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Going ‘beyond GDP’
Wellbeing, happiness and sustainability: hallmarks of a new economic paradigm by John Wiseman(12 April 2012)
What do the following people have in common? Nobel laureate economist Joseph Stiglitz, former Australian deputy prime minister Tim Fischer, UN Secretary-General Ban Ki-moon, HRH Prince Charles, OECD chief statistician Martine Durand, Indian ecological activist Vandanna Shiva, the President of Costa Rica…
UN Secretary-General Ban Ki-moon, Bhutanese Prime Minister Jigmi Thinley, Costa Rican President Laura Chinchilla and administrator of the UN Development Program, Helen Clark at last week’s UN meeting on wellbeing and happiness. Casa Presidencial República de Costa Rica
Answer: They were just some of over 600 delegates including heads of state, Nobel laureates, spiritual, business and community leaders who contributed to the opening of the recent United Nations High Level Meeting on Wellbeing and Happiness: Defining A New Economic Paradigm.
This landmark meeting, convened by the Prime Minister of Bhutan, Jigmi Y Thinley, followed on from the 2011 UN General Assembly motion calling for governments to promote polices focusing on sustainability, happiness and wellbeing as opposed to narrower definitions of economic growth measured solely by the expansion of GDP.
The following sketch of key contributions to this historic event provides an overview of key ideas and priorities discussed.
Prince Charles: “The grim reality is that our planet has reached a point of crisis. The time for us to act is rapidly running out. We are facing what could be described as a ‘perfect storm’: the combination of pollution and over-consumption of finite natural resources; the very real risk of catastrophic climate change; unprecedented levels of financial indebtedness, and a population of seven billion that is rising fast.
Prince Charles continued “as the Prime Minister [of Bhutan] said … it is hard to rock the boat, but rock it we must. As it happens, I have been doing a spot of rocking myself for a considerable number of years, precisely because I have felt the globally accepted systems of accounting for success – whether in terms of profit, or GDP – are not providing the right information for governments, businesses and other organisations to take the right decisions, given the challenges we face in the twenty-first century.”
Economist and Nobel laureate Joseph Stiglitz. AAP
Professor Joseph Stiglitz: “Those attempting to guide the economy and our societies are like pilots trying to steer a course without a reliable compass. We are almost blind when the metrics on which action is based are ill-designed or when they are not well understood. ” Professor Stiglitz mounted a powerful case that the time has come to move beyond GDP as the dominant measure of human progress by finalising agreement on the introduction of a more integrated set of ecological, social and economic goals and measures.
….. Professor Robert Putnam, speaking at the Columbia University workshop which preceded the UN meeting, drew on extensive new empirical evidence to emphasise the crucial role which social connectedness and the capacity to be part of trustworthy social relationships play in the creation of flourishning and sustainable communities and organisations.
Prime Minister Thinley concluded by reminding the gathering that “business as usual cannot go on and tinkering with the existing system will not do… we need a fundamental transformation”.
He also emphasised that this was just the beginning of an extensive work program designed to turn words into action by building support for alternative political and economic policies. The next steps in this process are likely to include the establishment of an International Commission on Gross National Happiness as well as detailed policy proposals to be presented to Rio + 20 in July and the UN General Assembly in 2013.
The meeting closed with prayers from senior Hindu, Buddhist, Christian, Jewish and Muslim spiritual leaders. All of them called for an awakening of the awareness that the rapid implementation of a new economic paradigm is an essential precondition for ensuring that we are to able pass on a sustainable way of life to our children and grand children.
Authors: Joseph E. Stiglitz, Amartya Sen, and Jean Paul Fitoussi
August 25, 2010
In this CMEPSP report, economists Joseph Stiglitz, Amartya Sen, and Jean Paul Fitoussi analyze the limits of GDP as an indicator of economic performance and social progress and assess alternative measurements of performance.
Proposals from the Signatories Institutions for Brazil, Civil Society and Government positioning to the negotiations to the United Nations Conference on Sustainable Development (Rio+20)
Adoption, by the UN, of a new national accountability standard to measure development and monitor the national voluntary plans, taking into consideration recent research– among which we highlight the works of the Stiglitz-Sen-Fitoussi Commission and the studies conducted by Ethical Markets in partnership with GlobeScan (Beyond GDP) –, as well as the experiences from the various nations and blocs of nations on defining their internal prosperity and development standards (according to item 1.i). The accumulation of these researches and information, and their thorough evaluation, should develop, in the medium run, into a new standard that can be adopted by all nations....
…. Redefinition of a Geography of Technical and Scientific Cooperation, suggesting the coordination of efforts and the creation of networks that encourage the exchange of experiences, expertise and skills among regions that are similar geographically (organized by biomes), geopolitically, and by their development stage, in a way to create synergies and accelerate scale gain, with a resulting lowering of costs to the transition agenda.
…. In this sense, it is proposed to strengthen the management systems in the social, environmental and ethical dimensions within the United Nations, and the creation of an “umbrella body” responsible for planning, coordination, encouragement and implementation of sustainable development commitments. This new body, that shall have a hierarchical level comparable to the Security Council and absorb the Commission on Sustainable Development, shall provide directives to other bodies, agencies and programmes within the United Nations system, specially: ECOSOC, UNEP, UNDP, WTO, WCO, ILO, UNIDO, UNCTAD, FAO, OHCHR, UNFPA and UNESCO. The new body shall also articulate policies and efforts from multilateral financial institutions (International Monetary Fund and the World Bank), settle disputes, mediate conflict of interests and litigate within the International Court of Justice and the International Criminal Court, gather and provide subsidies to other multilateral organizations (such as G20 and G77), and maintain a dialogue and consulting forums with non-governmental organizations (market and civil society based), guaranteeing legitimacy to decisions and processes.
Besides being responsible for the encouragement and support to the agendas and national plans, this new multilateral institutional architecture would intervene in all situations of social, financial, food, energy, environmental, and cultural crises and in any other issues related to sustainable development. http://www.uncsd2012.org/content/documents/Instituto%20Ethos%20and%20Partners%20-%20Rio+20%20Position.pdf
Luckily, we can now overcome the persistent objections of macroeconomists ever since 170 nations agreed to reform their GDP in Rio's Earth Summit in the 1992 Agenda 21, Article 40. With the development of the internet and the web, we no longer need macroeconomic models of national accounts in GDP used since World War II. These obsolete methods of measuring war production were never intended to measure national well-being, as warned by their developer Simon Kuznets. Now the website "dashboards" displaying all indicators of well being, quality of life in many disciplines and metrics beyond money-coefficients are growing at the OECD, the EC with Jochen Jesinghaus' MDG Dashboard, in Sweden with Hans Rosling's dynamic displays, Brazil's many new "observatories," and in the USA the pioneering Calvert Henderson Quality of Life Indicators since 2000, still regularly updated at www.calvert-henderson.com.
GDP (‘gross domestic product’) is the measure used globally to assess economic performance of each country.
It was first implemented in Criticism of this method has gathered pace significantly over the last few years, especially since the ‘Beyond GDP’ conference in 2007, hosted by the European Commission, European Parliament, Club of Rome, OECD and WWF. Speakers included :
there is a huge groundswell of support for going beyond GDP, and a new language springing up around it; the alternative to GDP is basically known as ‘accounting for externalities’, ie measuring, and accounting for, natural capital (the earth’s resources) and human/social capital. Other terms include:
Banking on values
Growing inclusive markets
In 2008, President Sarkozy commissioned the Stiglitz-Sen-Fitoussi report, which looked at measuring natural and human capital. These authors have all espoused communitarian philosphies, and employed Robert Putnam, author of ‘Bowling Alone’, in their research.
Bretton Woods conference in 2011, speakers included
Lord Adair Turner (chairman of the Financial Services Authority and the Climate Change Committee)
The most recent report (June, 2012) was prepared by the Wealth Accounting and the Valuation of Ecosystem Services partnership (WAVES). Launched by the World Bank, this initiative “includes UN agencies, national governments, NGOs, institutions, and developed and developing countries — Australia, France, the Netherlands, Norway, Spain, Botswana, Colombia, Costa Rica, Madagascar, and the Philippines. The government of Japan just committed $US3 million to strengthen a partnership that is helping countries value their natural capital.”
, entitled ‘Moving Beyond GDP’, the report points out that GDP was first conceptualised in response to the Great Depression, and then parallels this period with our own, calling them both crises. As with environmental pollution, where only carbon receives the attention, so it is with the financial collapse: only GDP is blamed (and not, for instance, the individual players in the collapse, or the fiat money system). In the same vein, the solution is measurement: this time, it’s all of nature, and all of humankind. Typically, this report is not a rounded argument for ‘wealth accounting’, because it does not look at alternatives, or the potential developments from employing metrics such as these. The focus is always on the tangible aspects, ie nature, rather than the data collection that would be required for assessing global ‘well-being’, or the inherent obtrusiveness of this method.
As can be seen from the efforts made so far with SROI, the concept of well-being is subjective, and therefore ideological. Attaching monetary values to intangible concepts, as opposed to physical products, creates a commodity. Investors want to know the value of their workforce. This is leading to a world obsessed with outcomes, said to constitute empiricism.
by Rachel Kyte (Vice President for Sustainable Development) notes that social, human, and natural capital will be measured as the system of wealth accounting and that ten African countries recently endorsed this move. She adds:
“By Rio +20 …. we hope to see 50 countries and 50 private corporations join this effort.” http://blogs.worldbank.org/voices/demystifying-natural-capital-accounting-10-african-countries-sign-on
Measuring natural capital
The idea of accounting for clean air, clean water, forests, and other ecosystems has been around at least since the Earth Summit in Rio in 1992. One of the reasons it did not gain traction was the lack of widely agreed methods for putting monetary values on these services. Consequently, most of the efforts by countries were experimental. Lack of political will to implement accounts on the ground has also hampered progress.
In February 2012, the UN Statistical Commission
approved the System of Environmental and Economic Accounts (SEEA) as an international statistical standard like the System of National Accounts (SNA). This was a fundamental leap forward for natural capital accounting. Now, natural capital accounting can be implemented at scale. The SEEA standards cover material natural resources like minerals and timber, as well as accounts for environmental protection expenditures, taxes, and subsidies.
…. The SEEA framework has been endorsed by the UN Statistical Commission, which is a body of heads of statistical offices from all countries and international organizations like Eurostat, the IMF, OECD, UN, and the World Bank. Over time, countries are expected to implement statistical standards using SEEA, as they have done with the SNA. The methodology for ecosystem accounting is still experimental—more work is needed to determine how best to assign values to all aspects of ecosystem servics. Work is under way to refine this for the second phase of the SEEA.
.... CEOs of leading corporations like ASDA and Unilever have signed on to a Natural Capital Leadership Compact—a call for action by leaders of global companies convened by the University of Cambridge Programme for Sustainability Leadership. These companies pledge that they will operate within the limits of natural systems, identify and address the “un-costed” impacts on people and the environment (externalities), enable consumers to make better informed choices, and develop rigorous and realistic targets and plans. http://siteresources.worldbank.org/EXTSDNET/Resources/Moving-Beyond-GDP.pdf
The OECD is playing a leading role in the global movement towards more effective measurement of well-being and progress of societies.
The Better Life Initiative, which was launched in May 2011 is a first attempt to bring together internationally comparable well-being measures. One component of the initiative is the How’s Life? report, which presents indicators for 11 dimensions of people's well-being in 40 countries. Another component is Your Better Life Index, an interactive tool enabling citizens to rate countries according to their own preferences about what matters most in life.
The OECD is also simultaneously pursuing a broad statistical and research agenda, in close collaboration with its member and partner countries, national statistical agencies and international organisations. The agenda aims to lay the foundations for better statistics tomorrow, and is closely aligned with the recommendations of the Stiglitz-Sen-Fitoussi Commission, which reported on going beyond GDP in 2009, as well as many ongoing national and regional initiatives.
New measurement work undertaken by the OECD covers: the inclusion of disparities in national accounts; integrated analysis of the joint distribution of households’ income, consumption and wealth; development of better measures of morbidity and adults’ competencies; estimates of carbon-emissions embedded in consumption; development of monetary measures of the stock of human capital; and guidelines on measuring subjective well-being.
The OECD is organising the Fourth World Forum on Measuring Well-being and Fostering the Progress of Societies, in New Delhi in October 2012. Regional conferences will help governments prepare for the New Delhi forum: two were held in Latin America and Asia in 2011, and two more are planned for 2012, in Africa and Europe.
The OECD has also developed a Wiki platform – Wikiprogress – through which those interested in well-being issues worldwide can share ideas and data about progress.
In a move to give greater prominence to valuing nature, the UK will also be seeking agreement to move away from using GDP as the sole indicator of progress in government accounts. The proposal, known as GDP+, would encourage countries to also measure and account for the value of their natural resources and the social wellbeing of their people.
The Beyond GDP initiative is about developing indicators that are as clear and appealing as GDP, but more inclusive of environmental and social aspects of progress.
This website aims to promote sharing of information on recent developments and ongoing work.
…. “We need to move beyond gross domestic product as our main measure of progress, and fashion a sustainable development index that puts people first,” said Ban.
…. “Energy, water, food, biodiversity, climate change adaptation, exposure to natural hazards, consumption and production patterns, social protection floors and jobs, especially for young people – these are all closely linked. Our challenge is to connect the dots, so that advances on one can generate progress on others.”
The original draft outcome document has ballooned from 19 pages to 278 pages following two rounds of discussions.
The draft, once complete, will form the basis of the talks in Rio.
Two years after the release of the Stiglitz-Sen-Fitoussi Report the issue of generally accepted indicators other than GDP to express the progress and the achievements of a given socio-political community has achieved a strong public interest dimension.
Moreover, in the first negotiation texts for the UN Conference of Sustainable Development - the so-called "zero draft" - limitations of GDP as a measure for well-being have been recognized.
To open up debate and to explore how to better involve stakeholders on this very technical but highly political issue, the EESC organizes a public hearing on Thursday 26 January, 10 days before its major civil society conference 'Go sustainable, be responsible! European civil society on the road to Rio+20'.
President Staffan Nilsson will open the event, followed by contributions from civil society representatives, researchers and policy makers. The hearing will provide valuable feedback and input towards an opinion that the EESC will adopt in the coming months.
Here are some quotes from famous advocate of natural accounting:
MS. LAGARDE – transcript of speech (2011)
“There was really good work that was conducted under the leadership of Professor Stiglitz and a few other Nobel Prizes about how we measure growth and what is the real value of GDP relative to lots of other factors that were not included and not accounted for in the traditional way of calculating growth. I think that that work and the conclusions of their report should actually be picked up and should channel through the way in which we actually report growth--not that we are going to do way with the standard, traditional GDP calculations, but growth accounted for with different parameters that are not taken into account is also something that we should be attentive to.”
‘From GDP to better life indexes of being’, by Hazel Henderson (2011)
“…. GDP perpetuates the false prices resulting from externalizing costs to societies and exploiting environmental resources. This helps explain BP’s massive oil well blowout in the Gulf of Mexico and the meltdowns of nuclear reactors in Fukushima, Japan. Many crises have reached global levels in pollution, desertification, climate change and disease epidemics. Recurring financial crises produce unemployment, “jobless economic growth” and un-repayable debts. Public distrust and anger is growing, along with demands for truth and accountability.
….. Alternatives to GDP have proliferated based on indicators beyond economics: on health, education, sustainability and the environment. These include the UN’s Human Development Index (HDI), the Living Planet Index, Ecological Footprint, Bhutan’s Gross National Happiness and the Canadian Index of Wellbeing.”
Henderson goes on to acknowledge the roles of the MDG dashboard, the Index of Wellbeing used in the UK and Canada, and China’s Green GDP, alongside the Calvert-Henderson Quality of Life Indicators which she helped create. http://www.ethicalmarkets.com/2011/09/26/from-gdp-to-better-life-indexes-of-wellbeing/
"Another World is possible!" is the slogan of the World Social Forum since 2001, and may give the perspective for a world "Beyond GDP".
………… Other elements for a world Beyond GDP are:
* Solidarity, the very base of trade unions
* Corporate Social Responsibility (Szell 2006)
* Social Innovation (Harrisson et al. 2009)
* A social and solidary economy (Landriot 2011).
Gyorgy Szell is Professor Emeritus, Department of Social Sciences, University of Osnabrueck
COUNCIL OF THE EUROPEAN UNION
Rio+20: Pathways to a Sustainable Future
- Council conclusions -
3152th ENVIRONMENT Council meeting
Brussels, 9 March 2012
RECOGNIZES that population dynamics are strongly and inseparably linked to our efforts to promote sustainable development and protect the environment as well as to further improve human well-being, reduce poverty and hunger, promote decent employment and ensure food, water and energy security, which require higher economic performance and EMPHASIZES that population dynamics need to be addressed through human rights based policies;
RECALLS that gross domestic product (GDP) is mostly a measure of production and does not reflect issues such as environmental sustainability, the use of natural and human capital, resource efficiency and social inclusion and STRESSES the need to use, and where necessary develop and agree on, indicators that complement GDP and contribute to a more accurate picture of the inter-linkages between the environmental, economic and social aspects of wealth, welfare and well-being;
Beyond GDP - how can we measure progress? (video of the 2nd Earth Debate)
“We ought to be measuring other ways of measuring the success of societies and economies” Richard Black, BBC
Also Andrew Simms (nef)
DEPARTMENT FOR INTERNATONAL DEVELOPMENT
That's why we'll be hosting the GDP+ event and why we've published a technical paper this week reviewing the different approaches to GDP+ that governments can use. We also realise that many governments in low-income countries have capacity limitations – just estimating GDP is often hard enough. So we will also be discussing the Wealth Accounting and Valuation of Ecosystems Services (WAVES) Partnership at the event. WAVES was set up to enable developing countries to try out this work and share experiences with others that are doing the same, such as the UK.
Developers of key indicators and measures have been asked to describe the development and implementation of their indicator(s) in their own words. Each paper describes the need for the indicator, its findings and uses, and future possibilities for its further development.
The list below includes selected factsheets which are considered particularly relevant for journalists:
We have reached a rare moment in history. Having discarded the failed systems of socialism and communism, many nations are now struggling to protect their citizens against the loss of economic sovereignty under the Wall Street capitalist model of economic globalization. Before the pendulum swings back to socialism, all nations of the world have a chance to implement for their citizens a new and bloodless economic revolution. This positive global revolution would be consistent with the unrealized ownership vision and ideals of America’s founding fathers and the ancient principles of justice expressed in Islam, Christianity and Judaism. It could enlist the poor of the world to help win the war against global terrorism.
As they search for a better life, the citizens of developing and transforming economies – as well as those living in the developed countries themselves – need something better than the outmoded and dehumanizing systems of traditional socialism and capitalism. Nations now have the power to create new property for the poor, without taking existing property from the rich. Leaders who believe in Peace through Justice now have in their hands a new model for economic globalization, a true and just third way forward.
Aspects of India's Economy, no. 35, Research Unit For Political Economy, Mumbai, September 2003
Lew Rockwell: World Social Forum and World Economic Forum are interchangeable http://www.youtube.com/watch?v=Vv9cvDl6Xz0
THE FINANCE INNOVATION LAB
The first phase of the Lab was a series of workshops, which we held in July 2009. With over 200 participants we worked with two scenarios for the future of the financial system developed by Oxford University Said Business School Institute for Science, Innovation and Society and identified areas within the financial system where innovation will lead to significant change. These were: Leadership, Values and education; Governance; From risk to resilience; Money and value; New business models and new forms of banking; Valuing externalities; Locally-directed investment; Beyond a financial return.
Based on these outputs an Assembly followed in March 2010 to kick off the action phase of the Lab. We hosted over 110 participants for a one day workshop where we began to co-create initiatives which exemplify how a financial system that serves society and the environment might work.
Participants were asked to pledge responsibility for stewarding these projects and eight action groups with stewards were identified at the end of the session; Finance in a steady state economy; Risk and Resilience; Leadership; Education and finance; Locally directed investment; Rural banking model for the poor; Complexity in Finance, Stewardship of the Lab; Funding the project, Design and creative processes for change. These projects have met regularly over the summer to develop a strategy, recruit interested members and to turn their ideas into action. Groups around our action areas have formed on the online community
In April 2010 The Lab won funding of £124K from the Tellus Mater Foundation who support ‘forward-thinking individuals and organisations’ with cutting-edge ideas that will change the rules of the game’ and a further 50K from different sources followed….
….. WWF-UK and the Institute of Chartered Accountants in England and Wales are co-conveners of the Lab. They have committed to support it’s long-term evolution of the Lab over the next five years.
With 132,000 members, the ICAEW is the largest accountancy body in Europe. Their membership includes leaders and advisers of organisations of all sizes across every economic sector and 165 countries, providing us tremendous reach and access to expertise.
Their Corporate Finance and Financial Services Faculties give them an authoritative position with the key financial players. In addition the ICAEW is one of the leading and most innovative accounting bodies in sustainability and corporate responsibility.
WWF has a long history of working with stakeholders from business and finance to enable the transition to a sustainable future, recognising that they are a key lever for change. For example, WWF helped to establish multi-stakeholder initiatives and organisations such as the Marine Stewardship Council, Forest Stewardship Council, the Carbon Disclosure Project and FairPensions. The latter two organisations both aim to stimulate a shift in investors in the way that they make decisions about environmental and social challenges.
Over the past year, WWF has been working directly to help investors and pension funds understand the carbon liabilities of their assets.
This somewhat unlikely partnership came about because of a shared will to create a better model of capitalism; one that supported social and environmental capital preservation whilst protecting prosperity.
Perspectives on Limits to Growth: Challenges to Building a Sustainable Planet, Co-sponsored by The Club of Rome and the Smithsonian Institution’s Consortium for Understanding and Sustaining a Biodiverse Planet (1 March 2012)