Articles by this Author
New Scorecards for Real National Progress
By Hazel Henderson - ¬©2007
This following op-ed, distributed by InterPress News Service, is provided here courtesy of the author. For more information, check out www.hazelhenderson.com or www.ipsnews.net
Ever since the Earth Summit in Rio de Janeiro in 1992, when 170 governments signed Agenda 21 agreeing to correct the errors in Gross National Product (GNP) and its domestic version (GDP), statistical offices have labored to comply.
Grassroots groups for social justice, human rights, consumer and environmental protection forced the issue of correcting GNP and GDP onto reluctant politicians, businesses, financiers as well as economists and statisticians. All have financial and intellectual investments in this ubiquitous scorecard of economic growth equated everywhere with ‚??progress.‚?Ě
What are the shortcomings of GNP/GDP as scorecards of national progress and why were grassroots groups from so many different constituencies demanding corrections? Why does GNP/GDP short change all their agendas from health, education, and the environment to human rights, social justice and peace?
First, a look back. Economist Simon Kuznets, who developed GNP/GDP never saw it as an overall scorecard of a country‚??s progress: ‚??The welfare of a nation can ‚?¶ scarcely be inferred from a measurement of national income‚?Ě (1932 testimony before U.S. Congress). This money-measured index came into full use during World War II as a way to measure war production, adding up all the production of tanks, airplanes, automobiles and all the other goods and services exchanged in a nation‚??s cash economy.
Today in most industrial economies, services have grown faster than goods‚??and statisticians are constantly revising GDP components to account for our evolving societies and technologies. But since GDP only includes money-measured production, these national scorecards ignore many of the social and environmental costs of production‚??as do corporations. Economic textbooks refer to these costs borne by society and future generations as ‚??externalities‚?Ě which could be omitted or ‚??externalized‚?Ě from company balance sheets‚??and therefore from GDP as well.
But by the 1960s, grassroots groups began to notice the perverse effects of corporate profit-making activities. They saw how GDP scorecards also ignored all wider aspects of national progress and even tacitly encouraged bad behavior. For example, since ecological assets like forests and ocean fish stocks are not valued in GDP, a country could chop down its forests and record the sale of the wood as additions to GDP with no losses recorded anywhere.
In the past decade, companies began accounting for the social and environmental costs of their production‚??internalizing them in ‚??triple bottom line‚?Ě balance sheets now used by over 600 global corporations. But, similar corrections have not been made to GDP. Following economics textbooks, GDP still sets at zero the value of vital ecological assets: clean air, water and biodiversity, as well as the value of healthy, productive citizens and their unpaid work (raising children, maintaining households, caring for the sick and elderly, serving as volunteers, etc.) which accounts for some 50 percent of all production, even in industrial societies.
So since the Earth Summit, citizens‚?? groups have been pushing their local officials, academics and statisticians to create broader indicators of progress and quality of life. Many cities around the world from Jacksonville and Seattle in the USA to Sao Paulo and Shanghai now have indexes of their quality of life‚??using metrics beyond money and economics from many fields: public health, environmental sciences, data on poverty gaps and human rights.
Yet, mainstream media still slavishly report on GDP, unaware of all its deficiencies. Many of these new broader indicators of quality of life can be tracked on websites, measuring the ‚??ecological footprint‚?Ě of consumerist societies; carbon emissions of energy-gulping activities; poverty gaps; maps of distribution of rich and poor enclaves; and percentages of citizens in jail in various countries.
Meanwhile, macro-economists, statisticians and their bureaus and academic allies continue to drag their heels, collecting research grants to compile data on environmental damage and social costs. But instead of subtracting all these costs from GDP accounts, they keep them separate as ‚??satellite‚?Ě accounts. Thus, media and the public think these accounts are unimportant. They are also ignored by powerful government ministries catering to business and financial markets‚?? shared goal of GDP growth. Weak ministries, usually in education, health, welfare, civil rights and the environment, care about these ‚??satellite‚?Ě accounts but are no match for finance and economic ministries, central banks, let alone powerful corporations ‚?? all intent on retaining GDP which ‚??externalizes‚?Ě those social and environmental costs.
Today, these costs are visible and mounting: global warming, desertification, fires, floods, droughts and environmental destruction, so challenges to GDP have reached political agendas worldwide. Predictable battles erupt between the politicians and interest groups who benefit from GDP‚??s view of ‚??progress‚?Ě and the rest of societies that bear the costs and risks of continuing the GDP-growth recipe. China‚??s ‚??Green GDP‚?Ě initiated in 2004 is challenged by local leaders and businesses rewarded by the GDP-growth formula ‚?? even while Chinese citizens fight pollution and losses of their lands to developers. Bhutan‚??s Gross National Happiness indicator sparked worldwide studies in how societies can measure and promote happiness.
Even some economists have joined the critics of GDP such as Joseph Stiglitz and psychologist Daniel Kahnmann (both winners of the Bank of Sweden Prize, often mis-labeled a ‚??Nobel‚?Ě). Many call for creation of asset accounts in GDP to carry valuable public infrastructure investments (road, airports, colleges, hospitals) at their true value. This would balance the public debts incurred for their creation. Since such assets are ignored in GDP, this overstates countries‚?? indebtedness and raises interest rates on their sovereign bonds. Likewise, GDP treats education as a cost, instead of the basic investment societies make in developing educated, productive citizens.
If you think by now that GDP is crazy‚??you are correct. However, the tide is turning. The European Parliament is holding a conference ‚??Beyond GDP‚?Ě November 19-20 in Brussels. Perhaps the 27 nations of the EU will be the first to move beyond the GDP-growth model and adopt all the available statistics on health, education, poverty gaps and human rights languishing in those ‚??satellite‚?Ě accounts. Such a new GDP can integrate all the factors that comprise our quality of life. We now know that when we intentionally blind ourselves to all those ‚??externalities‚?Ě they create ticking time bombs of risk which mathematician Nassim Taleb describes as ‚??Black Swans.‚?Ě
Hazel Henderson is author of Ethical Markets: Growing the Green Economy (Chelsea Green) and other books. She co-created the Calvert-Henderson Quality of Life Indicators with the Calvert Group and is on the Organizing Committee for the Beyond GDP conference in the European Parliament.
The Next 15 Years
By Hazel Henderson - ¬©2007
Futurists do not have crystal balls. The best of us seek to identify trends, ahead of conventional wisdom, economic forecasting and market research. The trick is to widen the focus and map all these longer-term trends identified as keys to the future and see how they may amplify or dampen each other. Of course, this depends on the values and goals of the futurists and their clients. As with all research and scientific enquiry, the first step is normative: what to pay attention to in our diverse societies and our living planet. I believe that futurists need to be independent systems thinkers and like me, self-employed. When futurists are employed in-house, whether in business or government, or as contractors, too often they narrow their enquiry, e.g. the future of General Motors or of the U.S. Department of Energy. As the old joke has it: economists can't even get their hindsight right!
My focus has always been the human family's prospects on planet Earth. So what do I see from this multi-disciplinary perspective over the next fifteen years?
* Increasing multilateralism, as all countries come to realize that the planet's current problems - from global warming, widening gaps between haves and have-nots and new pandemics to terrorism, extinction of other species and proliferation of weapons of mass destruction - cannot be solved by any one nation or even groups of nations acting alone. National sovereignty will increasingly be pooled to address these new issues of globalization. Just as the European Union now painstakingly hammers out standards and harmonizes rules among its 27 member nations, we will see this model adapted elsewhere. Latin America is well along the path of integration and may well have its own currency, the mercosur, in the next decade. Asia with its groups including ASEAN, APEC and the SCO (the Shanghai Cooperation Organization) may also have a regional currency and certainly its own Asian version of the IMF.
* Today's resource-nationalism will grow, as more countries see that their own natural resources are more valuable than colored pieces of paper or blips on computer screens. Commodities prices will continue upward and will increasingly become the benchmark of other asset prices. Many developing countries have also realized that the old game of hoarding US dollar reserves is foolish...it just over-values the US currency and locks them in to Washington Consensus policies. This is one of the reasons behind their shedding US dollar reserves in favor of euros, pounds, yens and other strong currencies and why the euro has now become a rival reserve currency, representing 35% of trade and investment in the world. Other reasons include tacit disapproval of US foreign policy and the new currency risk in the US dollar, which will continue its slide for this and other reasons (including our loss of prestige and increasingly obvious vulnerabilities). Along with major reserve currencies: the US dollar, the euro, Asia's yuan/yen area and the mercosur in Latin America, we may see a new global currency issue of "paper gold" by the IMF, i.e. Special Drawing Rights (SDRs) for global development and public goods.
* As countries exhaust the possibilities of collective action through the new regional blocs, the United Nations will increasingly be seen as the only forum for planetary concerns and global security. The UN is already accepted as such in most countries in the world, with only the USA dragging its heels or obstructing this world body with 191 member countries. The UN-bashers' "propaganda" in the USA about wasteful bureaucracy ignores the realities. The UN's administrative budget is about the size of the New York City Fire Department. Its special agencies: the UN Development Program, UNICEF for children, WHO for health, the ILO for workplace standards, UNEP for the environment and its protocols on climate change, ozone depletion, the use of outer space, the oceans, telecommunications, and many other international agreements forged over its 60-year history, are the vital infrastructure underpinning global travel, communications, markets and commerce. They also help level the playing field upward and reward the most ethical players.
So I expect the UN will be re-invigorated, reformed and the Security Council expanded to include Brazil, India, South Africa, Japan and Malaysia becoming permanent members - and no longer stymied by the vetoes of the winners of World War Two. This should make peace-keeping more effective, especially if the proposed United Nations Security Insurance Agency (UNSIA), in partnership with the insurance industry is enacted, which would allow countries, like Costa Rica (which gave up its army in 1947) to purchase peace-keeping insurance with their premiums going to fund a well-trained standing contingent of peace-keepers and peace-makers (more information on UNSIA at http://www.HazelHenderson.com ). As nations are realizing, already, many conflicts can not be solved militarily, so it is logical to expect that weapons budgets will be reduced and the long-awaited "peace dividend" may materialize. Most countries now understand that in this 21st century, the weapons of choice are currencies.
* Economic and technological globalization will increasingly be subject to binding agreements and global standards. Covering corporate accountability, these will include core labor standards, a global minimum wage (in purchasing power parity), transparency and the internalizing of social and environmental costs and impacts into prices, company balance sheets, and capital asset pricing models. ESG (environmental, social and governance) issues will be material to all asset evaluation, risk and securities analyses. Beyond micro-indicators of ethical performance at the corporate and municipal level, macro-indicators will also have been overhauled. A conference on new indicators of national wealth, progress, sustainability and quality of life, "BEYOND GDP" will be held in the European Parliament, November 2007 (I am honored to serve on its advisory board).
* Taxation will have shifted from incomes and payrolls to waste, pollution, resource depletion and planned obsolescence. Current subsidies to advertising will be removed to curb impulse buying, credit-card abuse and to boost personal savings rates - in recognition of new findings in brain research. Taxes will be progressively harmonized to reduce jurisdictional arbitrage, money-laundering and tax havens. For example, the European Commission's March 28, 2007 Green Paper on Market-Based Instruments endorses such tax shifts for EU countries (more information at http://www.EthicalMarkets.com ). Taxation of global "bads": arms sales, currency speculation, excessive exploitation of the global commons and pollution will be collected by national governments under international treaties and allocated to the provision of global public goods: health, education, environmental restoration and peace-keeping, as Inge Kaul outlines in Global Public Goods (1999) and Providing Public Goods (2005). Emissions trading of pollution allowances will have been reformed to prevent today's windfall profits, by allocating rights to everybody, since the air is a public resource and auctioning rights, rather than giving them only to polluters. The proposed International Bank for Environmental Settlements (more information at http://www.undp.org ) will manage global carbon trading to allow both rich and poor people and countries to participate in vastly expanded environmental finance markets.
* The shift beyond fossil fuels and nuclear power toward renewable energy, efficiency, re-use, re-manufacturing, recycling and better process controls will continue its double digit growth of 2006-07. The drivers: Institutional investors (including the UN Principles of Responsible Investing with $8 trillion of assets; the Carbon Disclosure Project with $31 trillion of assets, and CERES) and others including concerned shareholders, SRI mutual funds, labor unions, employees, citizens and consumers, as well as global civic groups such as those of the World Social Forum and socially-responsible business organizations from the UN Global Compact to Brasil's Instituto Ethos (on whose board I am honored to serve). In Europe and most countries the shifts will be led by governments reducing the $235 billion of current subsidies to fossil fuels and the billions more subsidies to nuclear power. In the USA the shifts will still be led by the private sector and by state and local governments. The last holdout in the world with its for-profit medical system, the US will gradually have moved to a more efficient, tax-based, single-payer national health insurance system, such as used in every other major advanced democracy. Most of these countries enjoy similar or better outcomes at half the US cost of 16 percent of GDP. Business leaders will continue to spearhead this change, so as to remain competitive with other global companies enjoying tax-supported medical insurance. As GDP national accounts are corrected to deduct social and environmental costs and add infrastructure, education and health into new asset accounts, voters will see the benefits of these tax-supported, public investments and the avoided costs (i.e. real, calculatable benefits) they deliver to both public and private sectors.
Of course, I also see plenty of worrying counter-trends, from those global problems already mentioned to the consequences of money corrupting politics and democracy, the dearth of visionary leadership, global mediocracy and monopoly over the public airwaves. Yet we have all the tools we need to make the transition to global sustainability. The planet is holding up a mirror to humanity and we are slowly learning that our values must change to reflect planetary realities. Stress has always been evolution's tool. We humans have three main resources to develop ourselves and our societies: information, matter and energy. As we move deeper into the Information Age, we know that information, knowledge and wisdom control how efficiently we use matter and energy. Globalization since the 1980s has ridden on the slogans of "market reforms": privatization, open borders, free trade and $1.5 trillion of daily currency trading - overwhelming the efforts of even the democratically-elected governments to manage their domestic economies. This led to the race to the bottom that began to reverse itself in the ensuing decades. The new mantra became "reform markets!" The new global financial architecture and prudential regulation called for in the meltdowns of the 1990s, was slowly enacted in the first two decades of our new century. More ethical markets and cleaner, greener economies are already going mainstream. In a planetary perspective, all human self-interests are similar. Morality has become pragmatic!
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