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Why should we stop talking about GDP and how it will help the environment

This text was written as an assignment for the course Communication & Sustainable Development, which was offered at University of Helsinki. More information about the course can be found here.

Each year, we can see this subject everywhere in the news. The economy of the country, how is it doing? Is there growth? By how many points?

Economic growth is measured with the help of a large variety of indicators. The most well-known and common one being the Gross Domestic Product (GDP). It’s the sum, in monetary values of all the goods and services newly produced by an entity (usually a country) during a set period of time (usually a year) (Cassiers and Thiry, 2011). The GDP allows us to measure the wealth of a country and to compare it to other countries. There is a common belief nowadays that an increase in GDP is a sign of social progress and of increased happiness.

However, things might not be that simple. The GDP represents the wealth of a country but says nothing about how the money is shared inside its borders. A high GDP might hide inequalities and citizens who are struggling to make ends meet. Another obvious problem of the GDP is that catastrophes, such as an earthquake, can be seen as positive from an economic point of view because of the spending that is necessary for rebuilding. The citizens might have lost their home and their job, but the economy is thriving.

Why is GDP harmful for the environment?

As we have seen previously, the GDP is a good measure of the market production but quite inefficient in terms of measuring the citizens’ well-being. The second problem is that GDP was not designed with the goal to keep track of the state of the environment. Indeed, GDP does not take into account the depletion of natural resources or the degradation of the environment (Stiglitz, Sen and Fittoussi, 2008). This means that by using GDP as a measure of our economic growth, we consider that it is acceptable to destroy a part of our environmental capital to create economic value. For example, if a country was to discover and exploit a gold mine, their GDP would increase because of the value of the gold that is put on the market, without taking into account the pollution of water that gold mining induces.

I believe that taking the environment into account in our economic indicators is essential to promote the development of economic activities that will have the least environmental impact. Our economic system has to change and for that, we have to promote green industries, greener processes and products. Giving more value to sustainable activities could nudge our economy in the right direction.

Gross Domestic Product based on its main components: outcome, expenditure and income in Finland 1996-2018. Data source: EUROSTAT. Figure by author.

What are the alternatives?

The necessity to go further than the GDP is recognized today by numerous researchers. What they have difficulties agreeing on, however, is which indicator should replace it. In this section, you will discover two groups of alternative indicators, as presented by Roman et al. (2016), as well as some of their strengths and weaknesses.

The first category is the monetary indicators. In this category, the final result is given in monetary value. This makes the results easy to understand and to compare. On the other hand, it requires giving a monetary value to the environment and leads to difficult questions such as: “how much value should we give for the biodiversity?”.

By using GDP as a measure of our economic growth, we consider that it is acceptable to destroy a part of our environmental capital to create economic value.

The most famous indicator from this category is the Adjusted Net Savings (ANS), created by the World Bank. Nowadays, 150 countries have their ANS calculated. To calculate the ANS score of a country, the World Bank starts from their net savings, adds the expenses in education and subtracts the costs of the damages of pollutions as well as the reduction to the stocks of environmental resources. If countries receive a negative score, it means that their economy is unsustainable.

The ANS is a good first step, taking into account the environmental capital of a country in the indicator. It has the advantage of being easily understood, by giving one value, in monetary terms. If the score is negative, there’s overconsumption and this will lead to a lower well-being in the future. However, the losses in environmental resources can be offset by an increase in savings. The ANS is useful but may not be ambitious enough in its actual form. Some researchers are pushing for changes to be made in its calculation, notably by attributing a higher cost to a ton of CO2 and by reviewing the costs attributed to the depletion of the environment (Stiglitz, Sen and Fittoussi, 2008). To sum it up, the ANS, which was created in the 90s, is useful but needs to be updated to fulfil its goal to the fullest.

The second category of alternative indicators is the footprints. The most famous one is of course the Ecological Footprint, supported by the World Wildlife Fund. Here, the impact of human activities is represented in terms of global hectares used. The number of hectares is equal to the surface necessary to both produce the resources used and absorb the pollution produced by humans. If we require more space than available on earth, then our consumption is considered unsustainable.

The Ecological Footprint was used as a distress signal, easily explained in the media, showing the importance of the impact of human activities on the environment. Another advantage is that it can be applied on multiple scales, from a single product to a whole state. It also shows that externalities should be taken into account when making decisions. There are also some drawbacks to this indicator, as for example it is difficult to calculate what a “global hectare”, the average hectare of our planet, produces. Another negative point is that it is not able to take into account activities that harm the biosphere future capacity like the loss of biodiversity or eutrophication. This means that the Ecological Footprint is a useful signal but needs to be supplemented by other indicators to represent the complexity of the environmental problem.

The Adjusted Net Savings and the Ecological footprint were presented here as examples, but the list of alternative indicators goes far beyond those two. It is important to keep in mind that an indicator is a simplified version of the reality. As such, we might need several indicators to accurately represent the situation in a country.

As the reader might have realised by now, even thought there exist alternatives, the GDP indicator is still very prominent in the discussions about our economy. This leads us to our last question. What is the importance of the communication about those alternatives?

Why should we communicate about alternatives to GDP?

According to Cox (2010), environmental communication is both pragmatic and constitutive. Environmental communication is pragmatic because it informs, raises awareness, convinces and solves environmental problems. At the same time, it can be considered constitutive because, thanks to the communication, we construct our representation of the environment. For example, depending on the communication to which we are exposed, we might see forests as something we can exploit or something beautiful that supports life.

The different roles of environmental communication explain why it is important to discuss GDP and its alternatives. We should communicate about the critiques surrounding the use of GDP, expose its flaws and talk openly about alternatives. The results of this communication will be twofold. First, we educate ourselves about the shortcomings of our measure of the economy, how it is problematic and the benefits of a new measuring instrument. Second, by communicating about GDP alternatives, we construct new representation of what the economy should give us. By talking about alternatives which value the environment and social happiness, we create an economy where those topics are important and worth counting in the state’s performance. One of the main goals of the communication would also be to persuade policy makers to consider alternatives indicators to replace GDP in their evaluation of the economy.

AURÉLIE BILLOUEZ

Otsikkokuva: Unsplash

References

Cassiers, I. & Thiry, G. (2011). Du PIB aux nouveaux indicateurs de progrès : les enjeux d’un tournant historique. In Cassiers, I. et al. Redéfinir la Prospérité. Jalons pour un débat public. Edition de l’Aube. pp. 49-76.

Cassiers, I. & Thiry, G. (2014) A high-stakes shift: turning the tide from GDP to new prosperity indicators. Institut de Recherches Économiques et Sociales de l’Université catholique de Louvain. Discussion paper 2014-02. 21 p.

Cox, R. (2010) Environmental communication and the Public Sphere. 2nd edition. SAGE Publications. 383 p.

Roman, P., Thiry, G. & Bauler, T. (2016). Comment mesurer la soutenabilité ?. L’Économie politique, 69(1), 48-55.

Stiglitz, J. E., Sen, A. & Fittoussi, J-P. (2008). Commission on the measurement of economic performance and social progress. Issues paper. 37 p.


Aurélie Billouez

Aurélie Billouez is an exchange student from Belgium. She is following the Master of Environmental Change and Global Sustainability at the University of Helsinki. She has a previous academic background in business administration in which she developed a growing interest for sustainability issues.