The Genuine Progress Indicator

THE GENUINE PROGRESS INDICATOR

How can we measure whether society is satisfied? Politicians use the Gross Domestic Product (GDP) to tell us whether things are going well. The GDP shows the monetary transactions occurring. It shows our level of consumption. But as a measure of quality of life, it is badly flawed. Originally designed as a planning tool to guide the massive production effort for WWII, the GDP has gradually assumed totemic stature as the ultimate measure of economic success.

The GDP omits much of what people value and activities that serve basic needs. For example, it doesn’t count free services such as voluntary work or caring for children. The GDP omits crucial contributions of the environment, such as pure air and water, moderate climate and protection from the sun’s harmful rays. These services, which the Earth provides for free, become expensive if they need to be bought. An economic indicator should include such measures because common sense and history tell us that the economy is a tool to address needs and enhance well being, not an end in itself. Additionally, the GDP doesn’t distinguish between spending that adds to our well-being and spending that diminishes it or tries to make up for degraded conditions. It’s like a business statement that adds expenses to income instead of subtracting them.

The Genuine Progress Indicator (GPI) was developed as an alternative to the GDP in 1994 by Redefining Progress, a non profit, non partisan public policy institute. Like the GDP, the GPI begins with the nation’s personal consumption expenditures. The GPI then adds the value of goods and services that add to our well being, whether or not any money changes hands. For example, time spent on household work, parenting and volunteer work would be given a value.

The GPI then subtracts spending that does not improve well being. This can include:

defensive expenditure, defined as money spent to maintain the household’s level of comfort, security or satisfaction in the face of declines in the quality of life due to such factors as crime, car accidents or pollution. Examples are water filters, security systems and hospital bills.
social costs such as divorce, crime and loss of leisure time.
depreciation of environmental assets and natural resources, including the loss of farmland, wetlands, old growth forests and the reduction of stocks of natural resources such as fossil fuels, minerals. The damaging effect of wastes and pollution are also counted.

The Genuine Progress Indicator has been in steady decline since the mid 70s. Policies that could cause it to rise include minimising resource depletion, redistributing incomes so as to benefit low income earners, and promoting capital investment rather than foreign borrowing