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A Truer Measure of Economic Well-Being? Replacing GDP with GPI, Part Two

The chorus decrying the shortcomings of Gross Domestic Product (GDP) as a measure of economic well-being has been rising, crescendoing recently with the release of the report by Nobel Laureates Joseph Stiglitz and Amartya Sen commissioned by then French President Nicholas Sarkozy. Here in the US, states such as Maryland and Vermont are beginning to adopt an alternative to GDP: the Genuine Progress Indicator (GPI).

The chorus decrying the shortcomings of Gross Domestic Product (GDP) as a measure of economic well-being has been rising, crescendoing recently with the release of the report by Nobel Laureates Joseph Stiglitz and Amartya Sen commissioned by then French President Nicholas Sarkozy. Here in the US, states such as Maryland and Vermont are beginning to adopt an alternative to GDP: the Genuine Progress Indicator (GPI).

To find out more about this trend, #NewMetrics channel co-curator Bill Baue recently caught up with Eric Zencey, a Fellow of the Gund Institute for Ecological Economics at the University of Vermont who also teaches Political Economy at UVM and Washington University in St. Louis. Zencey played an instrumental role in bringing GPI to Vermont. In part one, they examined the ideas and history behind GPI and the continued evolution of the tool. Here, they discuss the implications of applying GPI at the state and company level

Bill Baue: Several US states are adopting GPI as the measure of economic health — how did Vermont come to embrace GPI?

Eric Zencey: Much of the work on GPI, nationally and internationally, has been done by people connected with the Gund Institute for Ecological Economics, both in Vermont and earlier, when it was located at the University of Maryland. So it's no coincidence that Maryland and Vermont are the first two states to compile the GPI officially. There are other state studies that are underway or finished — I'm currently working on one such study, funded by the Demos Foundation, which has a program supporting state adoption of the GPI. How did it come about in Vermont? Well, when I became a Gund Fellow, one of the interview questions was from the acting director, Jon Erickson, who was one of the principle engineers of the first Vermont GPI study. He led a seminar that compiled a rough estimate of VT GPI for the years 1950 to 2000. Jon asked me, "so if you become a Fellow what kind of projects would you be working on?" My background is in political philosophy, and mostly I've been interested in changing the idea systems that we use to shape our interaction with the planet. But I'd also begun to feel that thinking great thoughts isn't enough — that ideas from the academy have to be carried out into the world. So I said, "I'd work to compile a Vermont GPI." And Jon said, "But that's been done. I did it with some students a couple of years ago." "Yes," I said. "But if it's ever going to be a policy tool, we've got to do it year in and year out, and give the number to the state so they can start relying on it." So that was the plan.

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As a Fellow, I taught a graduate seminar that had as its group project the compilation of a GPI estimate for the state. Their final exam was a public presentation of the results, and I invited some state legislators to the presentation. The student presentations were fantastic — very clear, thorough, well-illustrated. The legislators were very impressed, and suddenly the movement to get GPI compiled and adopted as a policy tool had some influential allies. There were others lobbying as well — the Gross National Happiness (GNH) folks did a lot to raise awareness of the issues, and with them out there talking about doing survey research to see what peoples' self-reported well-being is, GPI began to look like a very straightforward, middle-of-the-road accounting issue. Tom Barefoot and Linda Wheatly of Gross National Happiness USA and I met with state Senator Anthony Pollina, who said flat out that he couldn't introduce a GNH bill but did want to push for a GPI bill. Vermont's a small state, and I live in the capital. I'd walk my dog and run into people and have conversations — some legislators, some administrators, some environmental groups, some business groups. Oh, and in the gubernatorial election of 2010, I called up each of the candidates, before the primaries, and chatted with them about GPI, so that whoever won, the person would either be a supporter or would at least have heard about it. When Anthony introduced the bill to the 2011 legislature, the committee took testimony from Jon, and from Tom at GNHUSA and from various environmental groups — Kate McCarthy at the Vermont Natural Resources Council was just great in her explanation and support — and the bill went through handily.

So in a way, GPI in Vermont was an example of what the philosopher Jean Jacques Rousseau called the General Will. The basic idea is that sometimes a public interest is so obvious and clear that when someone puts it into words everyone immediately recognizes it as the right thing to do. It's sort of like the "sense of the meeting" that Quakers come to. GDP is such a bad measure of well-being that it isn't hard to see why we need to improve upon it. And if you're wondering about why the General Will in Vermont would support GPI, while the concept would definitely have a harder time somewhere else, I'd point to Vermont's long tradition of caring for its natural resources and environment. Vermonters get it that economic development can have a cost in damaged ecosystems, and they've got laws, like the pioneering development review law, Act 250, to prevent that. One-third of the Vermont economy is tourism-dependent, and much of that is from people who come to Vermont because it isn't like home: The petroleum economy came to Vermont later than it got to the rest of the country, and many of its worst effects have been controlled. We still have an agricultural landscape with coherent, compact village centers; there is some mall-and-sprawl but not a whole lot. Vermonters are proud of that, and supporting GPI is, they saw, one way to continue caring for the landscape in a way they can be proud of.

Bill Baue: John Entine's recent Ethical Corp article on GDP versus GPI framed the situation as if Vermont had somehow come up short in terms of its economic health — what's your response to Entine's line of reasoning?

Zencey: I was surprised that he was spinning GPI the way he did. "According to the first-ever Vermont GPI, the state is doing terribly, with GDP overstating social welfare by more than 50%." To my mind, that says that GDP is doing terribly as a measure of social wellbeing, not that Vermont well-being is doing terribly. In fact, we found that the GPI for Vermont has been increasing — both absolutely and on a per-capita basis — just not as rapidly as Gross State Product, or GSP, has increased. Really, there's no call for saying GPI shows that Vermont is going backwards. GPI counts greenhouse gas emissions and the resulting climate change as costs, so Vermont's decades-long commitment to energy efficiency, and its more recent commitment to getting our economy to run 90% on renewable energy by 2050, have been major contributors to the positive numbers. I think some states won't be able to show positive GPI growth — which will most likely make GPI a tough sell to politicians from those states.

Baue: How can GPI be applied at the company level, and what are the implications in terms of transforming corporate thinking from GDP-based to a more holistic view of the role of business in society?

Zencey: One of the groups that’s very interested in GPI is Vermont Businesses for Social Responsibility. My colleague Jon Erickson is our connection with them, so I can’t say a whole lot about the details, but in broad strokes: They’re going to find GPI useful as an indicator set that shows them when and where their socially responsible policies have an effect. Mark McElroy, who’s at the Center for Sustainable Organizations and is a consultant to businesses that want to play a role in bringing about a sustainable economy, is interested in seeing this done. He’s been talking with us about piloting a project in which a company does a version of GPI accounting instead of the customary, more limited kind of accounting. It would be quite a change, but since GPI is measured in dollars it’s not completely unthinkable. It’s not like saying, “Okay, everyone has to have a moral and religious awakening so they do the right thing.”

Could it lead to a more holistic view of the role of business in society? Perhaps, perhaps. You know, there are still quite a few people who agree with Milton Friedman’s famous quotation: "There is one and only one social responsibility of business — to increase its profits.” This idea makes perfect sense in the context of free market economic theory, but there’s a huge reality problem with that theory. As I detail in my recent book, The Other Road to Serfdom and the Path to Sustainable Democracy, free market economic theory assumes that the planet is, in effect, infinite — that there are no negative environmental externalities from economic activity. It assumes that nature can infinitely absorb our effluents, infinitely supply us with raw materials for economic growth. It’s pretty obvious that that is simply not true. Climate change is the biggest negative environmental externality you can imagine — it could, literally, end civilization, perhaps even turn our planet into uninhabitable rock like Mars — and so you can see why so many free-market conservatives are so passionate in denying climate change. If climate change is real, their favorite economic theory turns out to be hopelessly limited wishful thinking that has to be discarded.

At a pragmatic level, Friedman’s declaration about profit is very appealing simply because profit is an easily digestable indicator — once you’ve done the accounting you get this number, and it’s either up or down; it’s very elegant, very economical. You can see at a glance how you’re doing. The same is true of GPI. Companies that are interested in triple bottom line accounting, or that have social responsibility as part of their mission, should be very interested in seeing GPI adopted and implemented, because it will help them begin quantifying their impact, help them make good decisions about their programs and interventions.