Experts ask if GDP is outmoded as prosperity indicator


Deausche Welle | 17/08/2010

Over the past three decades China has achieved an annual economic growth rate of nearly 10 percent – a feat that saw it overtake Japan as the world’s second largest economy after the United States in the second quarter of this year. But that growth has come at a price. Sixteen of the world’s 20 most polluted cities are located in China, and more than 80 percent of the country’s rivers are considered polluted. Environmentalists say between 5 and 7 percent of China’s annual growth is negated by the costs of ecological damage. The debate about the hidden costs of growth-oriented economics originated with German professor Gerhard Scherhorn, who warned some 30 years ago that “we are consuming nature’s gifts by overfishing the oceans, lowering the water table, reducing biodiversity and driving global warming”.

Prosperity is complicated

So should the gross domestic product (GDP), the standard measure of economic output, continue to be the major factor in determining a country’s level of prosperity? Hans Diefenbacher, an economist in Heidelberg, doesn’t believe so. “For one thing, income distribution isn’t included in the GDP,” Diefenbacher told Deutsche Welle. “Secondly, it doesn’t represent the ecological damage – by which I mean negative external costs – associated with production and consumption. Nor does it accurately represent use of natural resources, in other words, our irrecoverable use of non-renewable resources.” Diefenbacher argues GDP is an outmoded way of measuring prosperity because the limits of global economic growth have been reached. It should be replaced by a new system which takes into account factors like use of natural resources, income distribution and unpaid domestic and volunteer work, he says.

People should scale back their economic expectations, according to Diefenbacher. Changes in lifestyle would lead to GDPs shrinking around the world, which would run contrary to contemporary growth-oriented politics. But putting the economic system on a path to sustainable prosperity can begin in Germany, he says. “We can make it a priority to insulate existing older buildings for warmth over the next 30 years… (at a rate of) 3 percent each year,” he said. “We can restructure vehicle fleets. We can expand local pubic transit systems.”

Debate exists since 1980s

Michael Mueller, a former official at the German Federal Ministry for the Environment, is convinced alternative to growth-based economic are moving out of the fringes and into the mainstream. He says the validity of the debate can be seen in the long-term effects global warming could have on China’s economy. “When I look at the studies of the Intergovernmental Panel on Climate Change, for example, it is clear that warmer temperatures above all would massively threaten industrialized zones near river deltas,” Mueller told Deutsche Welle. “That means China will need to organize and finance massive resettlement programs. I’m not sure the country is capable of that. At any rate, it would be a human tragedy.”

Experts advocating a change in thinking about prosperity agree both the global recession and global warming have a growth-oriented focus on GDP at their root. A French committee led by Nobel Prize-winning economist Eugene Stiglitz and commissioned by Nicolas Sarkozy came to the conclusion last year that GDP is not a sufficient indicator of prosperity, and that income and consumption should also be included in the calculation. Mueller believes the developmental period of the world’s industrial history has ended, taking with it the opportunity for “wasteful and ignorant use of the material side of Earth and its life.” “I see the topic as a simmering one,” he said. “It’s still under the surface, but is electrifying more and more people.”
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