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Grossly Distorted Picture: GDP Still Misleading



ARTICLE | | BY Hazel Henderson

Author(s)

Hazel Henderson

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Beyond GDP: Global Poll*

A new global poll across 12 countries reveals that more than two-thirds of people polled think that economic statistics like GDP are an inadequate way of measuring national progress.

The poll finds that 68% believe that health, social and environmental statistics are as important as economic data, and that governments should also use those to measure national progress.

However, the findings also show that support for going ‘beyond GDP’ has slipped back in some countries since the last time the survey was conducted, in 2007.

Almost 12,000 people across industrialised and developing countries were interviewed for the poll by GlobeScan, in collaboration with Ethical Markets. The findings show that Germans (84% of whom want governments to also focus on health, social and environmental data to measure progress) are the most dissatisfied with GDP, followed by Brazilians (83%), Italians (79%) and Canadians (76%).

In the UK, where Prime Minister David Cameron has an initiative to develop new measures similar to Canada’s Index of Wellbeing, 70% favour going beyond GDP in measuring national progress.  However, support fell from 80% in 2007.

Falls in support, including India (70% to 37%), Kenya (71% to 50%) and France (86% to 72%), are addressed in the report.  Support increased in Canada (65% to 76%), Brazil (69% to 83%) and Germany (71% to 84%).

The telephone and in-person survey of 11,969 adults in 12 countries was conducted between June 24 and September 11 2010 by the international polling firm GlobeScan. Results are considered accurate within +/- 3.0 to +/- 3.5 per cent 19 times out of 20. The poll is part of a 26-country global study.

These findings show that there is very strong public support for going beyond GDP.  Yet GDP scorecards are still misleading governments, banks and investors by omitting indicators on future trends and national assets: infrastructure, well-trained workforces and productive ecosystems – all valued at zero in GDP.

Market predictions of defaults of EU member countries are based on their GDPs – which short-changes their real wealth.  Resentment at the unfairness of the bailouts in the EU and USA has emerged as financial markets shifted costs to governments and taxpayers.   Many broader indicators now available can help investors and nations find new paths out of austerity and recession, including the UN’s Human Development Index, the Calvert-Henderson Quality of Life Indicators and the Green Transition Scoreboard.

GDP Omits Asset Accounts1

The GDP results, however revised for the final quarter of 2010, will remain unreliable in charting recovery and progress in Europe, the USA and most other countries. GDP is now a Grossly Distorted Picture! The new surveyBeyond GDP, for release by GlobeScan and Ethical Markets (USA and Brazil), polled in Australia, Brazil, Canada, China, France, Germany, India, Italy, Kenya, Russia, the UK and USA, reaffirms the large majorities favoring reform of money-based GDP with many available indicators of health, education, infrastructure, poverty gaps and environmental quality found in their 2007 survey for the European Commission.2

Statistical agencies are still on automatic pilot, grinding out GDP, an inaccurate “rearview mirror,” omitting vital indicators of future trends. The chorus of critics of “GDP fetishism” now point to many more accurate indicators forecasting national wellbeing, sustainability and quality of life. Britain’s David Cameron has ordered his Office of National Statistics to develop new measures by 2012, similar to Canada’s Index of Wellbeing.

The Beyond GDP survey’s implications mirror those of the 2009 Stiglitz-Sen Commission to French President Nicholas Sarkozy, that GDP had become a “fetish” and it was time to move on, as I reported. The Commission made a good start – but did not address the worst aspect of GDP’s distorted picture: the lack of an asset account. This continues GDP’s over-statement of indebtedness, still causing trouble in EU countries, including Ireland, Greece, Portugal, Italy, Spain and recently Belgium – not to mention the USA (with many states facing deficits). So, the Grossly Distorted Picture in current GDP only records levels of public debt for vital infrastructure and public services (police, fire protection, teachers, etc.). Omitted is an asset side to account for valuable taxpayer investments in public infrastructure: transport, ports, railways, schools, etc., many of which last for over 50 years and should be carried on the books, just as they are on corporate balance sheets. Imagine trying to run a company this way!

If GDP included an asset account (as many economists favor [see my “Statisticians of the World United!”]) this would reduce nations’ perceived public debt levels substantially – and so also reduce their interest rate on sovereign bonds! Instead, financial markets and “bond vigilantes” are buying credit default swaps (CDSs), speculating that several EU countries will default and betting on the fate of the euro. This raises interest rates on sovereign bonds and “deficits” even higher – leading to tragic, unnecessary “austerity” cuts.

Reasons this “GDP fetishism” continues include deregulation, the growing influence of money and finance in politics. Special interests and their allies in politics and in ministries of finance, economic development, trade, central banks and stock markets grew to dominate governments’ policies. They focus on 24-7 global stock and bond markets in mainstream media. Financial players benefit from GDP measures of growth, which ignore future trends, infrastructure, social and environmental costs, while mainstream economists claim fixing GDP is too difficult.

Yet, many companies, CSR and SRI investors have shifted to “triple bottom line” accounting. They and the public in this survey can see real wealth and the bigger picture: well trained work forces, efficient public infrastructure and productive ecosystems in EU and other countries – all counted at zero in GDP!

GDP’s macro-economic, money-denominated, over-aggregated methods ignore “externalities”… a relic unnecessary in our Internet age, which enables multi-disciplinary “dashboards” of indicators and metrics. GDP is superseded by these new systemic scorecards (www.calvert-henderson.com and www.greentransitionscoreboard.com) – with websites displaying all vital areas of quality of life and true progress.

Notes:

*. Reprinted with permission from http://ethicalmarkets.com

1. This section was first published on CSRwire Talkback. Available online at http://csrwiretalkback.tumblr.com.

2. For more information on the survey, see http://www.globescan.com.

About the Author(s)

Hazel Henderson

President, Ethical Markets
Email: hazel.henderson@ethicalmarkets.com
Website: http://calvert-henderson.com