Advancing New Measures for a Strong Economy with Sustainable Growth

Advancing New Measures for a Strong Economy with Sustainable Growth

March 29, 2011
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The last decade is now often described as a “lost decade.” In the United States, there was no net job creation, median family income declined, and $15 trillion in household wealth was lost, the sharpest such decline in 50 years. The rates of both environmental depletion and global warming continue to rise, and despite the Gulf of Mexico oil spill and the Massey mine disaster last spring, cheap, dirty energy remains more or less untouchable in national politics. There are many signs of growing social distress. Poverty is rising, and health gains have stalled and even regressed in many communities—the cost of obesity in America is closing in on $300 billion annually. American students are falling behind their peers in Europe and Asia, and for the first time in polling history, a majority of American parents do not believe their children will fare better than they did. Yet, even in such a “lost” decade, GDP rose nearly 18 percent, and this came on the heels of “the longest economic expansion in American history”—during the Clinton years—and before that, the “largest peacetime boom in American history,” during the Reagan years. Between 1980 and 2010, real GDP more than doubled. Yet here we are today.

GDP, which measures the market value of all final goods and services produced within a country in a given period, is the master code in economic policy and national politics. Politicians love nothing more than to boast about the “booms” and “expansions” that GDP registers on their watch. This has been the most coveted theme, and a very common thread, in both parties' politics for the last thirty years. But for most American households, GDP growth has even delivered real gains in income and wealth; it has not delivered greater well-being and happiness; it has not improved our stock of real, sustainable wealth for our children and grandchildren; and it has left nature reeling from reckless consumption and waste, with too little responsibility for the costs. About the only thing GDP growth has consistently delivered is more and more income and wealth in the hands of fewer and fewer people—and more and more danger for the future.  

The limits of such accounting—and of the growth model it reinforces—is  now increasingly recognized as the costs come due. As Nobel-laureate economists Joseph Stiglitz and Amartya Sen put it in 2009, national income accounting has shifted from “the province of technicians to a subject of public discourse.” And it is easy to understand why this is happening in the wake of the economic collapse, they argue:

Trying to understand what makes for good performance of a society is central to the social sciences. We see the world through lenses not only shaped by our ideologies and ideas but also shaped by the statistics we use to measure what is going on, the latter being frequently linked to the former. GDP per capita is the commonly used metric; governments are pleased when they can report that GDP per capita has arisen, say, by 5%. But other numbers can give a very different picture. In Russia, declining life expectancy suggests there are underlying problems, even if GDP per capita is rising. So, too, in the United States, most individuals saw a decline in income, adjusted for inflation, from 1999-2008—even though GDP per capita was going up—providing a markedly different picture of performance. 

National measurement systems, which guide public policy, should not be paradoxical like this, displaying growth but hiding costs. Instead, they should focus our attention, as directly as possible, on the things that matter most for household well-being, common improvement, and future prosperity—i.e., “to promote [and sustain] the common welfare.” So, essentially, the goal is to change how we measure economic performance and social progress, in order to refocus public policy on critical social needs and on the resources we must preserve—and create—to ensure a more sustainable prosperity. 

Global momentum for advancing new measures in public accounting systems and other key settings has been building. Much important technical work, an extraordinary flowering of NGO-level deliberation and projects, and a growing number of governmental and quasi-governmental initiatives at various levels have created a fertile landscape for change. So too, in a general way, the “beyond GDP” message is being received with increasing sympathy by media commentators and some political leaders.

Still, we have a lot of work to do. Our technical knowledge of new accounting approaches is well-advanced in economics, statistics, and policy, promising much needed feedback on aspects of well-being and sustainability that remain in the shadows of GDP growth. But a growing proliferation of approaches and methods, coupled with too many small, overlapping projects vying for media and political attention, has created scale problems and redundancies that have hampered implementation of these ideas and limited their impact on public policy. In fact, major implementation efforts are slowly getting underway in the European Union, the OECD, the United Nations system, the World Bank, and in a number of individual countries. While these efforts, too, are hampered by extensive mission and project overlaps, they have reasonably strong public mandates and sufficient scale to, potentially, transform national accounting in key parts of the world economy in the shorter-to-medium term. But with the United States, the world’s least sustainable advanced economy, lagging behind in this transformation, U.S-focused efforts have never been more important, and we need to bring a new, more ambitious and strategic sensibility to this work. Three basic needs define the contours of the next phase of indicators work in the United States:

1) Building strategic consensus on the most relevant, feasible approaches and methodologies;

2) Prioritizing investments and actions to push for high-impact implementation, including assessment of government reforms vs. NGO efforts, national and sub-national levels, and moving from indicator implementation to policy utilization;

3) Developing stronger policy research and messaging, to educate leaders about the importance of new accounting for improving social outcomes.

Our NET discussion will get at these questions through four concrete examples—the Canadian Index of Well-Being, the STAR Community Index, the Maryland Genuine Progress Indicator, and Demos’ Beyond GDP policy strategy. Here, however, let me provide some more detailed reflections to help classify the different approaches and sharpen the strategic questions that we should be asking ourselves as we move forward. 

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