says.

Don Cayo, president of the Atlantic Institute for Market Studies, welcomes the research.

He says the GDP, while still useful, has been oversold as an economic indicator.

"It's easy to report, it's easy to grasp for media and politicians and it's probably, in terms of a single number, the best we've got."

"But we probably count on it for more economic information than it is capable of providing," he says.

By contrast, the GPI tries to include as many of the other variables as possible. Colman and his team, which has spawned an informal network of other interested academics and governments analysts, are attempting to develop a made in Nova Scotia approach, combining a number different methods.

Colman says the GPI is really a "movement throughout the world to move to better measures of progress."

The United Nations is calling for a new method of measuring the economy, while the usually growthhappy World Bank has created its own accounting system to rank the nations of the world.

Surprisingly most of the data to construct a GPI already exist stashed away at different federal and province agencies but seldom assembled into a whole. Colman says this makes it relatively easy to add dollar values to activities currently excluded from economic measures.

The value of parenting can be calculated against the rate paid to strangers to do the same work. A loss of leisure time, the product of a longer work week is counted at the same rate as the work performed.

Information is not just taken from government sources however. Colman's group is using a study of the cost of crime done by the Fraser Institute, a conservative think tank based in British Columbia.

The hard part however comes from trying to determine the worth of a tree left to grow in the forest rather than cut down to make plywood. Data to make those types of measurements are virtually nonexistent because there has been no need to collect it Colman says. "How do you measure the value of a forest, or your fishery or the value of our soil?" Colman says.

This new data would allow planners to assign value to the natural environment prior to its exploitation. Armed with this information it could be determined whether it makes more economic sense to leave a forest intact or cut down to feed another pulp mill.

A properly done Nova Scotian version of a GPI could allow government to send out the 'right signals." Odenthal says by measuring the good parts of life in this province—the strength of family and community—the government can provide "hard information" to companies seeking to locate in Nova Scotia.

Colman is not so sure of what the results wit. look like, but does hope it leads to the change in thinking.

"The goal is to switch the emphasis from growth, which is just means more economic activity, to a notion of development or progress which actually mean a qualitative improvement in our lives our society and environment."

Copyright © 1997, The Daily News

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