ALTERNATIVE MEASURES OF WELL-BEING (CHAPTER 14) GEOG 352: Day 15

Housekeeping Items Hope you had a good reading week. Did anyone go to the Climate Change Symposium or to the film on the Northern Gateway Project? Please see the poster on the ethical investment symposium on March 10 th. Can I see the people who volunteered to present on my behalf after class? How are you making out on your research projects? Today I will give back the mid-terms and we can review any questions. Can I also see Duncan and Rabi after class?

Housekeeping Items After going over the exams, we will discuss Chapter 14 from Daly & Farley on alternative indicators of social well-being. On Thursday we will talk about needs vs. satisfiers. In the meantime, do a bit of introspection between now and then as to what your personal human nature is.

Alternatives to GNP/ GDP Don’t get too intimidated by this chapter. We are only going to pluck out a few points. The authors claim that ecological economics makes optimal scale more important than economic growth. This is followed by fair distribution as a secondary, but very important, goal. They introduce GNP (“all production by [domestic] citizens [and permanent residents] whether at home or abroad”) and GDP (“all production with the geographic borders [of a country], whether by [residents] or by foreigners”).

Alternatives to GNP/ GDP Another way of measuring GDP is the total value of all goods and services produced by a nation in a year(excluding imports). GDP= private consumption + gross investment + government spending + (exports−imports). GDP per capita is adjusted for purchasing power parity. According to Wikipedia, this is “how much money would be needed to purchase the same goods and services in two different countries.” To take the example of housing, Country A could have a lower GDP per capita than Country B, but its housing could be far more affordable.

GDP Per Capita (PPP Adjusted), 2007

Alternatives to GNP/ GDP Typically, growth in GNP or GDP has been seen as a reflection of society’s overall economic and social well-being. Simon Kuznets, one of its developers, warned Congress in 1934 that “the welfare of a nation can scarcely be inferred from a measurement of national income.” In 1962, he was more explicit: “distinctions must be kept in mind between quantity and quality of growth. Goals of ‘more growth’ should always specify more growth of what and for what purpose.”

Alternatives to GNP/ GDP  The critics who feel that GDP is an inadequate measure of national well-being point to a number of inclusions and omissions:  It includes spending on various 'bads', such as dealing with crime and its consequences; the health consequences of air pollution, car crashes, smoking, and junk food; spending on weapons and war, and cleaning up after pollution and environmental disasters (see p. 250)  It ignores resource depletion and the degradation of natural capital;  It ignores the household and voluntary sectors;  It doesn't examine economic inequality, and  It fails to take into account quality of life issues.

Alternatives to GNP/ GDP  Two key categories here of items that should be subtracted from GDP/ GNP are natural resource depletion and defensive expenditures.  The first is rather obvious. The second is defined as “those [expenditures] we have to make to protect ourselves from the unwanted consequences of the production and consumption of goods by other people” (p. 270).  This can range from individuals having to spend money on asthma medication because of transportation-related air pollution to governments having to clean up abandoned mine sites or major oil spills. In some cases – indeed, many – the full costs are borne by future generations.

Alternatives to GNP/ GDP  The authors also talk about the fact that GDP/ GNP makes no distinction between truly sustainable income and capital consumption. A store and all its equipment, furniture and stock is the capital which generates an income for its owner. If he or she liquidates a part of that capital to subsidize a major booze or cocaine binge, then they seriously undermine their ability to derive an income in the future.  Because of these weaknesses, a number of alternative measures of social (and ecological) well-being have been developed. These include: Gross National Happiness, Happy Planet Index, Index of Sustainable Economic Welfare and, more recently, the Genuine Progress Indicator.

Alternatives to GNP/ GDP Measure of Economic Welfare (MEW)—The MEW is the work of Yale University economists William Nordhaus and JamesTobin. They developed their Measure of Economic Welfare back in 1972 as one of the first attempts to address the shortcomings of GDP. Index of Economic Well-being (IDEW) — This index is the work of the Ottawa-based Centre for the Study of Living Standards.It's a weighted average of four main components of economic well-being: consumption flows, stocks of wealth, inequality, and indicators of economic insecurity like unemployment and poverty in old age. Genuine Progress Indicator(GPI)—The GPI was developed in 1995 by Redefining Progress, a private research institute based in California. It arrives at its Genuine Progress Indicator by taking GDP figures and then adjusts them to take into account income distribution, and other factors.

Alternatives to GNP/ GDP Index of Sustainable Economic Welfare (ISEW)—Developed in 1989 by Herman Daly and John Cobb, the ISEW takes into account private spending on defence (a negative), domestic housework (a positive), the costs of environmental harm (a negative), and it corrects for income inequality. Human Development Index (HDI)—This index is the work of the United Nations Human Development Report. It ranks the world's countries on three main aspects of human development: health, knowledge (education), and standard of living. Happy Planet Index (HPI)—The Happy Planet Index was developed by the British-based New Economics Foundation to, in their words, "show the relative efficiency with which nations convert the planet's natural resources into long and happy lives for their citizens.” Finally, in 1972, the King of Bhutan came up with the Gross National Happiness (GNH) indicator that he felt would be in tune with his country's Buddhist values.

Question for Discussion If you were wanting to evaluate how healthy and happy a society is, how would you go about it?