Saturday, February 13, 2010

Why GDP Is No Measure of Quality; and What We Can Do About it

Erik Rothenberg
Founder and managing director, URSULA Project
Posted: February 2, 2010 04:13 PM
From Huffington Post

Imagine a world in which all people, institutions, governments and corporations engaged in enlightened, rational behavior that served all life on earth. Imagine if the reward system of our global economy that provided a true economic incentive for us all to thrive collectively toward an ideal vision of life on earth.

This is not a dream, just a shift in perspective; it all begins with paying attention to the right things. What we measure strongly influences what we do. By measuring the right things, we get right outcomes and vice versa.

First, we need to conceive what kind of ideal world we would like to live in, then look at our social, economic, environmental, legal, political and technological activities, determine which aspects of those must be measured and improved, and work together to do it -- forever.

Let's look at our current way of measuring and improving things, which fail when it comes to quality of life. Take America's Gross Domestic Product, or GDP. Our eyes glaze over reading about this stuff in the news, but this and other so-called indicators of our country's economic health are meaningless at best and misleading and dangerous at worst. For example, last week, the Wall Street Journal announced that GDP growth rose to a 6-year high while wages and benefits hit a 1-year low, all while inflation erodes those lower wages.

GDP is simply the total aggregate of all our economic activity; if output is up, the country must be economically healthier, right? But what if that output is harmful to people and the environment? If we cut down a forest to make junk mail or remove a mountaintop to burn coal, GDP measures all that but ignores the economic, not to mention social and environmental effects of the resulting mudslides, soil erosion, water table poisoning, air pollution or global warming.

Measuring our country's economic health this way is like adding together all your income and expenses in your checkbook - instead of subtracting your expenses from your income - to get a measure of your personal economic health. Besides, GDP also doesn't measure the benefits obtained by innovation and efficiency improvements; if those cause us to produce and consume less, then GDP goes down, highlighting its meaninglessness as a useful thing to strive for.

This issue has been on the table for over 40 years at least by now. In 1968, Robert F. Kennedy spoke about it eloquently here:

Nobel Prize winning economist Joseph Stiglitz discusses it in detail here:

Some, including Stiglitz, have floated the progressive idea of a "green GDP", one that takes into account the detrimental effects of growth -those that can be measured in dollars and cents -as well as the positive ones, and subtracts them to get a more meaningful number. This is a great start.

But it goes beyond that; as Kennedy points out, those things that bring quality to our lives -- happiness, intelligence, compassion, wisdom, safety, learning and beauty -- can be difficult to quantify in economic terms. And it gets more complicated; who determines what is important enough to measure and how it gets measured? And isn't the information age constantly shifting our assumptions, their meaning and the numbers we need to understand our world? How do you and I get a voice in that conversation? And finally, how do we make this enormous complexity simple enough for everyone to understand -- so we can work together to support a new world?

As a social entrepreneur, I work on the URSULA Project, seeking to answer these questions. URSULA stands for Unified Rating System, Universal Lifecycle Assessment, and is a way of scoring and rating everything against a standard that serves all life on earth. It is an open and transparent online global system that leverages crowd-sourced lifecycle data, pairs it with a fair voting mechanism that respects and allows input on people's values, and creates a universal standard. This standard enables single, simple numbers that measure how well something serves or does not serve all life.

Imagine if all it took to create our ideal world was fundamentally a shift in perspective. By measuring and improving against a standard that serves all aspects of life, and that we all get a voice in setting, we get a comprehensive perspective of our existing reality and a yardstick on how to improve it so that our economy, society and environment all thrive.

Then, our ideas about GDP, and the market fundamentalism that has spawned them will look a lot like the days when people believed the earth was flat.

About us: URSULAproject, a 501(c)3 organization, seeks funding to continue its mission, so is currently duking it out -- free market style -- in the Pepsi Refresh Everything grant contest, and we could use your vote

No comments:

Post a Comment