Human

DIMENSIONS Magazine on the human factor in the global environmental debate

May 2014 • Issue 4

Beyond GDP Can the cornerstone of post-world-war recovery cope with the complexities of today’s world?

Health and Nature in Inclusive Wealth—Why the two are even more undervalued than you think The Indicator Problem—On transitory human needs and the complexity of human systems Redeeming the God Number—With the ranks of believers shrinking, is it time for a GDP-reformation? What’s Beyond GDP—Why our hope for sustainable development lies in politics Whose Future?—Are we listening to the questions of our youth?

Magazine of the International Human Dimensions Programme on Global Environmental Change Human D IMENS I ON S

ISSN 2305-2414

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52

56

42

Contents

Feature Articles 4

Progress, Stagnation, Regression—but where is Africa?—In his foreword, Bakary Kante questions how to measure the developmental advances GDP has missed so far. Bakary Kante

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What’s Beyond GDP?—Human well-being is beyond GDP. It is also beyond measurement. While greened national accounts help assess the environmental sustainability of economic performance and growth, sustaining development must be left to politics. Peter Bartelmus

14 Health and Nature in Inclusive Wealth—While human health and natural wealth remain elusive to measurement, they are nonetheless critical assets to understanding society’s progress and sustainability with potentially immense value. Partha Dasgupta 20 Photo Series: Keeping Tally—With policymakers focusing on complex indicators to measure societies’ success, it often seems as if they are missing some of the most meaningful and simple signs there are. 32 GDP Reexamined—In the dash for GDP-growth, we are missing the forest for the trees in human development. Anantha Duraiappah and Cecilia Fernandes

Hu m a n D IM E N S IO N S

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62

Interview

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DEPARTMENTS 2 Editorial

62 Whose Future?—Are we listening to the questions of our youth? Ousmane Kane talks about the need to open our ears to their concerns and bring them out of the margins. Ousmane Kane

6

Community News

7

Events Calendar

65 Puzzle 74 References 77

Writing Contest 42 Measuring the Infinite—Future indicators must take into account transitory human needs and the complexity of human systems. Fouad Khan 48 Redeeming the God Number—With the ranks of believers shrinking, is it time for a GDP-reformation? Addisu Lashitew 52 GDP* is everything!—*Gaps, Density, People. The lives of five individuals in India tell a nuanced story of what it means to have and have-not. Sukanya Misra 56 Plato and Pac-Man Predict Problems—An allegory and analogy about moving beyond GDP. Roebin Lijnis Huffenreuter

Human D IMENS I ON S

Did you know that?

CARTOONS 13

Bigger mirror

61

Hamster race

I NTR OD UCTION

Editorial

economies leap, unemployment fall, prices stabilize and living standards improve dramatically. LEARNING FROM THE PAST



We recognize the need for broader measures of progress to complement gross domestic product in order to better inform policy decisions, and in this regard we request the United Nations Statistical Commission, in consultation with relevant United Nations system entities and other relevant organizations, to launch a programme of work in this area, building on existing initiatives.

GROWTH BY NECESSITY Why has Gross Domestic Product (GDP) been so successful? A key factor explaining its popularity can be traced back to its beginnings. It was developed at a time of the Great Depression, governments struggling to find ways to lift their economies with limited analytical framework and supporting data to guide decision-making. When Simon Kuznets came up with GDP and the National Income and Production Accounts (NIPA), it provided for the first time a robust and relatively simple framework and indicator. It was not a composite index of other goals and indicators, but an indicator that had emerged from an analytical framework based on robust welfare theory. Initial conditions also played a key role in explaining the dominance and popularity of GDP. Economies were in shambles after the Great Depression—unemployment was high, production was low, incomes had plummeted and demand was dwindling. Based on these initial conditions, the path to recovery had to be: up, and fast. The world, and in particular the core of developed countries, followed GDP-led growth strategies and saw their

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Seventy years on, we now see a situation emerge not dissimilar to the Great Depression. To be sure, the situation is not as severe as that of the late 1930’s, but many of the symptoms are quite familiar. We are seeing growing ecological problems, though unlike the dust bowl, which was confined to the United States, we see massive global phenomena such as climate change, ocean overfishing and biodiversity loss rapidly increasing. We also see social tensions rising across the planet. Growing inequality within and across countries is metastasizing into increased violence and internal conflict. The drive for material economic wealth has resulted in resource capture by some groups to the exclusion of others, leading to inequalities in not only monetary wealth but also in health, education and basic freedoms. Last but not least, the economic chaos caused by deregulation, followed with the hope of spurring further economic growth, has led to widespread abuses and lack of accountability of banks and other economic enterprises, whose actions wreak havoc upon the rest of society with little consequence for their owners. We have seen not growth by the many, for the many—which was the intention of the modern economic system’s architects—but rather growth to the benefit of the few and at the expense of the many. OPPORTUNITY KNOCKS The good news is that world leaders are acknowledging GDP’s limitations, as well as the need for broader measures to evaluate societal progress. There is growing literature within the academic community studying the diminishing returns material wealth contributes to well-being, and the important role subjective constituents play in improving overall well-being. This implies that monetary wealth is important, but people also value other aspects of their lives. The 2008 Sarkozy initiative led by Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi made a strong argument for developing new indicators of progress. But one problem we are seeing with what has become known as the Beyond GDP movement is that too much is being pushed by European countries. These are countries where GDP growth has stalled of late, and many from the rest of the world—in particular developing countries—eye

Hu m a n D IM E N S IO N S

Photo: UN Photo / Mark Garten

Welcome to the final edition of IHDP’s Dimensions magazine. At last year’s Rio+20 summit, one of the main outcomes was a request to the UN Statistical Commission and related organizations to launch a programme for the development of new indicators (see quote below) that provide a more accurate, holistic picture of a country’s societal progress (UN 2012). We at IHDP thought it befitting to use this issue of Dimensions to provide an overview of the debate at hand, and highlight some of the current initiatives underway around the world that may deliver key insights in the movement towards new such indicators.

efforts to limit growth with suspicion. The challenge is now to open this discussion to those countries desperately trying to catch up with the present cadre of developed countries, and quash the misconception that GDP growth alone will lift them out of poverty and improve the living standards of their citizens.

Human DIMENSIONS May 2014 • Issue 4 Editor Carmen Scherkenbach [email protected] Copy-editor Sabrina Zwick Copy-editor Maja Spasovska Graphic Designer Louise Schenk

WHAT IS NEEDED? PUBLISHED BY

There is a definite need for outside-the-box thinking. It needs strong inputs from academia, and a robust process, not unlike the process through which Simon Kuznets, together with a team of highly credible scientists, developed GDP and the NIPA. More good news: this process within academia has already begun. Nobel Laureate Kenneth Arrow, together with Cambridge economist Sir Partha Dasgupta and other colleagues, has begun working on such a theoretical framework over the past ten years, and together they have laid the foundations for a new system of national accounts. The United Nations, unfortunately, is still catching up. We hope this issue of Dimensions might provide the impetus for more outreach to the academic community, and for recruiting the best economists and scientists on the programme that the Rio+20 summit requested. There is real opportunity for change, and it must involve the UN acting as facilitators of an academic and science-driven process. Last but not least, I am happy to note the startling number of entries for our young scientists writing contest, as well as the overwhelming feedback to our call for views on the Beyond GDP debate. This demonstrates the importance of the topic, and the engagement and ownership by a broad audience. Let us make the best of this momentum and use it to move forward. I hope you enjoy reading this last issue of Dimensions and, as always, we welcome your comments and opinions.

Secretariat of the International Human Dimensions Programme on Global Environmental Change (UNU-IHDP) United Nations University UN Campus Platz der Vereinten Nationen 1 53113 Bonn, GERMANY ISSN 2305-2406 Dimensions magazine features the activities of the International Human Dimensions Programme on Global Environmental Change (IHDP) and its research community. Dimensions is published biannually. Sections of the magazine may be reproduced with acknowledgement to IHDP. Please send a copy of any reproduced material to the IHDP Secretariat. This magazine is published using funds from the German Federal Ministry of Education and Research and the United States National Science Foundation. The views and opinions expressed herein do not necessarily represent the position of IHDP nor those of its sponsoring organisations. SUBSCRIPTION Dimensions is available free of charge, both online and in print. Subscribe to receive all future issues of the magazine in your inbox at www.ihdp.unu. edu/article/read/e-subscribe or write to [email protected] to order individual hard copies.

Anantha Duraiappah Executive Director of the International Human Dimensions Programme on Global Environmental Change [email protected]

ONLINE ARCHIVE This issue of Human Dimensions will be available online and as PDFs. Please visit our archive at www.ihdp.unu.edu/ article/dimensions.

Cover Artwork Louise Schenk Human D IMENS I ON S

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Illustration: Louise Schenk

FO R EWORD

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Progress, Stagnation, Regression —but where is Africa? Bakary Kante

T

he debate over human advancement has been hijacked; economists have commandeered it, and made it theirs. They measure, quite emphatically, “progress” and “stagnation”—even “regression” of nations. Using the economists’ perspective, dominated as it is by an obsession with Gross Domestic Product and Gross National Product (GDP and GNP, respectively), Africa’s performance has been charitably described as “lackluster” (with perhaps one or two exceptions, such as Botswana). To me, however, this characterization is meaningless, because it is not based on a transparent, credible and inclusive debate on where we are aiming to go, and what is sustainable. So the next step of course is to have such a debate, and indeed ASCENT (Africa Sustainability Centre) will be launching such a process this year: an inclusive, open and equal dialogue on African sustainability that will meet African needs and goals for their socioeconomic development. The role of GDP is central to this discussion. It is clear that the world and Africa need indicators “beyond GDP”, but which ones, and how weighted? It would be sensible for Africa to pursue policies that capitalize on its strengths, and one of those strengths is its endowment of natural capital. So indicators must pay particular attention to trends in natural capital assets. We also know that there are many other assets that contribute to an individual’s and a society’s well-being beyond natural capital or produced capital. And the importance of an asset in generating well-being is context-specific. The magnitude of the shadow value that society attaches to a given asset is also context specific. So it is up to Africans to answer the question: beyond natural and produced capital, which other productive assets are important in determining well-being? Furthermore, I’d also strongly recommend the Inclusive Wealth Index or genuine savings for

Human D IMENS I ON S

use by African governments as indicators of societal progress. It can give, among other usefulness, policymakers the motivation to focus investment on deepening and strengthening human capital and human health given that they directly impact on the size of the productive base bequeathed to future generations. There are also other indicators that can illustrate progress. The immense physical, cultural and social gains that have been witnessed on the African continent over the past few decades are significant indicators of progress. Roads and bridges are present where once savannah and rivers dominated. Schools and health centers provide educational development and medical services that would have been unheard of a generation ago. The African people possess more knowledge about the world they live in than they have ever had before. How do we capture these gains in our indicators? To move forward, we must first take back the debate, and make it ours.

Dr. Bakary Kante Founder and Chairman of ASCENT

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A NNO UNCEMENTS

Community News

UG EC

Participation in Open Working Group on Sustainable Development Goals One of the main outcomes of Rio+20 was the agreement to launch a process to develop a set of Sustainable Development Goals (SDGs) to follow the Millennium Development Goals (MDGs) post 2015. The Seventh Session of the Open Working Group on the SDGs took place in January addressing sustainable cities and human settlements; sustainable transport; sustainable consumption and production; and climate change and disaster risk reduction. IHDP’s Urbanization and Global Environmental Change Project (UGEC) took part in a side event organized by ICSU on “Understanding Integrated Urban Challenges”. The background document is available at ugec.org, providing key UGEC messages for Sustainable Cities and Human Settlements in the SDGs.

PA P E R

Managing the mismatches to provide ecosystem services for human well-being: a conceptual framework for understanding the New Commons In this DIVERSITAS–IHDP joint paper published in the April edition of COSUST, IHDP Executive Director Anantha Duraiappah and others argue that the plurality of values within and across individuals coupled with the spatial scales at which different institutions are organized and at which ecosystem services are produced create mismatches in the management of the New Commons. A conceptual framework capturing these mismatches and the multiple spatial scales at which ecosystems provide services is presented in the paper. http://www. diversitas-international.org/copy_of_Duraiappahetal_2014_COSUST7.pdf

A N N OUN CE M E N T

New Post-Grad Programme in Climate Change Law Applications are now being taken for a new post-graduate programme in climate change law offered by the University of Strathclyde Law School and starting in September 2014: the Master in Laws (LLM) in Climate Change Law and Policy. More info: http://www.strath.ac.uk/humanities/courses/law/ courses/climate_change_law_policy_llm/ VI SI T US ONLINE

Always Up-to-date At www.ihdp.unu.edu you

E VE N T

Seminar on Risk Interpretation and Action: Decision-making under conditions of uncertainty

can stay up-to-date with the comings and goings of

The seminar, held in December 2013 in New Zealand, was co-organized by the

the entire human dimen-

World Social Science Fellows Programme of the International Social Science

sions community. News on

Council (ISSC) in partnership with the Risk Interpretation and Action working

scientific advancements,

group of the Integrated Research on Disaster Risk (IRDR) programme, the

research tools, project

IRDR International Center of Excellence, Taipei, the International START Sec-

progress, new faces and

retariat, and the Royal Society of New Zealand. In order to support follow-on

more are always available

research from the seminar, up to four research awards will be granted after

in the Community section.

competitive review through the IRDR International Center of Excellence, Tai-

www.ihdp.org/article/com-

pei and the International START Secretariat.

munity

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Hu m a n D IM E N S IO N S

Events Calendar 12–16

25–31

Young Scientists Networking Conference

MAY

Third International Climate Change Adaptation Conference This event aims to be the nexus between the research community and the users of climate change adaptation information at regional and global scales.

19

MAY

This conference will assemble early career researchers with diverse backgrounds and research perspectives to reflect on ecosystems and human well-being in the transition towards green economies and debate relevant issues as part of a series of conferences on Integrated Science.

7–9

JUNE

MAY

IRDR Conference 2014 Integrated Disaster Risk Science: A Tool for Sustainability

Together with the Malaysian Industry-Government Group for High Technology (MIGHT), and in partnership with the Japanese Ministry of Environment, IHDP is organizing a symposium on Beyond GDP: Transitioning into Sustainability. The event will offer a unique opportunity to discuss the message of “Beyond GDP”: Traditional economic indicators are limited in their efforts to measure social progress, and fail to indicate both well-being as a whole and its sustainability. The ministerial-level symposium will be a public, interactive and innovative gathering of the research community, academics, government officials and international experts.

This international conference will bring together leading experts from multiple disciplines in the field of disaster risk reduction, and bring continued worldwide attention to the importance of science as a tool to address hazard risks and issues of sustainable development.

19–20

23–26

Beyond GDP Workshop

MAY

Sustainability in the Water–Energy–Food Nexus Conference The conference will address the linkages across key natural resource sectors, so that jointly improving efficiency is considered to be a win-win strategy for human development and environmental sustainability.

Human D IMENS I ON S

23–27

JUNE

IMBER Open Science Conference: Future Oceans. This conference will provide a synthesis of a range of topics related to marine biogeochemistry and ecosystem research and the human dimension of global marine change. JUNE

Responsible Development in a Polycentric World: Inequality, Citizenship & the Middle Class The 14th EADI General Conference is a European forum for academic exchange, reflection and debate, which attracts over 400 development and environmental researchers.

1–3

JULY

Earth System Governance Norwich Conference: Access and Allocation in the Anthropocene The conference, fifth in a global conference series organized by the Earth System Governance Project, will address the five analytical themes of architecture, agency, accountability, access and allocation, with a special focus on access and allocation.

16–17

JULY

Conference—Trending Now: Water Water is a current major global concern and is “Trending Now”. The 7th GEWEX Conference will celebrate 25 years of GEWEX research and set the stage for the next phase of research addressing the WCRP Grand Challenges on water resources, extremes and climate sensitivity.

16–19

JULY

Global Fair and Workshop on Long-Term Observatories of Mountain Social–Ecological Systems The goal of the workshop is to move toward a more comprehensive, global mountain observation network by strengthening the ties between existing observation systems. In order to provide quality, long-term, evidence-based datasets, the mountain research community must synthesize a macroscopic observing system using existing regional networks and individual sites as building blocks.

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FEATURE ARTICLE

What’s Beyond GDP?

Peter Bartelmus

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To

the question: “why look beyond GDP?”, the Beyond GDP Initiative of the European Union proposes two answers. It suggests first extending the scope and coverage of GDP to include “environmental and social aspects of progress”. Then, it literally flashes more radical views of entirely replacing GDP as it distorts our perception of social progress.1 Whereas the first argument seems to be content with modifying the system of conventional economic accounts and their indicators, the radical approach blames GDP for fostering a materialistic worldview that does not care about the true well-being of people. Many alternatives to GDP have been advanced. They include a wide variety of proposals for indicators of wealth, welfare, quality of life, sustainable development, and even happiness. Most seek to aggregate individual well-being, thus obtaining a national measure of welfare. The real purpose might be to “blast away the obfuscatory polem-

Hu m a n D IM E N S IO N S

Illustration: Louise Schenk

Human well-being is beyond GDP. It is also beyond measurement. While greened national accounts help assess the environmental sustainability of economic performance and growth, sustaining development must be left to politics.

ics of [GDP-based] growth and the devious politics that goes along with it”—to cite the authors of one popular welfare measure, the Genuine Progress Indicator (GPI).2 Indeed, GDP-bashing is in fashion3, but it carries the risk of throwing the proverbial baby out with the bathwater: we might sacrifice a carefully thought-out and worldwide adopted system of national accounts and its indicators in exchange for obscure welfare measures. Before taking this drastic step, we should examine what the proposed GDP alternatives profess to assess, and whether they can realistically deliver on these promises. At a minimum, an index of progress should address the risks of sliding unaware into regression. This seems to have happened with the USA, if one looks at the title of the original GPI publication: “If the GDP is up, why is America down?” In other words, we need indicators that tell us when, and to what extent, our pursuit of wealth and well-being becomes unsustainable.

Human D IMENS I ON S

WHAT’S BEYOND GDP? WHAT SHOULD BE SUSTAINED? In asking what we are trying to sustain— the economy, the environment, the people—we may distinguish three basic categories of sustainability, which provide a framework for determining why and how GDP should be modified or replaced4: • Economy: Economic sustainability seeks to maintain capital input to sustain production, output and economic welfare • Environment: Ecological sustainability uses standards and targets for environmental impacts to maintain the carrying capacity and resilience of natural systems • People: Sustainability of development calls for meeting the needs and wants of people, now and in the future

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“

Categories of

sustainability... provide a framework for determining why and how GDP should be

”

modified or replaced

The national accounts offer a limited yet practical concept of economic sustainability. Deducting the cost of using up capital in production from gross domestic product and gross capital formation yields the corresponding net indicators. These in turn show how much money should be set aside for reinvesting into the maintenance of reproducible capital. There are, however, other types of capital, which the national accounts ignore. Further deduction of the depreciation of natural, human and possibly social capital would yield indicators of sustainable production, income and investment. Economists, however, see the generation of individual “utility” and national welfare as the ultimate objective of economic activity, and define sustainability correspondingly as non-declining welfare.5 As discussed below, the World Bank and UNEP/UNU (the United Nations Environment Programme and the United Nations University, respectively) suggest that extended wealth accounting should capture at least economic welfare and its sustainability, and possibly also the broader notion of sustainable development. Environmentalists are sceptical about claims of measuring social progress and its sustainability in monetary terms. They rather focus on the

Peter Bartelmus Peter Bartelmus holds a doctorate in economics from the University of Heidelberg. He is an honorary professor of the Bergische Universität Wuppertal and has been teaching economics of sustainable development at Wuppertal (Germany) and Columbia (New York, USA) universities. At the UN Environment Programme in Nairobi and UN headquarters in New York, he developed systems of environmental statistics and

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health of natural systems and their ability to support human populations, at local, regional and planetary levels. Physical indicators should thus measure nature’s capacity to provide services that generate well-being. Broad-based sustainable development considers not only nature’s amenities, but also economic goods and services and social concerns, notably of the distribution of income and wealth. The sustainability of development can be seen as a combination of economic, ecological and social sustainability to maintain the welfare of current and future generations. It is far from clear, however, how these different dimensions of sustainable development contribute to social welfare, and how they can be meaningfully aggregated. REALITY TEST: WHAT’S MEASURABLE?

A full review of all sustainability indicators is beyond this article. The sustainability framework points, however, to a significant distinction between physical indicators of ecological and developmental sustainability and monetary measures of economic sustainability as capital maintenance, or non-declining welfare. Physical pressures on ecological sustainability can be added up by using a common measuring rod. For example, material flow accounts6 use the weight of material flows in and out of the economy, and the Ecological Footprint7 expresses the demand for environmental (re)source and sink functions in units of land use. Both methods rely upon questionable weighting of diverse environmental impacts in terms of tons and hectares. Moreover, their relation to people or the economy is tenuous: at local levels, for instance, “safe minimum standards” aim to specify the level of impacts that should not be exceeded to maintain the health of ecosystems and people.8 At the national level, equally judgmental targets of increasing “resource productivity” (GDP per material input) accounting that were published as by a “Factor 4” or more have been international guidelines of the Unitsuggested as necessary to “put ed Nations. As director of the envithe Earth back into balance”.9 ronment division of the Wuppertal Combining physical indicaInstitute for Climate, Environment tors for the calculation of deveand Energy he sought to combine lopment indices usually attrienvironmental and ecological ecobutes equal weight to unequal nomics in measurement and policy issues. Moreover, any selection analysis. His books and articles adof “representative” indicators is vanced new concepts and methods bound to be subjective. The Huof environmental indicators, acman Development Index10, for counts and sustainability.

Hu m a n D IM E N S IO N S

instance, averages indicators for national income, literacy and life expectancy. Increasing the number of indicators11 might improve coverage, but not necessarily the meaningfulness, of indices. Indicator averages cannot give us a clear definition of development and its sustainability. What about using money as a common measuring rod? Measures of well-being and welfare face the challenge of integrating usually nonquantifiable benefits of using economic and noneconomic (environmental, social) goods and services. To make these benefits measurable, the value of final household consumption typically serves as a starting point. The GPI, for instance, adjusts consumption by subtracting defensive expenditures and adding and subtracting positive and negative “externalities”, and the Comprehensive Wealth Index (CWI)12 uses a model of sustainable consumption to calculate the present (discounted) value of total wealth and welfare. The Inclusive Wealth Index (IWI)13 claims to be an improvement, as it does not require modeling a sustainable consumption path; it does apply, however, controversial welfare valuations, notably of people’s willingness to pay for the marginal contributions to well-being by human, social and natural wealth categories. The theory behind welfare measurement might be elegant, but does not necessarily reflect real preferences for scarce goods and services. This leaves us with measuring the costs of depleting and degrading tangible, produced and natural, capital for assessing the sustainability of economic growth. International organizations seem to agree, when promoting a “green economy”14 and “green economic growth”15. Rather than assessing difficult-to-define-and-measure human, social and institutional capital—what is capital consumption?—the System for Integrated Environmental and Economic Accounting (SEEA) included, besides the produced capital, only the natural capital of natural resources and sinks for pollutants.16 Like the conventional accounts, the SEEA does not claim to measure welfare. Environmentally adjusted net output and capital formation assess the economic sustainability of economic performance and growth as a matter of produced and natural capital maintenance. WHAT DO THE INDICATORS TELL US? Physical indicators warn us about trends in the particular fields they represent. Setting norms and targets for the indicators can draw attention to particular environmental and social hazards and to the need for addressing them. Integrative

Human D IMENS I ON S

F IG U RE 1

Country ranking for selected indices Source: P. Bartelmus (2008). Quantitative Eco-nomics, How Sustainable Are Our Economies? Dordrecht and others: Springer Science and Business: Table 5.4.

Norway

HDI SDI

USA

ESI

Mexico Kuwait Russia China Angola 0

50

100

150

policy, however, requires the assessment of the “big picture” rather than of specific impacts. For painting—and evaluating—this picture, we need a measure that makes different impacts commensurable. Unfortunately, we do not have a measure for all-encompassing development and its sustainability. All we can do is ignore the weighting and selection problems in compound indices and rank countries by index scores. But what is the use of such ranking? Can it alert to policy failure or success when losing or gaining a few index points? Will low-ranking countries be shamed into better policies? Will high-ranking countries become complacent? Figure 1 compares the rankings by the Human Development Index (HDI), the Sustainable Development Index (SDI) and the Environmental Sustainability Index (ESI)17 for the highest and lowest ranked countries, and a few in-between. It tells its own story of non-comparability, except perhaps for high performers like Norway. Alternatively, one could set goals and targets for the indicators, which make up the indices, and leave it to decision-makers to evaluate target compliance and non-compliance. This seems to be the purpose of the current efforts to extend the existing Millennium Development Goals beyond 2015, or to agree on new Sustainable Development Goals. Whatever the outcome, the discussion reveals the normative and hence judgmental character of goal setting by experts, civil society or government.

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“

We know that these

‘non-countables’ count

”

a great deal.

But can

they be counted?

FIG URE 2

Environmentally adjusted economic indicators (Billion $) Source: P. Bartelmus (2009). ‘The cost of natural capital consumption: accounting for a sustainable world economy’, Ecological Economics 68: Annex tables. World 60,000 GDP

50,000 40,000

EDP

30,000 20,000 10,000 0

ECF 1990

1992

1995

2000

2004

2006

European Union (EU-25) 16,000

GDP

12,000

EDP

8,000 4,000 ECF 0

1990

1992

1995

2000

2004

2006

Africa 1500 GDP 1000 EDP 500 0 -500

12

ECF

1990

1992

1995

2000

2004

Assigning cost values for natural capital depletion and degradation in greened national accounts involves using money as a common unit of measurement. Modified accounting indicators provide a clearer, albeit limited, picture of the sustainability of economic performance. Figure 2 presents rough global and regional estimates of Environmentally-adjusted net Domestic Product (EDP) and Capital Formation (ECF), and compares them to GDP. The figure indicates that there is not much difference in the growth of GDP and EDP, both globally and for the European Union, except perhaps for Africa. ECF, on the other hand, conveys a more meaningful message for sustainable economic growth: it indicates whether countries have generated new capital after taking produced and natural capital consumption into account. Africa seems to have lived—unsustainably—off its capital base, whereas the world and most other regions have largely maintained their capacity for future growth. Green accounting has, however, its own problems of valuation and interpretation, including: • The pricing of “priceless” environmental services and their impairment by environmental degradation • The loss of “critical” natural capital, which cannot be replaced by other types of capital and whose value is difficult to assess; the greened accounts assume therefore that “weak sustainability” makes it possible to substitute different capital categories in production • The omission of intangible human, social and institutional capital and of a wide range of ecological life-support services Excluding difficult-to-measure intangible capital ignores significant contributions to human wellbeing and welfare from knowledge, skills, networks, life support, and law and order. We know that these “non-countables” count a great deal. But forcing them into measures of growth and development obscures their message and conveys a false sense of security in decision-making. At least for now, rational policies should focus on greening economic growth. Integrated environmental and economic accounts support such policies by assessing hitherto ignored environmental costs and by monitoring environmental investments that can make up for the depletion and degradation of natural capital. Determining and implementing the goals and targets of sustainable development relies, on the other hand, on value judgments and need to be left to political negotiation.

2006

Hu m a n D IM E N S IO N S

Cartoon: Louise Schenk

CARTOON

How about a bigger mirror?

Human D IMENS I ON S

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FEATURE ARTICLE

in Inclusive Wealth

T

he Inclusive Wealth Report 20121 (henceforth IWR 2012), prepared at IHDP and issued jointly by UNU, IHDP and UNEP, took an economy's wealth to be the social worth of three broad categories of assets: (i) reproducible capital (roads, buildings, machines and equipment), (ii) human capital (education, skills, health) and (iii) natural capital (ecosystems, sub-soil resources, the atmosphere). Public knowledge, institutions and social capital (more broadly, "culture") were regarded by the publication as "enabling assets". They were viewed as public goods that "enable" the allocation and accumulation of assets in categories (i)–(iii). Imagine an economy whose politics are dysfunc-

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tional (in the extreme, a failed state). In that world reproducible capital would depreciate quickly owing to neglect or even destruction, human talents would remain unused and so on. Assets in categories (i)–(iii) would therefore have little social worth. In contrast, in a well-ordered society assets in categories (i)–(iii) would be allocated efficiently and accumulated wisely. That in turn means not only that their value would be large, but also that wealth would grow at healthy rates. In arriving at figures for inclusive wealth in their sample of 20 countries, the authors of the IWR 2012 estimated the stock of reproducible capital from official figures for past investments. The

Hu m a n D IM E N S IO N S

Photos: Creative Commons, Flickr (Elderly Man) Anil Kumar B Bhatt (Baby) Eric Peacock (Trees) The Q Speaks

Partha Dasgupta

Human D IMENS I ON S

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"

To leave a forest

unmolested would be to invest in the forest; to allow a fishery to re-stock under natural conditions would be to invest in the fishery; and

"

so on.

well-known methods of Jacob Mincer were used to estimate the stock of education. As regards natural capital the authors were obliged to limit themselves to carbon in the atmosphere (whose accounting price is of course negative), forests as sources of timber, sub-soil resources, agricultural land and scattered figures for fisheries. Great swaths of ecosystems (e.g., wetlands, forests as providers of ecological services, mangroves and reefs) and fresh water were missing in the report because they remain missing from national accounts. That weakness should now be embarrassing to governments. It is a commonplace for politicians in their speeches and plan documents to exclaim their allegiance to the idea of sustainable development; but such sentiments amount to nothing if so much natural capital continues to be excluded from official accounts. It was significant that despite the missing items, estimates of the value of natural capital in most countries in the sample studied in the IWR 2012 were significantly greater than those of either reproducible capital or education. The striking exception was health, and it is interesting to see why. TREATMENT OF HEALTH IN THE IWR 2012 In common with the United Nations' Human Development Index (HDI), health in the IWR 2012 was taken to mean longevity. Where the authors made enormous advance over the UN was in weighting longevity in terms of the value of a statistical life, which is commonly obtained from a representative person's willingness-to-pay for a marginal reduction in the risk of death2. The value of health in the IWR 2012 was thus considered on the same normative basis as other capital assets. The basis was to infer human well-being from preferences revealed in economic transactions. No doubt there are weaknesses in that intellectual move. But until

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more reliable methods are devised for measuring human well-being, national income statisticians will be obliged to restrict themselves to revealed, and in some cases reported, preferences. In contrast to the IWR 2012, the weighting scheme in HDI (which is an aggregate index of GDP per capita, education and longevity) is entirely ad hoc: the weights aren't derived from any known welfare consideration. The problem is, ad hoc methods can mislead dangerously. Ravallion3 for example has demonstrated that under the version of HDI proposed in UNDP4, the value of longevity in Zimbabwe is 0.51 US dollars per year. That means if Zimbabwe's authorities were to make a policy change that increases national income by a mere 0.52 US dollars per person per year at the cost of reducing average life expectancy by one year (other things remaining the same), the country will have promoted human development. That simply can't be right. The IWR 2012 found health to be far and away the largest component of inclusive wealth. The figures estimated were 2–3 orders of magnitude greater than all the other forms of capital taken together, a finding that some have found to be not believable. But longevity matters to people everywhere. And as estimates of the value of a statistical life suggest, it matters greatly (the value of a statistical life in India, for example, has been found to be approximately 500,000 US dollars). In democratic societies that should count. Because so many forms of natural capital are currently missing in estimates of inclusive wealth, natural capital hasn't yet had a proper airing. My strong guess is that once national accounts include natural capital in a comprehensive manner, it will join health in its quantitative significance in the inclusive wealth of nations. The composition of inclusive wealth in terms of various capital assets doesn't have direct implications for policy. A mere study of the relative magnitudes of the assets wouldn't tell us their relative importance in investment decisions. Suppose for example that the value of a particular asset swamps that of all others by a factor of 1000. That doesn't mean investment ought to be directed at further increases in that asset (nor that it ought to be directed away from it), for we don't know the costs involved in doing so. Only social cost–benefit analysis, using the same shadow prices as are used in estimates of inclusive wealth, would tell the investigator which investment projects are socially desirable. The next instalment of IHDP's Inclusive Wealth Report, the IWR 2014, is currently under preparation. Because the authors of the publica-

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tion intend to pay special attention to health, I take the opportunity to introduce some of the concerns health's inclusion raises in the preparation of national accounts. I first extend the notion of investment and then apply it to a discussion of what investment in health consists of. THE IDEA OF INVESTMENT The IWR 2012 based its empirical work on a theorem that says that inclusive wealth per capita moves in the same way over time as does well-being across the generations averaged over people; that is, the former increases if and only if the latter increases. An economy can thus be said to have followed a path of sustainable development over a period of time if net investment per capita during the period was positive. The proposition is the normative basis for the suggestion that national accounts ought to display the composition of inclusive wealth (per capita), summarize its aggregate value, estimate its past movements and forecast its future movements. However, the proposition in italics can go counter to the intuitions of many who have strong environmental concerns. That's because the word "investment" carries with it a sense of robust activism. When the government invests in roads, the picture drawn is of bulldozers levelling the ground and tarmac being laid by men in hard hats. But because the notion of "capital" extends beyond reproducible assets to include human capital, natural capital, and knowledge and institutions (the enabling assets), we need to stretch the notion of "investment". To leave a forest unmolested would be to invest in the forest; to allow a fishery to restock under natural conditions would be to invest in the fishery; and so on. That suggests investment amounts to deferred consumption. But the matter is subtler. Providing additional food to undernourished people by means of, say, food guarantee schemes not only increases their current well-being (food is enjoyable), it enables them also to be more productive in the future (they will have greater strength and stamina) and to live longer. Because their human capital increases, the additional food intake should count not only as consumption but also as investment. Note though that food intake by the well-nourished doesn't alter their nutritional status, which means the intake is pure consumption, not investment. We conclude that by "net investment" in an asset we should mean the value of the change in its stock.

Human D IMENS I ON S

The latter proposition in italics has a number of implications for national income accounting.1,2,5 Take for example the repair and maintenance of reproducible capital. Such expenditure is a defence against depreciation. In a market economy an asset would be priced in accordance with its quality, which means the repair and maintenance expenditure would be capitalized in the asset’s value. To include defensive expenditure in aggregate investment would then involve double counting. The expenditure should be regarded as neither consumption nor investment. A common complaint against traditional economics is that the discipline regards the rebuilding of assets following their destruction as investment. One of the far-reaching contributions of the IWR 2012 has been to show that the complaint has been entirely justified. HEALTH AS A FORM OF CAPITAL Good health brings three types of benefits: (1) healthier people suffer less from aches and pains, which means health contributes to current wellbeing; (2) healthier people are more productive; and (3) healthier people live longer. By bringing relief from pain, medication improves the quality of consumption (meals taste better in the absence of a head-ache!) and hence an improvement in the quality of life (characteristic (1) of health). Medication in this context is a form of consumption. Disability means low productivity (characteristic (2)), which can be measured in principle and is often in practice. Physical disability can in part be compensated for with wheel chairs, reading glasses, hearing aid, and so on. Expenditure on such items amounts to investment in reproducible capital. Depressions and anxieties are frequently countered through counselling, the recurrent ex-

"

It is a significant fact that

lifetime expenditures in a person's health are complementary: damage to one's health at an early stage of life cannot easily be com-

"

pensated for in later years.

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penditure on which is consumption (it alleviates mental anguish); but the training of counsellors is investment in human capital. Malnourished people lack energy and stamina and are at the bottom of the earnings schedule. Improvements in health over time can be measured in terms of increased productivity. It is a significant fact that lifetime expenditures in a person's health are complementary: damage to one's health at an early stage of life cannot easily be compensated for in later years. And although a person's span of attention and the ability to remain calm even under stressful circumstances are often thought to be "innate" ("in the genes", as the saying goes today), recent work in developmental biology has found that what goes by the name "innate ability" is in part acquired and can be traced to a person's early social, nutritional and disease history. The epidemiological and social environment in which an infant grows influences the development of her innate abilities. The return on investment in the health of women in pregnancy and in the health of infants and children is a lot higher than is often supposed.6 Vaccination, inoculation and bed nets offer protection against pathogens, preventing illness

and saving lives. Here again, the national income statistician should guard against double-counting. If such defensive expenditure is capitalized in higher market wages, the defensive expenditure should not appear as investment in national accounts. The expenditure itself is neither consumption nor investment. Similarly, defensive expenditure against environmental pollution (decontaminating water) prevents the environment from deteriorating but doesn't improve it. Therefore it is neither consumption nor investment. To the best of my knowledge no international data are currently available for estimating the contribution of health to labour productivity (characteristic (2) of good health) and current well-being (characteristic (1) of good health). That is why the IWR 2012 and Arrow et al.2 studied longevity only. But it is an intriguing and fortunate fact that expenditure that brings relief from pain or raises productivity also help to extend life. Expenditure on health thus gives rise to joint products: relief from pain and discomfort, greater productivity and a longer life. The absence of one or more of the three aspects of good health in quantitative estimates only means that health can be said to have been undervalued even in the IWR 2012!

Partha Dasgupta Professor Sir Partha Dasgupta is the Frank Ramsey Professor Emeritus of Economics at the University of Cambridge. He was formerly chairman of the scientific board of the Beijer International Institute of Ecological Economics of the Royal Swedish Academy of Sciences, as well as professor of economics and philosophy, and director of the Program in Ethics in Society at Stanford University. Since 2008 he has been Professorial Research Fellow at the University of Manchester. He is also the Andrew D. White Professor-at-Large at Cornell University and is currently President of the European Association of Environmental and Resource Economists. In addition to a number of honourary fellowships, Professor Dasgupta is a foreign associate of the U.S. National Academy of Sciences,

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and also a Fellow of the Royal Society and the British Academy. Professor Dasgupta has spent nearly most of his professional life working on poverty and inequality issues. His cutting-edge research covers welfare and development economics, the economics of technological change, population, environmental, and resource economics, game theory, and the economics of malnutrition. Much of his work has involved investigating the areas of sustainable development in which the interests of economics collide with ecological and social issues. An important area of his research has been the study of social capital— for instance, the degree of mutual trust and social networks that form a community. Having grown up in India, he brings a unique perspective to his field. Professor Dasgupta

has also been invaluable to the cause of capacity-building among young scientists, especially in developing countries. In 2002, Professor Dasgupta was named Knight Bachelor by Her Majesty Queen Elizabeth II for services to economics. He has won numerous awards and prizes, including the 2002 Volvo Environment, the 2007 John Kenneth Galbraith Award of the American Agricultural Economics Association, and the 2011 Zayed International Environment Prize. Professor Dasgupta holds a B.Sc. (Hons.) in Physics from the University of Delhi, a B.A. (Hons.) in Mathematics and a Ph.D. in Economics, both from the University of Cambridge. He was born in Dhaka, Bangladesh (then in India).

Hu m a n D IM E N S IO N S

2nd International Conference on

Urban Transitions and Transformations: Science, Synthesis, Policy Taipei, Taiwan | November 6–8, 2014

The 2nd International UGEC conference will synthesize our knowledge of the bidirectional interactions between urbanization and global environmental changes and to reflect on the key lessons learned. It will identify transformative pathways for a future urban world that is increasingly complex and uncertain.

In order to facilitate these objectives, the conference has been divided into four integrative themes that are intended to bring together perspectives from across the social and natural sciences, and humanities to better understand urban environmental issues in a more integrated, interdisciplinary and transdisciplinary way.

CONFERENCE THEMES 1. Urbanization patterns and processes 2. Urban responses to climate change: adaptation, mitigation and transformation 3. Global environmental change, urban health, and well-being 4. Equity and environmental justice in urban areas

Visit our conference website for more information and to register

http://www.ugec2014.org Human D IMENS I ON S

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PHOTO SERIES

Keeping Tally

With policymakers focusing on complex indicators to measure societies’ success, it often seems as if they are missing some of the most meaningful and simple signs there are. How else might we tally up well-being?

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SMILES By now, we have all heard of Gross Domestic Happiness as an indicator of societal well-being. But, as The Economist1 puts it, “Fixing the limits to ‘happiology’ is difficult.” The deeper we get into quantifying happiness, the more elusive answers become. But there’s a countable, nearly-universal symbol of happiness on the most crowded streets and in the smallest villages: smiles.

Human D IMENS I ON S

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HEA LTH

Photo: Creative Commons Flickr/Matt Webb Zahn

CHUBBY LEGS Each ounce of birth weight can add significantly to a child’s overall quality of life over time. Beyond increasing the chance of survival, the effects of birth weight stretch far into a child’s lifetime. Babies weighing less than 3 pounds 10 ounces at birth are more likely to have negative long-term health effects. And many that appear to be developing normally arrive at school with learning disorders and behavioural difficulties.2 As a health indicator, why not start counting the rolls of fat on the limbs of our countries’ babies?

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H E ALT H

Photo: Creative Commons Flickr/Matt Jacoby

HOURS SLEPT If we were to count our societies’ sleeping hours, we’d likely have a good idea of strength of its social bonds, sense of independence and optimism. More sleep has been proven3 to lead to better interpersonal relationships, emotional intelligence and empathy toward others. It also contributes to positive thinking, impulse control, self-regard and assertiveness. Altogether, sleep makes for a happy, healthy and productive population.

Human D IMENS I ON S

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TEC HNOLOGY

EYEGLASSES

PHoto: Creative Commons Flickr/ Sandee Pachatan

A vendor sells glasses on the streets of Ahmedabad, India. With 700 million people in the developing world lacking affordable vision correction, he’s providing an important service: raising individuals’ potential. Without glasses, school kids miss out on their potential to learn, and adults are unable to make the best of their most productive years. Glasses raise individual’s earning prospects by 20 per cent.4 Globally, uncorrected vision results in US$202 billion economic loss. Wanting to measure productivity, we can’t forget to measure its basic supporting factors. For example, simply being able to see.

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Human D IMENS I ON S

25

ENVI RONMENT

CITY BIRDS

Photo: Creative Commons Flickr/Andrea Schaffer

When you wake up to the sound of chirping birds, you are listening to one of the simplest indicators of local environmental health. Multiple programmes across the globe are empowering citizens to count, identify and register the birds they encounter, to aid researchers in their understanding of ecosystem changes. Not only are birds easy to see, and fun to identify, their position at the top of the food chain makes them susceptible to accumulating chemicals, and loss of biodiversity in the wider ecosystem. These factors make them a good and countable indicator of environmental hazards, climate change and biodiversity loss.5

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TEC H N O LO GY

Photo: Creative Commons Flickr/Luca Bergadano

WASHING MACHINES A man pulls his laundry from a front-loading washing machine. The apartment in the background may look cramped, but he’s already more well-off than a big portion of the world population: only 2 of 7 billion have access to a washer.8 Requiring water and power to function, washing machine density is also a symbol of infrastructural density. More importantly, this humble appliance has transformed the nature of household work. With one, homemakers can spend their time and energy toward more noble (and interesting) pursuits.

Human D IMENS I ON S

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PHoto: (right) Creative Commons Flickr/Thomas Hawk

SO C I AL CAP ITAL

RANDOM ACTS OF KINDNESS We all want to live in a world where elderly are always able to find a seat in the train, parents get help toting their strollers up stairs, overladen grocery shoppers find help to carry their bags home, and where strangers jump in to help with major and minor crises. Random acts of kindness symbolize neighbourliness, community and generosity, why couldn’t they be a measure of well-being too?

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Hu m a n D IM E N S IO N S

SOCIAL CAP ITA L

POPSICLES How comfortable and secure do you feel in your town? Catherine Austin Fitts6 proposes that this can be measured by asking a simple question: Can your child leave their home, go to the nearest vendor and buy a popsicle or snack, and return safely? While basic, the question reveals multiple perceptive judgements: whether the neighbourhood is safe, or the neighbours are trustworthy, how confident the child is on their own, if food is safe, and markets are available, or even whether there is money for a spontaneous treat.

Human D IMENS I ON S

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PHoto: Creative Commons Flickr/Qatbart

HUM A N CA P ITAL

TEENAGE SCHOOLGIRLS A crowd of teenaged schoolgirls line the streets of Stonetown, Zanzibar. This is a lovely, albeit rare sight. Fewer than one in five girls in sub-Saharan Africa are able to attend secondary school. A girl who does is making a big contribution to curbing population growth and raising global productivity. Statistically, she will marry four years later and have 2.2 fewer children. And with each extra year of education, she is able to raise future wages by 15-25 per cent.7 In this, counting teenaged school girls equates to predicting natural, social and economic sustainability.

Human D IMENS I ON S

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PHoto: Creative Commons Wellcome Images

FEATURE ARTICLE

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Hu m a n D IM E N S IO N S

GDP Reexamined Anantha Duraiappah and Cecilia Fernandes

H

umans tend toward conservatism in most aspects of life—defending the simple and familiar is understandable. Familiarity engenders cognitive ease, while change is disruptive, and often requires dedicated effort and convincing arguments. This might describe the current state of affairs for the role of Gross Domestic Product (GDP) in socioeconomic policymaking worldwide. Governments, businesses, the media and indeed the public at large have all come to see this indicator as the ultimate yardstick for measuring wellbeing. This has occurred despite the warnings1 of Simon Kuznets, the father of GDP and the National Income and Production Accounts (NIPA) upon which it is based. Kuznets’ stated objective was to provide policymakers a theoretically robust empirical framework for measuring the economy in terms of production and income potential; to give the total economic value of all final goods and services produced in an economy in a stipulated time using market prices. There is no doubt GDP and the NIPA played an important role in guiding policymakers struggling to reverse the declines of the Great Depression. The availability of data and better understanding of aggregate expenditures, income and savings further helped facilitate war efforts during the Second World War and the subsequent rebuilding of war-torn economies and societies. Nobel laureate Paul Samuelson and his coauthor William Nordhaus noted the importance of the national accounts during this crucial period in the 15th edition of their textbook, Economics2 “Much like a satellite in space can survey the weather across an entire continent so can the GDP give an overall picture of the state of the

Human D IMENS I ON S

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economy. It enables the President, Congress, and the Federal Reserve to judge whether the economy is contracting or expanding, whether the economy needs a boost or should be reined in a bit, and whether a severe recession or inflation threatens. Without measures of economic aggregates like GDP, policymakers would be adrift in a sea of unorganized data. The GDP and related data are like beacons that help policymakers steer the economy toward the key economic objectives.”

However, as growth surged, and as more and more countries began targeting GDP growth as their primary objective, negative environmental, social and even economic side effects began to emerge. Carbon emissions increased by 40 per cent since pre-industrial times, primarily due to fossil fuel emissions and secondarily from net land use change emissions, which has lead to climate change.3 Scientists estimate that between 150 and 200 species of life are now becoming extinct every 24 hours, reflecting an unprecedented rate of extinction of life on Earth, and which can be expected to continue as countries clear forests, overfish oceans and expand frontiers in search for resources to fuel GDP growth.4 In parallel, social problems such as rising unemployment, increasing inequality and decreasing social mobility are intensifying all over the world. In the dash to increase GDP growth, governments have neglected investments in education, health and other crucial institutions for human development. Indeed, it is now very likely that a country experiencing high GDP growth rates is on an unsustainable path in one or more of the basic assets required for reasonable well-being.5 GDP fails, for example, to capture environmental externalities, since none of its components refer to natural resource depletion, but only to the resulting production and consumption. Perversely, massive destructive events to the economy improve GDP numbers, despite the decrease of overall welfare. The net effect of a natural disaster is often an increase in GDP, at least in the short run. These events clearly lead to losses in output and affect tourism, but require reconstruction of buildings and infrastructure. The effect of a major storm in Denmark in December 1999 was to raise GDP by 0.8 per cent in 2000.6 Similarly, floods in Thailand caused damage of approximately USD 45.7 billion to the economy in 20117, but resulted in GDP growth of 6.4 per cent in 2012, driven by reconstruction efforts in affected areas. Despite these examples, many still argue that growth is a higher priority than investment in

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education and health, with the reasoning generally being that the former will inevitably lead to the latter, see the ongoing heated debate between Amartya Sen and Jagdish Bagwati8. More recently, Sir Partha Dasgupta joined the debate9 alerting the fact that both Sen and Bagwati were ignoring the important role environment and nature play in the economic and social spheres of humanity. But there is a clear trend among economists and policymakers for recognizing the need to rethink GDP’s role as the sole indicator for evaluating welfare changes and improvements in well-being. CHANGE IS NEEDED! The key criticisms against this role for GDP were spelt out clearly in the 2008 Stiglitz–Sen– Fitoussi Report and the ensuing book “Mis-Measuring Our Lives”10. The key weaknesses as Stiglitz et al identified are: (i) GDP as an indicator is myopic and does not in any way address sustainability; (ii) it is focused solely on economic production and assumes that social “goods” such as employment, health and education will improve as income increases; (iii) it pays no heed to negative environmental externalities such as pollution, nor to positive ecological “goods”, now called ecosystem services, such as water regulation or pollination, among others; (iv) there is no attention to equality, with wealth distribution being an assumption; (v) only output quantity is considered, with little or no attention paid to output quality. In light of the growing evidence of the GDP’s inappropriateness as an indicator of societal progress, countries took a bold step forward at the Rio+20 summit. Leaders of over 100 countries adopted a resolution requesting new indicators, going beyond GDP, for measuring societal progress. In this article, we take the request one step further by proposing a new indicator to measure societal progress, and also the sustainability of that progress. A THEORY OF SUSTAINABILITY The point of departure for any discussion on the Beyond GDP debate must be sustainability. The Brundtland Commission popularized the concept of sustainable development in its seminal report, Our Common Future, in 1992. Since its inception, the concept of sustainable development has gained widespread acceptance, becoming a key factor in modern development and, more recently, even economic planning. However, the goals, targets and indicators used by countries for sustainable development have been broad, with each

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country using its own interpretations of goals, targets and indicators. The reason for the wide disparity in understanding sustainable development arises from its lack of a robust theoretical foundation. It was always more of a conceptual base for political statements on how development “should be”, while too little attention was given to the “why” and “how”. We shall try to address these two missing points in this note. Let’s start with the “why”. Drawing from the seminal works of Arrow, Dasgupta and colleagues11, we shall highlight a number of key properties of our socio–ecological system and why a theory of sustainability should be formulated. This is followed by a brief description of the theory and ensuing model—the “how”. PROPERTY ONE: ENDS, MEANS AND INTERDEPENDENCIES The first question we should ask ourselves is: What do we want to sustain? Our constituents of well-being are those ends individuals or societies have reason to value. These can range from objective constituents such as health and education to subjective constituents such as self-esteem, psychological state of mind and various elements of social relations. Determinants of well-being are the means by which ends are achieved. Determinants of well-being could include economic facilities, education and health, among others. There are many instances in which determinants are also constituents. However, determinants are to a large extent easier to measure and quantify, as they tend to be objective measures rather than the largely subjective and difficult to measure ends12. Most well-being indicators in use today employ a combination of constituents and determinants. The Human Development Index (HDI), the Gross Happiness Index (GHI) and the Genuine Progress Indicator (GPI) are some examples. Mixing determinants and constituents can lead to methodological problems, however, when it comes to measurements. For example, in the case of GHI, nine domains are identified as critical for evaluating an individual’s state of happiness: psychological well-being, health, education, culture, time use, good governance, community vitality, ecological diversity and resilience, and living standards. Within these nine domains, 33 clusters are recognized and a total of 124 variables used for the final computation of happiness. The weights allocated to each variable or constituent are derived from expert and indi-

Human D IMENS I ON S

"

In the dash to increase

GDP growth, governments have neglected investments in education, health and other crucial institutions for

"

human development.

35

"

To produce goods and ser-

vices, two other critical assets are needed but

PROPERTY TWO: STOCKS AND FLOWS— PRESENT AND FUTURE

ignored in the present computation of GDP:

vidual opinion, although the nine domains themselves are weighted equally. The dependence on public opinion through surveys for the weighting structure becomes problematic when comparing across countries and time. The values individuals place on these nine domains and the corresponding variables depend on culture, religion, gender, age and numerous other context-specific parameters. This makes cross-country and inter-temporal comparisons difficult and sometimes nonsensical.

"

natural and human capital.

GDP captures the production of goods and services well, or income generated and expenditures incurred in a stipulated time period. In most cases, this time period is a year, since most national income and expenditure accounts are based on annual flows of production and income. To be sure, NIPA (or SNA, the System of National Accounts) does keep track of stocks. However, these are limited to only a certain category of assets. Specifically, produced assets or capita are monitored—things such as buildings, roads, bridges and other forms of physical infrastructure. But to produce goods and services, two other critical assets are needed but ignored in the present computation of GDP: natural capital and human capital. Natural capital includes both nonrenewable and renewable resources. The present assumption in our economic system is that these resources are infinite in supply—both as a source of inputs for production and as sinks for the pollutants that are created in the production process. As climate change now shows the potential to cause significant net loss to human well-being,

Anantha Duraiappah Prof. Anantha Duraiappah is IHDP's Executive Director. He is an experienced environmental–development economist whose work largely focuses on the equity of access and use of ecosystem services. In his previous post as Chief of the Ecosystem Services and Economics Unit of the United Nations Environmental Programme (UNEP) Prof. Duraiappah helped to initiate the Intergovernmental Platform for Biodiversity and

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Cecilia Fernandes Ecosystem Services (IPBES) and has since then played a pivotal role in its recent approval. He has authored two books on environment and international aid and development, as well as articles in several internationally recognized journals. Prof. Duraiappah continues to successfully incorporate his expertise in science–policy interaction, economics, development and ecosystem services into his work at IHDP.

Cecilia Fernandes is a Research Officer at IHDP. She has studied Economics at the Sao Paulo School of Economics (FGV) and holds a Master’s degree in Economics with specialization in Monetary Policy from the University of Amsterdam. The focus of her studies was on Econometrics and Monetary Policy. She previously worked for an economic consultancy and did research in the field of economics.

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it is clearer than before that we need to factor changes in natural capital as we evaluate changes in welfare. Human capital is no less important. In this note, we define human capital as aggregates of human education and health. Education not only increases productivity, but also provides qualitative benefits associated with knowledge acquisition and learning. Currently, resources spent on education and research are treated as expenditures rather than investments. Health has also been identified as a key determinant of well-being, providing both quantitative benefits to economic productivity and qualitative benefits to quality of life. Concerns over environmental degradation and fiscal sustainability have led many to think more about how future generations will be affected by decisions today. We must acknowledge that future generations might have very different values, aspirations and perceptions of human wellbeing and its constituents. However, they will still rely upon the same productive base to realize those constituents. If we do not use our productive base sustainably, there will be nothing left for future generations to work with. THE SUSTAINABILITY MODEL: INCLUSIVE WEALTH The model presented in this section is an attempt to develop an integrated framework capturing the key two properties discussed above.13 Intergenerational well-being is assumed to be the discounted flow of consumption of goods and services necessary to achieve the constituents of well-being. This might include consumption of material goods, spiritual or aesthetic services offered by nature, as well as economic and social benefits from education and health. The objective for sustainability is then to maintain non-decreasing well-being. This leads to definition one: Proposition 1 A country is on a sustainable trajectory at time t if dV >0 (1) dt Where V is intergenerational well-being It is important to note here that although the sustainability of a country is determined at each time period t, the intergenerational well-being requires a forecast of the economy beyond time t. That future depends on the stock of a country’s

Human D IMENS I ON S

assets, peoples’ values and preferences and institutions beyond time t. In other words; V(t) = V (K(t)). The next step is to make the link between well-being and the stock of capital assets, which we call the productive base of an economy. This productive base consists of the various capital assets a country owns: produced capital (buildings, roads, bridges etc); natural capital (forests, water, agricultural land, fossil fuels etc); and human capital (education and health). The social value of the productive base is what we call inclusive wealth. A key word here is “social value”. This requires using the shadow price (or social price) of the various assets in computing the wealth of a country. This leads us to definition 1. Definition 1 W (t) =

∑ pi,t ki,t (2) i

W(t) is the wealth of a country at time t. We now make the following proposition: Proposition 2 Well-being increases over time if and only if wealth also increases. d(W) t dKi (t) = ∑ pi ≥0 ( dt dt ) (3) i The equation above states that the change in wealth is equal to the sum of the changes in the various capital stocks multiplied by their respective social prices. But from V(t) = V (K(t)) if we differentiate with respect to time; i.e., rate of change over time of intergenerational well-being we get equation 4. dV (t) ∂V(t) dKi =∑ ≥0 [( )( dt )] dt ∂Ki(t) (4) i We define social prices as: ∂V(t) (5) pi (t) = dKi(t) Therefore, inserting (5) into (4) we get: dV (t) dKi (t) = ∑ pi ( dt dt ) i

(6)

Equation (6) is the rate of change of intergenerational well-being, which is equivalent to equation (3), the rate of change of wealth. We can, with a number of simplifying assumptions14 extend this result to Proposition 3: Proposition 3 Well-being per capita increases over time if and only if wealth per capita increases.

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Figure 1: Inclusive Wealth Index Per Capita

Table 1: Comparing average growth rates per annum in IWI per capita, HDI and GDP per capita

Countries/ Indicators

Key Average annual growth rate (percent)

2.0–1.5

0.5–0

1.5–1.0

0 – (-1)

1.0–0.5

-1 – (-2)

IWI HDI GDP per capita

Australia

0.1 0.3 2.2

Brazil

0.9 0.9 1.6

Canada

0.4 0.3 1.6

Chile

1.2 0.7 4.1

China

2.1 1.7 9.6

Colombia

Figure 2: Annual growth rates (per capita) disaggregated by capital type 2.5

IWI 2

Natural capital Human capital

1.5

Produced capital

per capita

-0.1 0.9 1.7

Ecuador

0.4 0.6 1.8

France

1.4 0.7 1.3

Germany

1.8 0.7 1.5

India

0.9 1.4 4.5

Japan

0.9 0.4 1.0

Kenya

0.1 0.4 0.1

Nigeria

-1.8 1.3 2.5

Norway

0.7 0.6 2.3

Russia

-0.3 0.8 1.2

Saudi Arabia

-1.1 0.5 0.4

South Africa

-0.1

1 .5 0

-1 -1.5

Percentage

-0.5

SOME PRELIMINARY RESULTS: THE INCLUSIVE WEALTH REPORT 2012 In this section, we would like to present some preliminary results from the Inclusive Wealth Report (IWR) 2012,15 which looked at developments in the productive bases of 20 countries. These countries were chosen based on a number of factors. First, we looked at countries with large GDPs—the 20 countries together represent 54 per cent of global GDP—and large populations—representing 75 per cent of the global population. Additionally, some of the major fossil fuel producers were selected, as well as several countries with large tracts of forests, as the 2012 IWR focused on natural capital in particular.

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NGA

SAU

RUS

VEN

COL

ZAF

KEN

AUS

CAN

ECU

NOR

USA

GBR

BRA

JPN

IND

CHL

FRA

DEU

CHN

-2

-0.1 1.3

United Kingdom

0.9 0.6 2.2

United States

0.7 0.2 1.8

Venezuela

-0.3 0.8 1.3

Nineteen of the twenty countries were initially found to be on a sustainable trajectory. However, when corrections were made for population growth, and changes in wealth were based on a per capita basis, the number of countries that had negative growth rates in inclusive wealth jumped from one to six, as shown in the Figure 1. Of the remaining 14, only four countries were experiencing growth in IW of more than 1 per cent (Chile, France, Germany and China). Looking at the growth of the various capital bases, the scenario underscores caution for the group. Nineteen of the twenty countries returned negative rates of change in natural capital. This supports our concerns regarding the state of environmental degradation over the past six de-

Hu m a n D IM E N S IO N S

cades, although our results only include the past 20 years. The trend highlights the danger of depleting a critical component of wealth. Although the weight of each of the capital assets vary across countries, the weight of natural capital is relatively high in many of the countries experiencing strong growth rates in IW. This implies that a rapid decline in IW can be expected if present declines in natural capital continue. Most countries saw increases in human capital, which to a certain extent offset decreases in natural capital asset bases. However, as diminishing returns set in with additional increases in human capital in some of these countries, policymakers will need to look at ways to increase return on investment in human capital, as well as in the various components of natural capital. Produced capital must not be forgotten—it is as important as the other forms of capital to overall well-being. Although many countries have seen rapid increases in this category, the level of additional investment to this category might not yield the rate of returns that the other two capital asset bases might offer. It is an area worth investigating in more detail in the future. Figure 2 shows the average annual growth rates from 1990 to 2008 of each capital form for the selected countries. In comparison with GDP growth rates, there is only a very small degree of correlation between countries with high GDP growth rates and high growth in IW. In many countries where high GDP growth rates were observed, the rate of IW growth was low, and in many cases even negative, as shown in table 1.

KEY MESSAGES AND RECOMMENDATIONS While there are many lessons to be extracted from the Inclusive Wealth results, we can distill five key messages relevant to the debate over measuring well-being. Key Message 1 GDP is a good measure for measuring an economy’s production and income generation potential. It is not a suitable indicator to measure welfare changes, even if extended merely to include environmental externalities. Key Message 2 Sustainable development is in dire need of a robust theoretical framework to support its goals and appropriate indicators to measure progress.

Human D IMENS I ON S

This indicator must incorporate two fundamental properties: First, it must make a distinction between constituents and determinants of wellbeing, while the sustainability framework must capture the relationship between them; second, it must provide information on the productive base—or inclusive wealth—required to maintain positive changes in well-being over time. Key Message 3 The productive base of a society depends on three major classes of assets or capitals: produced capital, natural capital and human capital. The value of changes in the aggregate total of these three forms of capital must be positive if overall well-being is to be positive. Key Message 4 The total value of the various capital assets would be the change in their physical levels multiplied by the shadow price of these assets. It is important to note that in most cases, market prices do not reflect the true value of an asset. Key Message 5 The true achievement of sustainable development must focus on human well-being, and must allow for changes in how future generations determine well-being. Based on these messages, some recommendations emerge to establish new perspectives on policy decisions. Recommendation 1 Countries might consider supporting and speeding up the process of moving from an income only-based accounting framework to wealth accounting framework. This means moving away from GDP per capita and instead design economies—such as fiscal and monetary policies—to increase IW. Recommendation 2 Countries should consider dealing with uncertainty in computing accounts by adopting a band approach with upper and lower limits, thus allowing policymakers to be aware of the ranges over which changes occur. Recommendation 3 Governments and international organizations should establish research programs for valuing alternative indicators for GDP, focusing on issues related to welfare and sustainability.

39

PRO FI LES

Penning Prosperity As the writing contest went into its fourth round, young scholars were invited again to compose articles on the issue in question. Writings submitted to the contest were to address the “Beyond GDP” debate, and—for example—take on the question of whether GDP is a sufficient indicator for well-being or if the world is in need of a new way to measure

40

just how well our governments and economies were doing at improving the lives of their citizens. Out of many remarkable pieces, the jury was finally able to select four winners—the last two sharing the third place—to be awarded cash prizes and have their work published on the following pages. Enjoy the read.

Hu m a n D IM E N S IO N S

Contest Winners

F IRS T P L AC E

1

Fouad Khan Fouad Khan is a PhD student in the Environmental Science and Policy Department at Central European University where he is working on developing a sustainable development indicator for complex urban systems. His research focuses on exploring the relationship between complexity and sustainability/resilience. He also provides consultancy services to the World Bank as an Environment Specialist and has published academically and in popular journals. He was born in 1980.

2

3

3

T HI R D P LAC E

TH IRD P L AC E

Sukanya Misra

Roebin L. Huffenreuter

Sukanya Misra is an architect, ur-

Roebin Lijnis Huffenreuter, born in

ban planner and currently a 3rd year

1980, holds a BA in Philosophy and

PhD student in Kyoto University, in-

an MA in Institutions: Research Mas-

SECOND PLACE

terested in the ways in which new,

ter in Philosophy and Economics.

Addisu Lashitew

multidimensional

of

Currently, he is working on his PhD

the densities of various urban func-

research at the Dutch Research In-

Addisu Lashitew was born in 1983

tions can help urban planning affect

stitute For Transitions, Erasmus Uni-

and received his bachelor’s degree

a holistic improvement in human ca-

versity Rotterdam, in the Netherlands.

from Jimma University, Ethiopia, and

pabilities. She has so far been suc-

His research considers “financial–

his MSc in Environmental Econom-

cessful in creating measures for the

economic transitions”, which are sys-

ics from Wageningen University, the

statistical measurement and analysis

temic changes in the configurations

Netherlands. He is currently a PhD

of density characteristics and human

of societal (sub)systems in relation

student at the Faculty of Econom-

security indicators, which has given

to economic factors, such as money,

ics and Business in the University of

insights into the crowding situations

resources, and policymaking. Thereby

Groningen, the Netherlands. His field

in the cities studied. Besides travel-

the focus is not on the availability or

of research is industrial development

ling across the world, her hobbies in-

distribution of such factors but on

and productivity measurement in de-

clude cycling, arts, crafts and music.

the changes in perception, (techno-

veloping countries.

She was born in 1985.

logical) structure and use.

Human D IMENS I ON S

measurement

41

W RI TI NG CONTEST · F I R S T P LACE W I N N E R

Measuring the Infinite Future indicators must take into account transitory human needs and the complexity of human systems

Illustration: Louise Schenk

Fouad Khan

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ONCE

upon a time there lived a beautiful princess who loved indicators. She gauged and measured, monitored and treasured every resource the kingdom held to every last drop, grain, pint and block. When it came time for the princess to get married, she set a strange condition to choose her husband. It was announced all over the kingdom and beyond that the princess would marry the man who would answer the following question, more accurately than anyone else. “How big is the lake in front of my palace?” The lake was beautiful, pristine and spread over miles and was the source of water to the entire kingdom. Nobody quite knew how deep the lake was; in fact it was so deep, no-one ever dared to swim in it. The aspirants were only allowed to use a long rope, about the diameter of the lake, as a measuring instrument. The physicists and mathematicians and economists all rejoiced, all of them fancying their chances and already running their models in their heads. Little did they know, they were about to receive a profound lesson in what it means to measure something. —•— In 1935, the great inventor and visionary Nikola Tesla said in an interview with Liberty Magazine1: “[In the] twenty-first century… it will be more glorious to fight against ignorance than to die on the field of battle. The discovery of a new scientific truth will be more important than the squabbles of diplomats. Even the newspapers of our own day are beginning to treat scientific discoveries and the creation of fresh philosophical concepts as news. The newspapers of the twenty-first century will give a mere “stick” in the back pages to accounts of crime or political controversies, but will headline on the front pages the proclamation of a new scientific hypothesis.”

As right as Tesla might have been about the “current wars” or many of his other myriad interventions in the evolution of modern technology, even a cursory review of some of our times’ mainstream newspapers and electronic media would confirm that he was indeed wrong about his vision of the future. He was not alone in his mistake either. Here’s what James Maynard Keynes thought2: “When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. The love of money will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semipathological propensities which one hands over with a shudder to the specialists in mental disease. I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue—that avarice is a vice, that the exaction of usury is a misdemeanor, and the love of money is detestable”.

Most noted intellectuals of that time envisioned a future in which intelligence and the pursuit of knowledge would be cherished above all else, and the ultimate goal of man would be to understand the universe, himself and his place in the

Human D IMENS I ON S

43

cosmos. That unfortunately is not the world we have built for ourselves. Today, even in some of the most advanced nations of the world, partisan “news” anchors hysterically bleat on about the war on this and the war on that, casting the spell of a narrative of martyrdom, appealing to the most basic instincts of humanity. Reality TV celebrates—and almost makes a virtue out of—ignorance, and governments are chosen and rejected not on the basis of how positively they enhance the human potential of their populace, but on how much “growth” they achieve in their tenure. All this while we continue to ignore the defining—some would say existential—problem of our civilization, global climate change, and continue trying to “grow” ourselves into oblivion. If Tesla were alive today, he would say that we are not measuring the progress of our society in the right way. To put it in development jargon, we have an indicator problem. The indicator problem is confined not only to the highest echelons of power but seeps right down to the level of the individual, with no useful consensus emerging at any step of the hierarchy of organization of human societies. It spreads across nations, continents and governing systems. While there is no denying that we’ve come a long way over the past two hundred years— eradicating poverty at a mass scale, transforming the provision of healthcare and public health in cities, connecting every part of the globe through an intense network of road, train and air transportation revolutionizing the way we communicate electronically, achieving a sort of information-equality for a large percentage of human population—of late, it seems we’ve gotten stuck as a species; failing to address the primary challenges of our times and stubbornly refusing to acknowledge that what we need is not only progress but a new way to define progress. In a manner, we’ve become hostage to our own success as a species, our social and governmental institutions ossifying in their ways of doing business and defining policy. It all started with the post-war reconstruction of Europe. To measure progress on that front, GDP was a good enough indicator. European populations, though decimated, had centuries of historical and cultural development to fall back on and a relatively welleducated middle-class. The world looked on in awe as Europe resurrected itself from the ashes of war in a matter of decades, reporting progress on all fronts tied inextricably to that one magical number, the GDP. Meanwhile the US became the richest nation in the world, with living standards the envy of global population, chasing in its policy—it seemed like nothing else but—a growth in GDP. It wasn’t long before we became aware of the hidden costs of GDP-oriented development. Beginning in the early sixties, first with the publication of Silent Spring and eventually with the release of Earthrise –the famous picture of earth taken from moon—an environmental movement emerged. The externalities of a GDP-based economy were identified; foremost among them the environment and finite resources of the planet we called home. Efforts to reform GDP and to define alternative indicators taking into account these externalities were set in motion.

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Hu m a n D IM E N S IO N S

Since then, several indicators have been developed that incorporate these considerations in their analysis by including externalities and by estimating shadow costs for things in the commons or things otherwise not being valued. Examples include the comprehensive wealth accounts published by the World Bank3 and more recently the Inclusive Wealth Index (IWI) developed by the United Nations’ International Human Development Programme (IHDP) and the United Nations Environment ProIf Tesla were alive today, he would gramme (UNEP). The IWI estimates the increase in a nation’s inclusive wealth say that we are not measuring the by subtracting the cost of exhaustible progress of our society in the right natural resource consumption and adding human capital, among other holistic way. To put it in development jargon, considerations.4 we have an indicator problem. GDP was also criticized for its myopic focus on economic activity as a measure of well-being. A major development towards reform on that front was the publication and release of the Human Development Index (HDI) in 1990. HDI included well-being measures such as literacy rates and life-expectancy in its analysis of development status of a nation.5 While the use of well-being indicators such as HDI and inclusive wealth indicators such as IWI have picked up in policy analysis, their use in practical policy development continues to be limited with most governments of the world continuing to focus on “growth” [in GDP] as a measure of success. One reason for that is that just like GDP, indicators like IWI and HDI do not take into account the transitory nature of human need. In different states of well-being, we need different things to make us happy and unless this transience is captured by an indicator, it cannot be used to express the well-being of citizens, at all stages of development of a society. Any development indicator aspiring for universal appeal must have parameters built in to capture the transitory nature of human need. How does human perception of well-being evolve? Maslow says that once the “hard” physiological and safety needs of a man are met, his happiness resides in satisfying his “softer” needs such as love, esteem and self- actualization.6 Tesla and other intellectuals of his time envisioned a world in which the hard needs of most – if not all – men were met and the objective of the society, the raison d’être of hierarchical governance, remained only to facilitate self-actualization. This self-actualization lies in having a bet- ter understanding of the universe and what it means to be a human being in this universe, and also in the depth and richness of the social connectivity available. What has been missing is an attempt at a universal indicator which takes into account this evolution of needs from the physical, “hard” needs of food security et cetera, to “softer” needs such as knowledge and social connectivity once a certain level of wealth has been accumu-

“

”

Human D IMENS I ON S

45

Figure 1: A Rough Sketch of a Transitory Universal Development Indicator (TUDI)

lated. Some help can be sought here from utility theory, which has the potential to identify thresholds at which “hard” needs are met. A universal indicator which may have any potential of replacing GDP must assign weightage to all considerations of development. And these weightage must be dynamic, changing as the value of the indicator and the state the society is in also change. b 1. Initially, as a society aims to become “developed” and reach the c a threshold at which hard needs are GDP met, GDP or measure of economic Optimal GDP value, beyond which gains in HDI are small even for high activity can be most important. GDP growth GDP TUDI = a This measure of economic activGINI ity must be normalized to a mea + b {literacy rate + x (patents or papers per capita) + y (life expectancy)} sure of income equality say GINI - c (per capita energy consumption) to ensure that the benefits of GDP *x and y are constant weightage parameters, while a, b and c are weightage paramaccumulation have reached a sigeters that change with change in GDP value nificant portion of the populace before a country can be called “developed”. 2. Once a society achieves a certain level of economic development, measures of self-actualization6 and “knowledge” such as literacy rate, per-capita publications or patents and measures of well-being such as average life expectancy should be given much more weight within a universal indicator. 3. Additionally, to address sustainability concerns, at all times the overall measure of development should include some penalty for greater than sustainable, per-capita resource use; this can be built in by subtracting, say, per-capita nonrenewable energy usage from the indicator, multiplied by some factor to account for the state of the economy. For developing countries the factor can be low to allow them greater use of resources. Once an economy becomes more developed the factor should rise penalizing the country for continued use of resources at a high per-capita rate. A rough conceptualization of such an indicator is described in Figure 1. Parameter a decreases as GDP rises, decreasing the contribution of GDP in analysis of development, while parameter b increases, giving more weightage to well-being measures. With rising GDP parameter c increases penalizing countries that continue to consume resources at a high per-capita rate despite being sufficiently developed. —•— The news of the princess’ contest spread far and wide and mathematicians, physicists, naturalists, economists and all manners of sages came from all over the world. One tied a rock to one end of a rope and threw it across, measuring the diameter and then calculating the area as though it was a circle. Another dropped a rock tied to a rope into the water and though it never reached the bottom he assumed a depth, on the basis of which he gave an estimate for the volume of liquid. Another measured not just b c

Parameter value (a/b/c)

a

( )

46

Hu m a n D IM E N S IO N S

the diameter and estimated the depth but used the rope to arrive at a measure of circumference, concluding that the lake was an oval and hence all previous measurements were inaccurate. Then this one old philosopher came along and he cut the rope in smaller pieces and, putting them end to end, arrived at a measure of the perimeter length which took into account all the little bends around the edges. Then he cut the rope into even smaller pieces arriving at an even longer length taking into account even smaller bends. And then he said, “I can keep doing this forever, cutting the rope into smaller pieces measuring the circumference more accurately. The smaller the piece the longer the circumference measured. And since the rope can be cut into an infinitely small length, the circumference and hence the size of this lake, is in fact infinite.” —•— Human societies, economies, cities, nation states, environments; these are all complex systems. Indicators, like the segments of rope in our fable, are by their very nature reductionist. It is not the lake that they measure but an idea of the lake; that idea, very much dependent on the nature of the instrument of measurement. Like fractals, complex systems have an infinitude to them which no indicator ever will perhaps truly capture; but we must continue to refine our indicators and our measurements to capture more and more of the complexity of the system we are trying to measure. While there have been efforts such as the Economic Complexity Index7 and “Virtual Sustainability”4 to take into account the complex web of interactions that form economies, we are far from comprehending the beast that is complexity. The Economic Complexity Index measures the diversity of a national economy in terms of things it can produce as well as the ability of countries to produce unique goods and services. The higher the number of more unique goods produced by a country, the most resilient its economy would be. The Economic Complexity Index has been shown to be a better predictor of long-term growth than GDP and may potentially be used in the future to identify fragilities. There are detractors of these complexity-based indicators, but one thing these indicators show for certain, is the folly of continuing to measure the lake that is development of complex human societies, with the rope-like linear instrument that is GDP. In due time, we will come to a stage where we will be able to identify the resilience—or lack-thereof—of complex systems, maybe through analysis of the scaling of elements within the system. But until then, it would do us well to never forget that an indicator, no matter how good, presents only a part of a part of the picture and in focusing on one number alone, be it GDP, IWI or HDI, we risk missing some important variable, and that could turn out to be the most important variable of them all.

Human D IMENS I ON S

47

Photo: Creative Commons Flickr/Ashley Rose

W RI TI NG CONTEST · S ECON D P LACE W I N N E R

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Hu m a n D IM E N S IO N S

With the ranks of believers shrinking, is it time for a GDP-reformation? Addisu Lashitew

A

while ago, I met a girl from Belize. Like most other people, I had practically never heard of this country before. So my mind was rather blank at the mention of the name. As a good student of economics, the first thing I did when I got the chance to google this country was to check its GDP per capita. Wikipedia says the estimated GDP per capita of Belize for 2012 was USD 8,412. I felt relief. I grasped something here; I had an understanding of what this country looks like. In the map of the economist, this is a country that lies somewhere between Colombia and Turkey. Or somewhere parallel to South Africa. I felt I knew this country. That is the magic of the God Number. Only GDP per capita can give you a relief such as this. Like the Higgs Boson that physicists say gives mass to matter, GDP per capita is the God Number that gives to an otherwise faceless country an identifiable tag of economic location (or no location) in the map of the world economy. Indeed, much can be deducted about a country from its GDP per capita. You can guess that Belize is a middle-income country with its own affluent and desperate poor. It cannot be like a Sub-Saharan African country where income is uniformly low so that virtually everyone is poor. Nor could it be like a Scandinavian country where the arms of the welfare state hoist every wouldbe-poor above the poverty line. Based only on GDP per capita, you feel a grasp of the unavoidable class struggle, the jostling for opportunities, the inevitable clashes between the haves and the havenots, the born-poor and the born-with-silver-spoonin-mouth, each struggling to establish its fate in a half-poor, half-rich country. From its GDP per capita, you could imagine that at least some sectors of Belize should be fairly developed—perhaps resource-extracting sectors and tourism, considering the abundance of resources

Human D IMENS I ON S

49

and sunshine in the Central American region. The image of lush banana farms comes to mind. Since growing from middle income to high income is more difficult than to be middle income in the first place, it is easy to imagine that the economy is in some state of stagnation. It is also easy to picture the presence of some half-democracy that characterizes many middle-income countries, perhaps with its own inertia just like the economy. Many more conjectures can be made of the God Number. And indeed it is a magic number that can reveal a lot for those who know how to use it. But, the reader may ask, is there anything ungodly about the God Number? And indeed, there is. First, you must wonder how GDP is measured. GDP quantifies income of all actors in the market, approximately calculated as labor income plus capital income. Proper valuation of both requires market prices, which are not always available. Consider this example: As much as 85 per cent of the people in some Sub-Saharan African countries are subsistence farmers. They do not earn income that they use to buy food at supermarkets. Instead, they produce it on their own farms: they plough the land, grow and harvest crops, make it into flour and cook it at home before eventually eating it. Now these people do not have salary-slips that give the numbers to be added to arrive at labor income. Statisticians instead consider these people as “self-employed”, and try to approximate the salary they should have “paid themselves.” It is anyone’s guess how the income of these people is approximated. Given the large percentage of subsistent farmers in many low-income countries, even a small approximation error will affect GDP numbers considerably. For rich and poor nations alike, the measurement of capital income, which typically constitutes a third of total income, is similarly fraught with difficulties. Because of these and other prob-

“

Perhaps the greatest

weakness of GDP per capita in this regard is its inability to say anything that cannot be valued with money.

50

”

lems, we see all too frequently irreconcilable differences between GDP series from different sources. The second problem arises when people use GDP per capita as a universal indicator of welfare. Even assuming that it is measured without error, there is much trouble in using the God Number as a proxy for welfare. Perhaps the greatest weakness of GDP per capita in this regard is its inability to say anything that cannot be valued with money. Take democracy, for instance. If you look at the GDP ranking of the IMF, you will find out that Qatar is the second wealthiest nation on earth with GDP per capita of almost a hundred thousand US dollars. But Qatar is yet to hold any national elections, and Economist Intelligence Unit’s democracy index ranks it 138th out of the 167 countries. There are many instants when GDP can misinform us regarding the state of welfare in a country. Looking at its GDP numbers, you will conclude that a country is booming when in fact its growth comes at a huge cost that is not captured by those numbers. This is the case when a country grows by siphoning off its oil wealth at the cost of future growth (Qatar), cutting down its irreplaceable rain forests (Brazil), buying more tanks and warplanes (Saudi Arabia), inducing considerable income inequality (USA), and releasing huge amounts of polluting greenhouse gases (everyone). So what can be done to avoid these limitations of GDP per capita? First, it is important to recognize that GDP is a purely economic measure, and could thus be a very poor proxy of broader welfare levels. Even as measure of economic performance, GDP is most suited to comparing economies with similar economic structure, such as OECD countries. But there are a number of ways in which standard measures of GDP per capita can be augmented to give additional valuable information. For example, national accounts could be extended to include, along with GDP figures, satellite accounts that gauge sustainability issues, especially the exploitation of natural resources and accumulation of overall debt. This issue has been highlighted by the so-called Stiglitz–Sen–Fitoussi report that addresses ways of improving welfare measurement. This important report was commissioned by the French president and was led by Noble laureate economists Joseph Stiglitz and Amartya Sen. When it comes to actual data work in this direction, IHDP’s own Inclusive Wealth Index (IWI) is a significant progress towards factoring in the exploitation of natural resources in calculating total capital stocks.

Hu m a n D IM E N S IO N S

More broadly, conceptualizing what constitutes social welfare, or “The Good Life”, as Aristotle put it, is among the most important tasks social scientists face today. While economic achievement is an important element of welfare, it surely is not the only one. The inclusion of two additional dimensions of welfare, life expectancy and educational achievement, in the rankings of the Human Development Index, put out by the UNDP, is an important but insufficient step in this direction. Indeed, given the difficulty of reconciling multiple measures of welfare, self-reported measures of well-being and happiness are increasingly gaining significance among both academics and policymakers. Perhaps surprisingly, the pioneering country in this direction is Bhutan, which has an official policy of maximizing what it calls Gross National Happiness. Last but not least, much can be done to improve the quality of GDP statistics in developing countries. A 2013 book by Morten Jerven entitled “Poor Numbers” recounts how the multiple financial and capacity shortcomings of statistical agencies in African countries compromise the quality of GDP statistics. An extreme example is what occurred in 2010 as a consequence of Ghana’s much-delayed revision of the base year for GDP calculations. After the base year was changed to a more recent year, Ghana’s GDP per capita jumped by 60 per cent, making it a middle-income country over night. An innocuous economist at a future date might well look at this data and puzzle herself over this “growth miracle”, not knowing that all what happened was a sudden shift away from an obsolete benchmark that unduly underestimated income. The following quote, attributed to Josiah Stamp, emphasizes the importance of measurement:

“

Conceptualizing

what constitutes social welfare, or ‘The Good Life’, as Aristotle put it, is among the most important tasks social scientists face today.

”

“The government are very keen on amassing statistics. They collect them, add them, raise them to the nth power, take the cube root and prepare wonderful diagrams. But you must never forget that every one of these figures comes in the first instance from the village watchman, who just puts down what he damn pleases.”

It is fair to say that professionalizing the “village watchman” could do much towards redeeming the God Number that, for all its divinity, remains evidently imperfect.

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W RI TI NG CONTEST · T HI R D P LACE W I N N E R

GDP* is everything! *Gaps, Density, People

Illustration: Louise Schenk

Sukanya Misra

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Hu m a n D IM E N S IO N S

K

avya is the daughter of a middle class family living in south India. She is 14 years old and is an average student. Her parents started saving money from the day she was born, for the dowry they will pay to the groom’s family when she gets married. They have her best interests in heart and love her very much, which is why they have already started looking for a suitable match for her in a respected, wealthy, educated family. They have facilitated her training in classical music and dance from a very young age and she has learnt to cook all the traditional delicacies of her culture, not for vocational purposes, but because these are the qualities sought in matrimonial prospects. They have never encouraged her to study. Her mother believes that if women acquire too much knowledge, it destroys the balance of a family. Kavya has heard the course of her life laid down for her many times and has grown up accepting it. She has never wondered what she might want to do if allowed the chance of higher studies or a job. She does not dare to dream and feels safe in the confines of her domestic existence. She has great admiration for her elder brother Hari. Hari is 20 years old. Their parents started saving money from the day he was born, to pay for his education. They want Hari to become a software engineer and study in the US. Kavya admires how intelligent he is, the conviction with which he states his opinions, and the many important books and exams that take up all of his time. Their father owns a small textile business which has recently been doing very well as more and more foreign clothing brands are buying textiles from India. He is a satisfied man and takes great pride in the fact that he is a part of the industry that contributes the second largest share (after agriculture) to the growing Indian economy. He foresees the IT sector to be largest GDP contributor in the future of India and lovingly laughs with his son about how their family represents the backbone of India’s economy. Kavya has never felt the need of money. She has however felt the gap in the way it is spent. Although she tells herself she should be thankful for having all of life’s necessities, she sometimes cannot help but wish that she too could have a college degree and go on to be a part of that alien concept her father and brother talk about; India’s GDP. Sankalp is a 13-year-old boy who lives with his parents in the western state of Maharashtra. He is autistic, which means that he has difficulty in communicating with people, even his parents. Sankalp is home-schooled since there are no learning facilities for children with special needs where he lives, and regular schools refuse to grant him

Human D IMENS I ON S

admission. He has always been treated differently, rejected by society, other children and educators. His parents, however, have strived to give him a normal childhood. They noticed his deep inclination for music and asked a close family friend with musical training to teach him some songs in their mother tongue. Sankalp has grown extremely fond of his music teacher. So much so, that he calls her his “other mother.” When he sings, he does so in perfect pitch, remembers all the words, does not stutter and does not fidget or grow restless, which are otherwise his constant traits. He listens to music too, and requests for his favourite songs be taught to him. Through his music, his parents have discovered the hidden personality, depth, emotions, sensibility, maturity and intense pain

“

Gaps created between

the genders, the differentlyabled, and on the basis of religion, caste, linguistics, et cetera, must be identified, and sensitive bridging of these gaps will bring about better development.

”

that Sankalp has no other way of communicating. For the first time in 13 years, his parents can feel his response; for the first time in 13 years, Sankalp feels confident, aspiring to become a professional singer. Through sensitive, creative and inclusive education suited specifically for Sankalp and for each individual child, the gaps—in the capabilities afforded to different genders, differently-abled children, minorities by religion or caste, different economic backgrounds—can be bridged, to create individuals who can better serve the nation and be contributors in its GDP. If Kavya’s family and Sankalp’s family are considered to be two different countries, which country seems to be at a more advanced stage of development? Both families have similar net earnings, which enable them to provide for the basic amenities and facilities required for comfortable living. Their economic condition is in no way hinder-

53

ing individual members of the family. However, the well-being of the individual family members varies greatly. Gaps created between the genders, the differently-abled, and on the basis of religion, caste, linguistics, et cetera, must be identified, and sensitive bridging of these gaps will bring about better development. It is important for nations to measure and assess these gaps for their development. The ways in which resources (economic and otherwise) are utilized must be measured; the net earnings alone indicate nothing.

“

Gaps exist in affluent ar-

eas as well as poor areas, while some of the poor ones... actually provide a larger contribution to the overall economy than that which can be understood

”

from looking at GDP.

A.T.C Nagar is an affluent gated community in Delhi. Sugata Sen is a warm hearted resident of A.T.C Nagar who enjoys the company of family and friends. He owns a printing business, which has supported his family and his children’s education. He owns a three-storied, white palatial house located at the corner, overlooking the community playground. A.T.C Nagar is a close-knit community and there are many social gatherings every weekend, as well as charity events hosted by its prosperous residents. The colony has a very high average income and by economic measures, it has no insecurities. However, economic measures cannot

54

gauge the actual situation of the residents of this area. Sugata Sen loves it when his brother’s family visits him from another city. Yet, he lives in a part of Delhi that suffers from acute water shortages. He has to buy drinking water and water for domestic use from a private water tanker at very high costs. When his brother’s family visits, he worries that he will not be able to acquire double the amount of water even in lieu of high costs and often has to choose between bathing and running the washing machine, even during the scorching Delhi summers. The density of infrastructure networks such as water supply, sanitation, electricity, et cetera, and the percentage of households covered by adequate levels of these services is therefore an extremely important measure in understanding the underlying welfare of the inhabitants of any area. There are a few scales of density that are important for human life. A person needs a place to live which affords him appropriate privacy. Therefore, residential room density is important. On a slightly larger scale, a person needs an adequate balance of built-up areas and open spaces in their neighbourhood, so as to allow him to enjoy sunlight and fresh air. The built intensity of a place therefore plays an important part in a person’s wellbeing. Furthermore, it is seen that a person living in a slum and one living in a high-rise apartment building in the downtown area of a large city may both have access to the same amount of personal living space but the latter has a much higher level of well-being due to the presence of physical amenities such as clean water, sanitation, electricity, telephone connection, solid waste disposal system and a structurally sound shelter. In the absence or inadequacy of these, the slum dweller is forced to live among filth, travel long distances to carry water back to their homes, defecate in the open and be in constant danger of leaks or floods. The density of amenities is therefore the most important density measure for well-being and can provide much insight into a community’s well-being. Another very important factor is the level of autonomy, or job density of an area. Vimla is a resident of the famous Dharavi slum in Mumbai. She lives in a tiny hut with her husband and three daughters. They do not have access to piped water and have to cross the railway line illegally every day to get water from a public water tap and carry it back to their home. She sends her daughters to school but is constantly worried about their safety, as crime against women and human trafficking are rampant in the area. She does not allow her children to leave the premises of their home after

Hu m a n D IM E N S IO N S

6 o’clock in the evening. Vimla and her family had lost everything in the heavy floods that decimated the city in 2005, and had to borrow money to rebuild their lives, thus living with the added weight of debt. In spite of all this, Vimla has been a resident of Dharavi all her life and would like nothing more than the government to allocate a safe living tenement for her family within the locality of Dharavi. She works as a maid in an affluent area nearby. Her husband is a metal worker in an industrial unit run within the slum. Vimla, and many like her, say that they would rather live in slum conditions in an area like Dharavi than live in a well-serviced apartment in the outskirts of Mumbai, where it is very difficult to find a job. Dharavi has a very high level of autonomy—that is, job density. As it is located in-between the two main railway lines and in the heart of Mumbai, residents find it very easy to get jobs in the area. Many small scale industries, like the one in which Vimla’s husband works, also thrive in Dharavi and manufacture products such as machine parts, embroidered garments, export quality suitcases, second hand and assembled electronics and much more. The annual turnover of the business of this area is estimated to be over $650 million. Many of these industries are informal, and so do not directly count towards the city’s GDP, but are responsible for supporting the formal economic sector. The job density of the area is what keeps people here, and supports the financial capital of India. Lalita is also the resident of a slum in Mumbai. She moved to Mumbai 10 years ago from a village, after marriage. Most of the other inhabitants in her slum are also from the same rural area as she, and they are a close-knit community. After moving to Mumbai, she had found her alien urban environment to be frightening. However, with the help of the other women, she learned the ways of the city. Over the years, with the support of a nongovernmental organization (NGO), the women living in the slum formed a self-help group, which pooled together the group’s savings to, with the help of a microfinance loan, build a day-care centre. The women take turns supervising the infants in the community while the others go to work. The centre is the only structurally stable construction in the slum, and also serves as a maternity ward, where the NGO has arranged for a nurse. This has ensured hygienic childbirth practices, resulting in increased survival rates and better health for mothers and their newborn children. It has also helped educate the women about nutrition, vaccination and family planning, leading to a marked

Human D IMENS I ON S

increase in the overall health and well-being of the children of the area, a drop in number of pregnancies and an increased interest in the education of the now-smaller number of children in each family. In addition, the structure served as a shelter during the 2005 floods, while most of the huts were washed away. It is is a physical symbol of the social integration of the slum dwellers, and how a network of people who would have no power individually can help to strengthen a community and be the drivers of its development. The stories of Kavya, Sankalp, Sugata, Vimla and Lalita show that insecurities exist in every economic stratum. Gaps exist in affluent areas as well as poor areas, while some of the poor ones, such as Dharavi, actually provide a larger contribution to the overall economy than that which can be understood from looking at GDP. Although gaps in capabilities may be worse for the poor, they also exist in higher economic classes, and these gaps must be identified at a grassroots level for sensitive development to take place, development that would be able to ensure equal capability for all. Once gaps have been identified, measurement of GDP will not benefit the filling of these gaps. Instead, the measurement of various layers of density must be done, such as amenity density, job density, built environment intensity and room density, which would provide a better picture of the existing physical, as well as social issues. Finally, having identified the gaps and measured the densities, the development action must be carried out through a network of local people. The GDP of a nation cannot hope to capture the level of well-being of its people. It is a macroscopic measure aggregating large populations with large variations into a single mean without consideration for the large deviations from this mean. It does not measure the diverse socio–cultural issues that are the real development concerns of a nation. The amount of money that one is in possession of does not determine the way in which one spends that money. We must instead directly measure the ways in which we spend money: outcome variables that assess development levels, such as identified gaps and layers of various existing densities, will be a more accurate indicator. It is time to focus on a micro scale system of measurement, sensitive to the various socio–cultural layers, and for that, G.D.P., the Gaps, Density, and People, are everything. Disclaimer: All characters appearing in this work are fictitious. Any resemblance to real persons, living or dead exists because issues related to their capability deprivation have not been effectively addressed!

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W RI TI NG CONTEST · T HI R D P LACE W I N N E R

Illustrations: Louise Schenk

Plato & Pac-Man Predict Problems

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Hu m a n D IM E N S IO N S

An allegory and analogy about moving beyond GDP

A

t first this may seem a fluke of freakonomics because neither Plato’s cave nor Pac-Man’s gameplay is famous for its contribution to economic analysis. However, I hope you will come to see that the odd pair makes a good couple for illustrating the necessity of moving beyond GDP. In the following, Plato, a colossus of philosophy, and Pac-Man, a titan of pop-culture, will warn against a serious problem that lies ahead on the path of GDP growth. The main idea is that GDP growth rates represent a particular method of measurement to determine historic performance, and not the present or future state of an economy. When people just focus on growth rates without looking at the underlying design and the world outside, they may easily overlook the possibility that unbridled growth will lead to undesirable levels of peer-to-peer competition, natural resource scarcity and knock-out scenarios. In Plato’s Republic there is a group of people living inside a cave chained to a wall. They can only see shadows projected on the facing wall and come to believe that these projections are not representations but the real thing. In a modern setting, let’s imagine them sitting in front of a TV all day and never leaving the house. The TV images are as close as they get to viewing reality and forming a basic understanding of its nature. In this setting they pick up a particular notion of GDP. According to this notion, GDP is the price at which a national economy would trade in a competitive auction setting. By adding up certain vari-

Roebin Lijnis Huffenreuter

“

The people on the couch come

to see avoiding negative numbers and pursuing positive ones as the

”

entire point of the exercise.

ables—like private consumption (C), gross investment (I), government spending (G), and exports (X) minus imports (M), such as in the expenditure approach—one can determine the market value in a standard formula; e.g. GDP=C+I+G+(X-M). Now, a person who is freed from the house and brought into the world outside can see that the GDP growth rates on TV—or, “the shadows on the wall”—do not make up reality as it is outside. The person starts to understand that (s)he could take a differ-

Human D IMENS I ON S

57

ent approach, changing or replacing the standard formula as a whole, using a set of complementary currencies to assess the market value, and putting the main focus on other indices. At this point, someone freed from the couch can see beyond what is commonly perceived as GDP. It is well known, especially among economists, that GDP is a biased and short-lived indicator. Figuratively speaking, GDP is just one estimation among many others of the number of marbles that have passed through the track in a certain period of time. At best, GDP growth rates are representations of the past performance of a national economy, which tell little about the current state of the economy and even less about its future. So what are the people actually looking at when watching GDP growth rates on TV? They see representations of the economy as it has been performing according to this particular indexation. But are these growth rates real? Our viewers assume the rates stem from some kind of economic barometer that accurately indicates the state of the economy and predicts its future, even though this is not the case at all. Furthermore, the people come to think that a positive number is a good thing and a negative number a bad one, whereby they determine the market value also in non-numerical terms and non-monetary values. They do not perceive the numbers in an objective manner, nor do they really calculate to what extend these dated macro-numbers affect their personal profit or collective well-being. The people on the couch come to see avoiding negative numbers and pursuing positive ones as the entire point of the exercise. Let’s imagine that one person is freed from the couch and obtains a decent interdisciplinary understanding of GDP growth rates in relation to

58

the world outside before returning to the people inside. Assuming that it is far too difficult to introduce the people on the couch to intricate academic discussions—such as on economic methodology, global markets, climate change, resource scarcity, demographics, technological innovation, business politics, policy dynamics, philosophy and all sorts of relevant studies—(s)he plugs-in a couple of Pac-Man arcade games. In an attempt to install a notion of the economy outside and its representation in terms of GDP inside, (s)he asks the people on the couch to stand up and take place behind the machines. The gameplay is very intuitive and easy to master. Each person controls a character through mazes, consuming dots in the pathways to obtain points. When all pathways are cleared, the game character is transferred to the next maze. Four monsters—namely, Blinky, Pinky, Inky and Clyde—roam the mazes in an attempt to catch the character. If a monster touches him then he dies. The game ends when all the character’s lives have been lost. Aside from being killed by monsters, the game was originally designed to have no ending. But, in an advanced level a bug caused half of the screen to turn from graphics into signs. This made it virtually impossible to consume all the dots in the pathways represented by the signs, thereby limiting the maximum high-score. Later a patch resolved this problem. Now people can play just as long as they are able to stay up, outrun the monsters, and consume as many dots as possible to obtain the ultimate highscore—in theory, an infinite number. The people from the couch really enjoy their new game. After a while they only have eyes for consuming dots, breaking personal records and beating their peers. The scene turns into a gaming frenzy. Score-counters are running overtime and the game intensifies as level after level is cleared. Then the one freed earlier starts writing numbers on the wall. (S)he adds up the individual scores and notes the total for all to see. With the succession of total scores the group starts to compete against itself, striving for a higher high-score unto infinity. But, after some intensive rounds of gaming the patch fails. The virtual reality of infinitely consuming dots is suddenly gone. The dream of ever higher high-scores is busted. At its maximum high-score, the game is impossible to continue without a new patch or starting a new game. Our disappointed gamers return to the couch to watch TV. Again, they see GDP growth rates. Now, how they perceive the numbers is informed by their alarming experience with the arcade game. Consequently, they start to wonder wheth-

Hu m a n D IM E N S IO N S

er the GDP high-score is similar to that of the game: When will the game end? Is there a limited number of dots? If the number is limited, is there a patch so that the game can continue? Or, is there a certain number after which the game inevitably ends? In search of answers the people turn to the one who had earlier escaped. (S)he reveals that they all have come to prefer positive numbers and have come to believe that growth is good based on arbitrary variables representing the past states of toy economies dreamt up by professional economists. Concerns arise among the people now seriously starting to question the GDP-game design, especially in relation to the gameplay and duration of the game. First, the arcade game is primarily based on competition, which can be against oneself, another individual, in groups and between groups. Analogously, the GDP competition can be on a national, international or even global level. Economists keep scores in terms of GDP to compare countries’ economic performance in relation to past performance, to the performance of other countries, and to global performance. This competition is much like the arcade competition: the ultimate goal is to achieve the “highest score” in terms of GDP. Second, the game is based on either a limited amount of dots and points, or an unlimited amount. If we take the dots and points to represent resources and money respectively, weak sustainability economists would suggest the latter, and strong sustainability economists the former. On the one side, weak sustainability economists argue that GDP can virtually grow forever, because limited amounts of resources can be replaced by substitutes (e.g. fossil fuels by renewables). In terms of the arcade game, this suggests that the dots can always be replaced by points and patches. In terms of the GDP-game, this suggests that money and technological progress can serve as substitutes and patches to make up for increasing scarcity and loss of natural resources. In this view, the game is not restricted to a maximum high-score. On the other side, strong sustainability economists argue that GDP cannot grow forever, because there is a limited amount of resources that cannot, or should not, be replaced by substitutes (e.g. fresh air by oxygen tanks). They suggest that at least some resources—such as critical natural capital like the atmosphere, oceans and arctic—cannot be substituted by any amount of money and technological progress. In this view, continuously striving for unbridled growth eventually leads to increasing levels of scarcity and the loss of critical stocks. There is no patch to fix this bug. In this

Human D IMENS I ON S

view, the game is restricted to a maximum highscore. While both kinds of sustainability economists are right based on their own premises, let us side with the strong sustainability economists for a moment, and assume that the total number is limited in at least some critical cases. Third, the game can only be continued by repetitively consuming a minimum level of sustenance: one dot equaling ten points. If the total number of dots and points is limited then competition over them will become more volatile, fierce and even violent when there are not enough to go around for sustaining everyone in the gaming community. The analogy between such an undesirable feature of gameplay and GDP growth, with increasing levels of wealth, resource scarcity, population growth, unfair distribution and disputes over resources and money, is quite obvious. Dots and points are resources and money, the world outside is the maze, the monsters are other players, and the people are the characters. Game on. Fourth, given that (1) the game is based on competition, (2) the number of dots and points is limited, and (3) obtaining the minimum level of sustenance becomes harder over time, the people

“

Dots and points are

resources and money, the world outside is the maze, the monsters are other players, and the people are the

”

characters. Game on.

start to realize that they are playing a knock-out game. A game in which national economic viability depends on consuming resources and obtaining money up to the maximum level of their individual and collective abilities, until they are killed or the game ends at its maximum high-score. Playing the game allows our group to become aware of the design underlying the high-score, and they begin to use their experience to think about GDP growth rates differently than before.

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Their new knowledge about the knock-out competition comes along with the certain difficulty that they must determine the preferred “playing time” without running out of resources and money too quickly (or entirely). This requires an idea of the total amount. How many resources can

“

Playing the GDP-game for

a longer period of time requires the people to pace their use of natural resources and invest in substitutes

”

with the money obtained.

be used and how much money can be obtained without depleting the planet’s riches is unknown even to the best of economists. At this point, the people are still looking at GDP growth rates without knowing what the maximum high-score is. Despite indications that some players consume too many resources and some obtain too much money, it is unclear if and when the game must come to an end. At present, the people on the couch still want to consume more dots and obtain more points, but they also do not want the game to end. For an optimal game experience they decide to reduce their consumption of dots and points, instead saving some for later. For a sustainable stream of resources and money in the GDP-game the people look beyond the original design to consume, invest, spend, import and export, which are key to GDP as presented. They set out to pace consump-

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tion, select sustainable investments, spend tax dollars on substitutes, and buy and sell goods and services that can survive the game in the long run. Somewhat unfortunately, the growth rates in their presented form on TV can tell them nothing about their progress in terms of these other sides of the variables in the equation. Without knowledge of the total number of resources and money it is up to choice whether the people believe that the game will come to an end sooner or later. All that is certain is that if they want to keep on playing then they must stop watching TV and start moving beyond GDP. The people come to see that the original GDPdesign requires a patch to prevent the endgame scenario. Following weak sustainability economists, they assume that a limited amount of resources can be substituted, for example by money. They suggest “ring-fencing” certain natural resource stocks by making them untouchable assets in the nation’s portfolio. The stocks are priced and added to the total wealth, but physically cannot be used unless an equal substitute is available. An example of such could be sustainable agroforestry, maintaining certain areas of forest for a fixed period of time while exploiting other plots in a manner that does not deplete the forest as a whole. However, some natural resource stocks, or special dots, may be impossible to ring-fence and use in a replacing and regenerative way. Following strong sustainability economists, the people assume therefore that some resources should not be consumed at all if they want to play for an indefinite period of time. They decide that these special dots should not become tradable assets and must be excluded from the physical world of exchange. At the end of the day, Plato’s cave and PacMan’s gameplay help the people to start thinking outside the realm of maximizing GDP growth rates: instead of striving for a maximum level of annual growth they come to seek a more optimal level, thereby limiting themselves from wanting to consume too many special dots. The new name of the game is not fully depleting invaluable assets that are necessary for continuing the game. Playing the GDP-game for a longer period of time requires the people to pace their use of natural resources and invest in substitutes with the money obtained. To monitor their progress requires changing how they keep score. It requires a re-design of the GDP growth rates in terms of the maximum high-score and level of adaptively sustaining or increasing the optimal amount of resource depletion and money gathering to not reach that level too soon or inevitably.

Hu m a n D IM E N S IO N S

Cartoon: Louise Schenk

CARTOON

In the GDP Hamster Race: What is Bhutan doing?

Human D IMENS I ON S

61

I NTERVIEW

Are we listening to the questions of our youth?

What will be left for me when I am grown?

IntervieweE Ousmane Kane Interviewer Carmen Scherkenbach

62

all countries. One is the distribution of wealth—we have to create wealth of course, wealth has to be there and much has to be done to have it created. However, when wealth is created, we have to do everything not to marginalize people, but to distribute this wealth as equitably as possible. I am very sensitive to the famous Gini coefficient, which is a notion I find very important, particularly for developing countries, which are often mining or oil-exporting countries: the wealth is sometimes there, but how is it distributed? If you look at the ranking of the countries, using the Gini coefficient, you will see which ones are at the bottom: mainly developing countries—mineral exporters or oil exporters. I am happy that the marginalization of women, who for years have been excluded from national activities, has been captured very well in the MDGs. It has been recognized that it’s a problem for our societies, not only in developing countries, but in all countries. Now progress is being made—not yet at a satisfactory level, but it is being made. However, what has not yet been sufficiently recognized is the situation of the young people. This is a major issue for all of our societies. Certainly, it is

Will I be able to meet my needs?

more crucial for countries in which the natality rate is very high—young societies. If these people feel marginalized, as is the case in many of those countries, the sustainability of development will not be confirmed because these young people will take the initiative, they will not ac-

Hu m a n D IM E N S IO N S

Photo: UN Photo/Marco Dormino

Dimensions: In this edition of Dimensions we’re focusing on what many consider to be a root problem in achieving inclusive development—the fixation on pursuing GDP growth as the ultimate goal for societies. Do you think this is a major challenge for developing countries, or would you point to other root problems? Ousmane Kane: For decades, there has been a sole focus on development as measured by GDP growth. Then there has been the move toward sustainable development, which can be regarded as another dimension, for sustainability includes much more than economic growth. And for a couple of years now, we have been talking of inclusive development. All these notions are trying to capture the fact that creating wealth isn’t enough for a country to be seen as a place in which people are enjoying to live. That’s the ultimate goal. To have people live in a country in a way that they find themselves secure, they find themselves not marginalized and they find themselves having opportunities to grow. There are two aspects of crucial importance here, not only with regards to developing countries, but for

I want more.

I want to be successful and happy

Will my efforts or my relationships be rewarded?

What part can I play in society?

What can I do?

How will I improve my family’s lives?

I need to be seen.

Count me in! How do I make my voice heard?

How can I manoeuvre out of the margins?

cept being marginalized forever. So, for me there are two very important aspects when we talk about sustainable and inclusive development: the distribution issue, as captured by the Gini coefficient, and the situation of the young people. I am not aware of any indicator trying to capture that.

Human D IMENS I ON S

I need to have something to hope for.

D: Talking about young people leads us to the aspect of education. What role do you think education will play in addressing these issues? OK: I think education is a requirement, it is a must—but it’s not enough. A famous economist has

said that he has never seen a master’s degree holder starving to death. So, it’s a must, but it’s not sufficient. Developing countries do have to invest in their societies and their education; they do have to develop well-functioning education systems. However, we see in many coun-

63

“

If [young] people feel marginalized, as is the case

in many... countries, the sustainability of development will not be confirmed because these young people will take the initiative, they will not accept

”

being marginalized forever.

tries—I’m now talking of Africa, the continent I know very well—that people are too often rewarded not because they are well educated, not because they are taking good initiatives, not because they are hard workers, but because they have good relationships. This is a governance matter. Education is a predicament, but governance has to be part of it, for without it, education will not suffice. Simply measuring the share of the education budget within the national budget will not give a good portrait of how young people are managed. D: What would international or national policies to address those challenges look like? OK: There are many actions being

taken. Every country has to do whatever it can to achieve sustainable growth. GDP is still very important, as we cannot develop a country without creating wealth first. This has been there forever, for many years. Good governance has been well promoted since the early 1980s. But I think that everyone who works at a development bank knows how the issues relating to environment or to gender are addressed. It is, systematically, made sure that each development project is assessed against these particular points: What is the impact of the proposed investment on the environment? What is its impact on gender? Such projects should also be assessed against their impact on the young. This needs to be a new dimension of the due diligence processes that international or national

Ousmane Kane Ousmane Kane has a wealth of ex-

as a Non-Executive Director of TSX-

perience in leading Mauritanian and

V and AIM-listed Afferro Mining Inc.

pan-African public institutions. He

Ousmane Kane is currently the

has been a Senior Adviser to Mau-

Chief Executive Officer (CEO) of

ritania’s Head of State and a Vice

IMIC. International Mining & Infra-

President of the African Development

structure Corporation plc., listed on

Bank, where he served for almost 15

the AIM Market of the London Stock

years. He also served as Minister of

Exchange, is focused on unlocking

Finance, as the Governor of the Cen-

value opportunities in the African iron

tral Bank of Mauritania, and was Di-

ore space, which are currently con-

rector General of Mauritania’s state-

strained by the lack of infrastructure

owned iron ore company and Africa’s

solutions. IMIC has recently acquired

second-largest iron ore exporter, So-

important iron assets in Cameroon.

ciété Nationale Industrielle et Minière

Mr. Kane is a qualified engineer and a

(“SNIM”). He was largely involved in

graduate of the Ecole Nationale Su-

the West and Central African iron ore

périeure des Mines de Saint-Etienne

sector while serving as Vice Chairman

(France) and the Ecole Polytechnique,

of African Iron Ore Group (“AIOG”) and

Paris (France).

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investors or financiers should have in mind when promoting any new development project: the impact that each particular project will have on the young people. D: How important should employment be when we talk about an indicator that goes beyond GDP? OK: Employment is of course a fundamental issue. I believe that when assessing wealth, the issues of environment, gender, water, etc. are very important, but when 40 per cent of the population of a country is marginalized, there is no sustainable development, and there is no integrated, inclusive development. These people have to be integrated; whatever we do should be more for these people than for the elders. We have done our part, our careers are behind us, but these young people need hope, they need to be seen and need to be at the heart of any development action. If there are unemployed who have no hope of being employed, there is no sustainability for development. So, how are they integrated? What is the rate of unemployment among the young people? You can talk of employment in general but you can also be more specific. For a 58 years-old person like myself, being jobless is not the same as for someone who is 28 years old and has no job—there is a great difference. The focus should be on this category of people, perhaps between 20 and 40. The category of unemployment among young people is crucial, and it has to be monitored for any country.

Hu m a n D IM E N S IO N S

P UZZLE

Word Search There are 30 words hiding in this puzzle. Words are placed horizontally, vertically and diagonally, both forwards and back-to-front, and there may be occasional overlaps.

ASSESS

BELIEFS

CHALLENGES

DAMAGE

DEVELOPMENT

EDUCATION

ENVIRONMENTAL

EQUALITY

FLAWED

HAPPINESS

HEALTH

INCLUSIVE INNOVATION

INCOME

INDICATORS

MANUFACTURED

MISMEASURE

MONEY

PERFORMANCE

POVERTY

PRODUCTION

PRODUCTIVITY

PROGRESS

PROSPERITY

SOCIAL

STATISTICIANS

UNSUSTAINABLE

VALUES

WELFARE

YOUTH

Human D IMENS I ON S

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VO IC ES

Opinions on Beyond GDP Exasperated about increasing inequality and enflamed by reports of the growing share of income and wealth held by the top 1 per cent of the population, the Occupy Wall Street movement brought people in cities around the world to the streets in support of large scale social and economic reforms.

The top 1 per cent of the population earns over 23 per cent of income in the United States; worldwide, the top 1 per cent owns over 40 per cent of assets. As the demand for socioeconomic justice is growing, so is dissatisfaction with the current economic system, including its hallmark indicator—gross domestic product (GDP). Many are now asking: what do we as individuals and societies want out of our economies? Is the purpose of a national economy simply the aggregation of monetary wealth? What about our well-being and prosperity, our health and ideals? Should issues such as poverty, resource depletion, the state of natural resources or ecological conditions not be considered when measuring the true advancement of a nation? Has GDP served its time? In recent years, a debate has started around the development of a new type of comprehensive indicator to address these global challenges of the 21st century. What is needed, argue proponents, are indicators that are as clear and understandable as GDP while incorporating the currently unmeasured environmental, social and human costs and benefits of economic activity. We’ve taken a look around to find out what policymakers, economists and people from our network have to say about the debate:

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If what you can buy is all that matters in your life, and if to you anything which has no price has no value, then GDP is enough for you—but you will be a poor creature, without enjoying social bonds, unspoilt nature and a just and democratic society. You may have all that, but cannot recognize its value as long as the only sense organ that makes sense to you is your wallet.

”

Joachim H. Spangenberg—Germany

“

No one would look just at a firm’s revenues to assess how well it was doing. Far more relevant is the balance sheet, which shows assets and liability. That is also true for a country.

”

Joseph Stiglitz, 2005—Economist

“

It’s time we admitted that there’s more to life than money, and it’s time we focused not just on GDP but on GWB—General Well-Being.

David Cameron, 2006 —UK Prime Minister

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must learn new ways “toWedefine “ the concept of growth for the 21st century.

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GDP is the outcome of an existing lobbyist pressurized model of deve-lopment. Now it should shift to benefit sharing local need based on development and we should shift from GDP to GHP and GEP.

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Mohinder Kumar Slariya—India

Marcos A. Pedlowski—Brazil

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“

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Angela Merkel, 2010 —German Chancellor

Globalization has critically undermined the value of GDP as an indicator of economic vitality. This is definitely a time to reinvent the ways we measure economic performance.

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If we are to meet international GHG reduction targets, stop overfishing, prevent deforestation and resource depletion, have respect and understanding of our ecosystems, improve social and economic justice, aim for well-being and good jobs for the many rather than wealth for the few... then it is essential that we look beyond growth in GDP as our only economic target and start looking at economic efficiency and justice. It is time we started to properly work out how best to implement closed loop economic thinking, resource minimization, living wages and maximum salaries, locally relevant (i.e. not export driven) economic strategies which will support social, environmental and economic justice; we have the logic and academic thinking—now let’s just crack on!!

Claire Bastin—UK

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GDP is not really a good measure of success, but it would not be so bad if it were not for the ubiquitous demand that it should grow. Limitless growth is unavailable on a finite planet.

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Ian Troughton—UK

Distinctions must be kept in mind between quantity and quality of growth, between its costs and returns, and between the short and the long term. Goals for more growth should specify more growth of what and for what.

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Simon Kuznets, 1962—Economist

Gross domestic product is ‘grossly’ misleading and should be abandoned. It has become a gross domestic ‘problem’ for the world. Lorenzo Fioramonti—South Africa

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A 10 per cent increase in GDP does not indicate the number of people dying of hunger nor the proportion of people living below the minimum living standards. A country’s well-being is not limited to increasing wealth but must reflect how people are associated to production processes and how prosperity is shared between the people. Nama Ouattara—France

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We need to move beyond gross domestic product as our main measure of progress, and fashion a sustainable development index that puts people first

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Ban Ki-moon, 2012 —UN Secretary-General

“

We certainly need a new measure. I think the best measure would be the per cent of people reaching successive stages of human development, with the stages to be defined using something like the Maslow pyramid.

Luis T. Gutierrez

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It may be pragmatic to first address GDP’s flaws and renovate, rather than discard. A good start would be to capture inequality levels by multiplying GDP by a scalar equal to the absolute value of the difference between a country’s Gini coefficient and 1, although such a simple approach ignores many important indicators of well-being such as life expectancy, suicide rates, literacy and numeracy rates, divorce rates, child mortality rates, crime levels, and levels of social capital—these deficiencies highlight the need for alternative measures of wellbeing to be constructed which take into account domains of progress to which monetary value cannot be directly attributed. Fraser Robert McKay—New Zealand

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“

GDP is an aggregate that does not tell us anything about distribution, let alone the impacts of the way in which unequally distributed wealth is used. In this time of obscenely inequitable wealth distribution, this always-poor indicator becomes completely non-representative of the state of affairs in any nation or region.

Rosemary Ommer—Canada

”

One can easily capture the concerns about GDP’s inadequacies from the 1997 and 2014 ideas of Robert Costanza and colleagues, published by the leading science journal Nature. In my opinion, GDP is synonymous with a proverbial African dog that was told about feast in their house; and he replied, ‘let me see it on the ground, in front me.’ Aliyu Salisu Barau—Malaysia

“

Of course, GDP is a measure of power, not of well-being. Given the normative and conceptual foundation of micro-economics and the exchange value concept in the freedom of the autonomous individual to allocate its resource as s/he pleases, GDP is a measure of the short-term economic power of these individuals (and the firms that they form) to produce and consume market goods.

Jan Barkmann—Germany

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Going beyond GDP as sole indicator of well-being is a must in order to properly present the influence of increasing environmental scarcities and social imbalances. Broadening the scope will allow tracking the repercussions from the socio-ecological sphere on economic growth and development as well.

Ina Meyer—Austria

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GDP masks inequality and poverty, particularly when (as happens in Mexico), there is a high concentration of wealth in few hands. Perhaps the inclusion of a metric for inequality (like the Gini coefficient), along with better measurements of ecological costs of growth—adding elements of the Human Development Index—may be the start of a successor indicator to GDP.

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Fernanda Figueroa—Mexico

Beyond GDP, the world should prefer indicators such as “Happy Planet, Gross National Happiness and the Greening Economy Index. The far better would be the crafted new indicators focused on the summation of balanced factors, including physical/resource-based well-being, psychological well-being, social well-being, intellectual well-being, and finally, spiritual well-being. Arup Barman—India

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“

There should be consensus among countries for a universally accepted definition incorporating all related components, and for the method of assessment of GDP.

Shadananan Nair—India

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GDP does not allow for the “health of our children, the quality of their education, or the joy of their play.

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Robert Kennedy, 1968—United States Politician

Yes, we need to shift from product indicators and economies to bioregional environmental sustainability and social cohesion indicators and economies (ESSC). Indigenous principles may provide a time-tested template for aggregated communitybased ESSC indicators, by measuring the scale of community factors. Dawn Marsden—Canada

”

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An indicator for well-being should indicate well-being, which tells something about the experience of individuals. It should not be an impersonal abstract economic value no one relates to: so GDP should be replaced with an indicator that covers more nuances.

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Myriam Hemsteede —The Netherlands

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Indicators of human (social) development should reflect both the objective (secular) and subjective (spiritual) aspects of life. As income is only a partial reflective and relative variable of the state of mind and life, new measures should be all inclusive with emphasis on the level of mental satisfaction of individuals in the march towards a progressive society.

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T. V. Muralivallabhan—India

I think GDP as it is currently calculated does not really “reflect the true face of the standard of living of the citizens of a country. It is necessary that aspects to rate citizens’ access to basic social services and efforts concerning the integration of environmental and social standards in development project are taken into account. Ibourïma Yabi—Benin

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GDP, as a “social “ construction, has completed its life cycle. Increasing inequalities confirm that it is time to embark on a new stage of economic measurement beyond the based-income approach. Rogelio Madrueño-Aguilar —Germany

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The world has become increasingly interwoven, some might say, increasingly complex and we should thus not recoil from applying a maybe more ‘complex’, but therefore more suitable indicator to assess its actual state. GDP has served its purpose in the context of a certain era, but in today’s highly globalized world, combined indicators which combine and assess externalities reflect the situation of today’s population and the environment much more accurate.

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Christina Moss—Germany

Richard E. Bilsborrow—USA

”

The existing, customary use of change in GDP based only on economic transactions that pass the test of the market as a measure of the progress of nations contributes directly to the neglect of the natural environment in the world. Moreover, this neglect is neither necessary, nor does it make economic sense as it fails to correct for the (damage to or) depletion of the natural capital involved in the generation of GDP, much of which can now be approximately measured.

”

“

GDP or any such index is a unidimensional representation of human well-being, which is fundamentally multi-dimensional. We need to move away from the relative comfort and convenience of such indices and develop conceptual and quantitative tools which can handle this multidimensional nature of human wellbeing while clarifying the normative basis of any reduction to a one dimensional index.

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Joy Merwin Monteiro—India

GDP promotes resource exploitation and environmental degradation. It’s anti-poor, anti-posterity, anti-environment and antiequity.

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Bernard Tarza Tyubee—Nigeria

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The success of a market is maximizing social welfare, also taking into account environmental impacts. It is not only the goods and services produced but beyond... Gayathri Ilango—India

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The Happiness Development Index (HDI) reflects the real growth of a country in terms of social, environmental and economic growth.

Hishmi Jamil Husain—India

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“

The view that GDP is not a good measure for well-being and that well-being needs to be better accounted for is entering the policy arena. The reasons for the low uptake of an augmented range of socio-ecological indicators in macroeconomic models range from path dependencies in modeling, technical limitations, indicator lists being long and unworkable, the choice of indicators appearing ad hoc and poor data availability.

”

Angela Köppl—Austria

Francesc La-Roca—Spain

As important as GDP may appear after all this time, real and actual data is often unavailable especially in developing countries. As an economic concept it is not responsive to overall welfare nor society building and there is no point at which governance can be assessed. A. E. Adekoya—Nigeria

Mac Callaway—Denmark

”

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There is nothing inappropriate with the GDP index—it is not meant to describe ‘human well-being.’ The problem lies in its use by the economic community, which in (macroeconomic) modelling relates increases in GDP to increases in human well-being (‘utility function’), with the same (positive) first derivate, and that without empirical foundation in any future.

”

Jochen Luhmann—Germany

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“

GDP doesn’t measure human welfare. It’s a measure of the value of the goods and services produced by an economy. Welfare measures produced by national Computable General Equilibrium (CGE) models only present Hicksian measures of the welfare received from the purchase of market goods. No claim has ever been made to the contrary. These measures can be broken down by sector (GDP) and by the sector in which consumption takes place (welfare measures). There are other measures in the national income accounts covering income, personal consumption, and income inequality. These measures do not capture welfare associated with the consumption of non-market goods, although the value of the market goods and services used to produce this welfare is buried in GDP somewhere. If one wants to create different measures or personal well-being, fine. A lot of people are doing just that. However, there is no consensus regarding the value of such studies and a lot of bickering back and forth. To get to a consensus over how to redefine the measurement of personal wellbeing, you need institutions that formalize this, like the NBER. Until that happens, all you have are a lot of atoms floating around in the publication market. So, how do you create a counter-culture NBER?

Even with a set of (best) indicators, the question about how to use them for decision-making still remains open. We need to improve collective thinking, to develop a deliberative democracy.

”

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“

“

Per-capita distance travelled or time spent in going to school/office/ hospital/market can be an indicator of well-being. After all every human has 24 hours a day.

GDP neglects social dimensions, like life expectancy, school enrolment, etc. This is covered to some extent by the HDI. Nevertheless, it shows that between humans and environmental issues exists a linear relationship, i.e. current human activities are not climate proof, for example, causing global warming and therefore an impact on individual well-being. Thus, environmentallyfriendly behaviour needs more and better elaboration of the aspects of human life.

”

”

G. Gowtham—India

Jürgen Kropp—Germany

We should incorporate into GDP a measure of how many ecosystem services a country is providing or maintaining for the world. The number of available hospital beds per individual should be considered too, just as the percentage of children in school.

“

GDP is a misleading yardstick of the true health of a nation and its people. Beyond the basic level of necessities to support life such as food, water, housing etc., a more comprehensive measure of a nations prosperity which takes into account true progress, quality of education, happiness level and everything that happens outside the realm of monetized exchange is needed.

Heitor L. C. Coutinho—Brazil

”

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K. Nsiah-Gyabaah—Ghana

Human D IMENS I ON S

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Notes and References WHAT’S BEYOND GDP? Peter Bartelmus

13 United Nations Environment Programme

14 United Nations Environment Programme

1

European Commission (2007–2012). Beyond GDP. Online: http://www.beyondgdp.eu/.

2

Cobb, C., Halstead, T. and Rowe, J. (1995). ‘If the GDP is up, why is America down?’ The Atlantic Monthly, October: 72.

and Development (2011). The green growth strategy, reshaping the OECD’s work agenda for the years to come. Online: http://www. oecd.org/dataoecd/62/59/48302542.pdf.

3

E.g. Costanza, R. et al. (2014). ‘Time to leave GDP behind’, Nature, 505: 283–85.

16 The original 1993 SEEA (Online: http://

5

15 Organisation for Economic Co-operation

unstats.un.org/unsd/publication/SeriesF/ SeriesF_61E.pdf) has been revised; its 2012 version is even more cautious: its central framework ignores the cost of environmental degradation in its (environmentally?) adjusted indicators. Online: http://unstats.un.org/unsd/envaccounting/White_cover.pdf. A recently (2013) issued companion volume on Experimental Ecosystem Accounting still refrains from any recommendation for adjusting the economic indicators. Online: http://unstats.un.org/unsd/envaccounting/eea_white_cover.pdf.

Bartelmus, P. (2013). Sustainability Economics, An Introduction, London and New York: Routledge. Pezzey, J. (1989). Economic Analysis of Sustainable Growth and Sustainable Development, Environment Department Working Paper No. 15, Washington, DC: The World Bank.

6

Eurostat (2001). Economy-wide Material Flow Accounts and Derived Indicators: a Methodological Guide, Luxembourg: European Communities.

7

Ewing, B. et al. (2010). Ecological Footprint Atlas 2010, Oakland: Global Footprint Network. Online: http://www.footprintnetwork.org/images/uploads/Ecological_ Footprint_Atlas_2010.pdf.

8

Perrings, C. (2006). ‘Resilience and sustainable development’, Environment and Development Economics, 11: 417–27.

9

von Weizsäcker, E.U., Lovins, A. and Lovins, H. (1997). Factor Four: Doubling Wealth, Halving Resource Use, London: Earthscan. A “tough” reduction of resource use in industrialized countries by a “factor of 3 to 5” is suggested by UNEP (2011). Decoupling Natural Resource Use and Environmental Impacts from Economic Growth. Online: http://www.unep.org/resourcepanel/decoupling/files/pdf/Decoupling_Report_English.pdf.

Center for Environmental Law and Policy, and Center for International Earth Science Information Network. Online: http://sedac.ciesin.columbia.edu/data/collection/ esi/.

HEALTH & NATURE IN INCLUSIVE WEALTH

11

As for instance by the sustainable development indicators (SDI) compiled for the UNU by Nováček, P. and Mederly, P., 2002. Global Partnership for Development, Sustainable Development Index, Olomouc, Czech Republic: Palacky University.

12 World Bank (2011). The Changing Wealth

of Nations, Measuring Sustainable Development in the New Millennium, Washington, D.C.: The World Bank. Online: http://siteresources.worldbank.org/ENVIRONMENT/ Resources/ChangingWealthNations.pdf.

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Anantha Duraiappah and Cecilia Fernandes

1

Kuznets, S. (1934). “National Income, 1929– 1932”. 73rd US Congress, 2d session, Senate document no. 124.

2

Samuelson, P. A & Nordhaus, W.D. (1995). Economics. 15th Edition, McGraw Hill College, New York.

3

IPCC. (2013). Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Stocker, T.F., D. Qin, G.-K. Plattner, M. Tignor, S.K. Allen, J. Boschung, A. Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.). Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, 1535 pp.

4

Millennium Ecosystem Assessment. (2005). Ecosystems and Human Well-Being: Synthesis. Washington, DC: Island Press.

5

Jackson, T. (2011). Prosperity without growth: Economics for a finite planet. Routledge.

6

NIER. (2005). “Natural Effects and their Impacts on GDP”. Konjunkturläget, National Institute for Economic Research, retrieved 6 March 2014 from http://www. konj.se/download/18.70c5203312186 5b13988000141798/2005_Natural+Disaster s+and+Their+Impact+on+GDP.pdf

7

World Bank. (2001). “The World Bank Supports Thailand’s Post-Floods Recovery Effort”. The World Bank News, December 13, 2011. Retrieved 6 March 2014 from http://www.worldbank.org/en/news/ feature/2011/12/13/world-bank-supportsthailands-post-floods-recovery-effort

8

Economic Times. (2013). Amartya Sen vs Bhagwati: Who is right in the debate on Gujarat-Kerala growth models? http://articles.economictimes.indiatimes.com/

9

Dasgupta,P. (2013). The Nature of Economic Development and the Economic Development of Nature, Economic and Political Weekly, New Delhi, India.

Partha Dasgupta

1

United Nations Environment Programme and United Nations University (2012). Inclusive Wealth Report 2012, Measuring Progress Towards Sustainability, Cambridge: Cambridge University. Online: http:// www.ihdp.unu.edu/article/iwr.

2

Arrow, K., Dasgupta, P.S., Goulder, L., Mumford, K. & Oleson, K. (2012). Sustainability and measurement of wealth. Environment and development economics. Vol 17. Issue 3 pp. 317–353.

3

Ravallion, M. (2012). “Troubling Tradeoffs in the Human Development Index,” Journal of Development Economics, 99(3), 201– 209.

4

UNDP (2010). Human Development Report New York: United Nations.

5

Anant, T.C.A. (Convenor), K. Basu, K. Chopra, P. Dasgupta (Chair), N. Desai, H.P. Gundimeda, V. Kelkar, R. Kolli, K. Parikh, P. Sen, P. Shyamsundar, E. Somanathan, and K. Sundaram (2013). Green National Accounts in India: A Framework (Report by an

Dasgupta, P. (2013). “Personal Histories and Poverty Traps,” in C. Sepulveda, A. Harrison, and J.Y Lin, eds., Development Challenges in a Postcrisis World: Annual World Bank Conference on Development Economics, 2011 (Washington DC: World Bank), 103–126. Translated into French in Revue d’Economie Dudeveloppement, 2011, 4(December), 87–114.

GDP REEXAMINED

17 HDI: see note 10; SDI: see note 10; ESI: Yale

10 United Nations Development Programme

(UNDP) (1990–2013). Human Development Reports. Online: http://hdr.undp.org/en/ statistics/hdi/.

6

(2011). Towards a Green Economy, Pathways to Sustainable Development and Poverty Eradication. Online: http://www.unep.org/ greeneconomy/GreenEconomyReport/ tabid/29846/Default.aspx.

(All websites accessed on 3 Sept 2013 or later)

4

Expert Group Convened by the National Statistical Organization, Ministry of Statistics and Programme Implementation, Government of India). http://mospi.nic.in/ Mospi_New/upload/Green_Accouts_inIndia-1may13.pdf.

and United Nations University (2012). Inclusive Wealth Report 2012, Measuring Progress Towards Sustainability, Cambridge: Cambridge University. Online: http:// www.ihdp.unu.edu/article/iwr.

10 Stiglitz, J.E., Sen, A. & Fitoussi, J.P. (2010),

Hu m a n D IM E N S IO N S

Mismeasuring Our Lives: Why GDP Doesn’t Add Up, New Press, New York. 11

Arrow, K., Dasgupta, P.S., Goulder, L., Mumford, K. & Oleson, K. (2012). Sustainability and measurement of wealth. Environment and development economics. Vol 17. Issue 3 pp. 317–353.

4

5

United Nations Development Program, Human Development Index. 2012, UNDP. Available from: http://hdr.undp.org/en/ statistics/hdi/.

6

Maslow, A.H., A Dynamic Theory of Human Motivation. 1958.

12 Duraiappah, A. K., Scherkenbach C,. Mu-

noz, P., Bai, X., Fragkias, M., Gutscher, H., Neskakis, L.. Human Well-being for a planet under pressure. Rio+20 Policy Briefs, Planet Under Pressure Conference (www. planetunderpressure2012.net).

United Nations Environment Programme and United Nations University (2012). Inclusive Wealth Report 2012, Measuring Progress Towards Sustainability, Cambridge: Cambridge University. Online: http:// www.ihdp.unu.edu/article/iwr.

7

13 See Dasgupta, P. (2004). Human Well-being

from the work of Arrow and Dasgupta (2012).

1

2

MEASURING THE INFINITE Fouad Khan

1

Novak, M. (2013) Nikola Tesla’s Amazing Predictions for the 21st Century. Smithsonian.com.

2

Keynes, J.M., Essays in persuasion. Vol. 190. 1932: WW Norton & Company.

3

The World Bank, Comprehensive Wealth Accounts. 2013, The World Bank. Available from: http://data.worldbank.org/data-catalog/wealth-of-nations.

7

h t t p : / / w w w. g i r l e f fe c t . o r g /e x p l o r e / taking-the-girl-effect-to-scale/data-factsheet-2012/.

8

http://www.ted.com/talks/hans_rosling_ and_the_magic_washing_machine.

DID YOU KNOW THAT? 1

http://www.dailyrandomfacts.com/random-facts-2/richest-and-poorest-countries-by-gdp/

2

http://positivepsychology.org.uk/pp-theory/happiness/57-happiness-and-subjective-well-being.html

3

WWF, Global Footprint Network 2007

4

http://positivepsychology.org.uk/pp-theory/happiness/57-happiness-and-subjective-well-being.html

5

http://www.investinganswers.com/ investment-ideas/world-markets/10facts-about-china-you-wont-believe-youshould-1666

6

http://millenniumassessment.org/

7

http://www.investinganswers.com/ investment-ideas/world-markets/10facts-about-china-you-wont-believe-youshould-1666

PHOTO SERIES

15 UNU-IHDP and UNEP (2012). Inclusive Wealth

Report 2012. Measuring progress toward sustainability. Cambridge: Cambridge University Press.

http://solari.com/articles/popsicle_index/.

Hausmann, R., et al., The atlas of economic complexity. Boston. USA, 2011.

and the Natural Environment. Oxford University Press. 14 The model presented in this article draws

6

h t t p : / / w w w. e c o n o m i s t . c o m / b l o g s / blighty/2014/03/measuring-wellbeing#sthash.EMacNoSz.dpbs. http://www.nytimes.com/1991/10/01/us/ for-babies-an-ounce-can-alter-quality-oflife.html?action=click&module=Search&re gion=searchResults%230&version=&url=h ttp%3A%2F%2Fquery.nytimes.com%2Fsear ch%2Fsitesearch%2F%3Faction%3Dclick%2 6region%3DMasthead%26pgtype%3DHom epage%26module%3DSearchSubmit%26co ntentCollection%3DHomepage%26t%3Dq ry465%23%2Fquality%2520of%2520life.

3

http://www.dailylife.com.au/health-andfitness/dl-well-being/arianna-huffington-its-time-to-redefine-the-good-life20140327-35l31.html.

4

http://visionspring.org/why-eyeglasses/.

5

http://www.birdsinbackyards.net/birds/ Birds-Indicators-Sustainability.

CROSSWORD SOLUTION Check your work from the last edition.

A G R I C U L T U R E E N A B L E

Human D IMENS I ON S

B R A N

I O W E Y D O O U W N D Q U N M P A N T H E E L D

L I T Y H S S D I G A N N F F E C T I T H E S M E T E R I S F L O T A I P B A N K H E K I I P P A R R G L O Y E E G M S H R O P O C E N T A D S Y U L E S T R E

I G N E N V E I S N O D T I I M N E T N O S I F O E N S E T R

H L E V E U N C L O X R Y J S S O C I O H A P L A I N N A O O N A H E E L E R S H I B L L U S I A R I S E G N O O Y L E A S I O S P E C

L E A K E D O R P A V E M E N T

P A N A R N K K E T Y O R E S G Y V I Z O S C T E B A E N E N N E T T R G E I V E

E B O L A

L A S T I N C G O N A A N N T S S S A F U E R L L Y

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Did you know that... ?

The richest countries in the world measured by GDP per capita are Luxembourg ($58,900 per capita) and the United States ($40,100). The poorest Countries are Malawi ($600) and East Timor ($400).1 Watching soap operas enhances well-being.2

If everyone lived and consumed like Europeans do, we would need 2.6 planets.3

Yum! claims that it opens one new KFC in mainland China nearly every day.5

There are twice as many cell phones in China than people in the U.S.7

Human D IMENS I ON S

Winning the lottery often leaves people less happy.4

A country could cut down all its forests and deplete its natural resources and this would show only as a positive gain to GDP despite of the loss of capital.6

A RTI C LE TYP E

IHDP International Human Dimensions Programme on Global Environmental Change Platz der Vereinten Nationen 1 53113 Bonn, Germany

www.ihdp.unu.edu 78

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