Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, October 4, 1995 TAG: 9510040096
SECTION: EDITORIAL PAGE: A-13 EDITION: METRO
SOURCE: JESSICA MATHEWS
DATELINE: LENGTH: Long
We all know better now, or think we do. Schoolchildren know that the glaciers left Iowa and Kansas a billionaire's legacy of topsoil, that natural selection produced most of our wonder drugs, that timber is only a fraction of the value of a standing forest etc. What will surprise most Americans is that our pre-eminent economic guidepost, the gross domestic product, is as out of date as the ancient Chinese. It treats not only wilderness but all of the environment as valueless.
It's impossible to exaggerate GDP's significance. It determines which countries are developing and which have made it to the economic high table. Wall Street hangs on every quarterly twitch. It's GDP that decides when we are in recession. It guides governments and seals their fates.
The problem is GDP measures neither wealth nor real growth. It lumps together economic pluses and minuses so indiscriminately that if a household or business used its equivalent for guidance it would find itself on the rocks in no time. It ignores hunks of the economy. The acronym GDP might as well stand for Grossly Deficient Pretender.
Under the rules for calculating GDP, for example, a country can chop down a forest, record the timber sales as income and ignore the loss of the asset, since it is not counted. Nor is resource degradation - soil erosion, for example - though it is the natural analogue of the depreciation of a man-made asset. Pollution is not only counted as a positive but may be counted three times: when it is produced, when it is cleaned up and through its costs to health.
The principal reason why GDP hasn't been fixed is that so much needs fixing. Economists - aware that GDP has assumed a role for which it was never intended and for which it is drastically ill-suited - have done a funk before the task of turning the indicator into an even semi-accurate measure of economic progress.
At long last that may be about to change. Environmentalists, as in so much else, have been the driving force. Dating largely from a seminal study by Robert Repetto of the World Resources Institute (issued in in 1989 when I was the institute's vice president), their efforts have proved that, however difficult, there are technically sound ways to correct many of GDP's environmental absurdities. With the release of its own study, ``Measuring Environmental Progress,'' to be showcased at two international conferences in Washington this week, the World Bank now adds the enormous weight of its prestige to the effort.
Other voices have joined the chorus. Last month the U.N. Development Program released figures showing that the uncounted value of women's work in the home and community and their underpaid work in the formal economy amounts to a phenomenal $11 trillion, nearly half the world's official output of $23 trillion. Because GDP does not count any activity in which money does not change hands, regardless of its economic significance, the result is not merely injustice but, in the U.N.'s words, reduction of women to ``virtual [economic] non-entities'' without property rights, access to credit and other necessities. So for women, too, GDP reform is a priority.
Now, the lead piece in October's Atlantic Monthly proposes to replace GDP with a comprehensively reformed measure the authors call GPI, the Genuine Progress Indicator. They attempt to correct what they see as GDP's environmental shortcomings, include volunteer and household work, subtract the costs of various types of social decline (crime, divorce, loss of leisure time), subtract foreign borrowing used to finance consumption rather than investment and - the biggest single change - adjust for changes in income distribution (widening inequality is a negative factor).
Having done all this they find that in contrast to GDP's steady growth since 1950, GPI per-capita leveled off in the late '60s and has declined since 1973. This, they think, explains the apparent paradox that while the statistic climbs, voters are gloomy: GDP growth may reassure officials but it does not reflect real life. Coincidentally or not, the downward turn in GPI in 1973 coincides with the beginning of what is now a 20-year decline in real wages.
Experts will have a ball ripping apart some of the utterly arbitrary assumptions that underlie the GPI calculations. The value of the work lies, rather, in the exceptional clarity and accessibility to the non-economist of the authors' expose of GDP's many flaws. The lumping together of positive and negative transactions, they write, makes the nation's economic hero ``a terminal cancer patient who is going through a costly divorce.'' They have flung down a gauntlet to economists: If these numbers are wrong, devise something better, but surely it is possible to come up with values ``more reasonable than zero.''
They are right. There is work for an army of economists here, and it's worth the effort. GNP is a beacon governments follow slavishly though it leads them seriously astray. The public will have to keep the heat on, though. Left to itself, the profession will stick with the status quo for another 50 years.
Jessica Mathews is a senior fellow at the Council on Foreign Relations.
- The Washington Post
by CNB