Magazine article New Zealand Management

Money vs Wealth: Why GDP Is the Wrong Measure: A Measurement System That Counts Environmental Disaster as Economic "Progress" Merely Because It Involves Money Being Spent Is Helping to Undermine Society's Real Wealth. (Economics)

Magazine article New Zealand Management

Money vs Wealth: Why GDP Is the Wrong Measure: A Measurement System That Counts Environmental Disaster as Economic "Progress" Merely Because It Involves Money Being Spent Is Helping to Undermine Society's Real Wealth. (Economics)

Article excerpt

There is a law in the science of ecology that says if you try to optimise just one parameter in a diverse, complex ecological system, you'll eventually kill it.

Yet that is exactly what is happening globally in the economic-political sphere. Here the preoccupation is on maximising financial activity--or money flowing through society, as measured by the GDP (Gross Domestic Product). The result is an increasing sense of imbalance.

While global indicators show we've been experiencing the longest period of growth in history, millions of people are finding life more difficult if not unbearable. In New Zealand a simple indicator of this fact is that 30 percent of children now live below the poverty line. This highlights the discrepancy between what we're led to understand and reality.

Despite decades of economic growth, many are now having difficulty making ends meet without two or three jobs per family. How can we feel so harried, stressed, and under siege when the Government says the economy is doing well?

There never seems to be enough money for education, health care, safety nets for the poor, public funding for the arts, public radio and television, adequate pensions for the elderly or protection for the environment.

Meanwhile the world's 450 billion aims alone have combined financial assets greater than the combined annual incomes of half of humanity. So quantity of money is not the problem. Nor is it just the rich guys taking advantage of us.

The problem is that as a society we've supported the growing and destabilising gap between rich and poor because we've failed to recognise that money is not wealth--and measuring its growth is not a true indication of social wellbeing.

Our real wealth is our natural capital plus human, social and cultural capital--the goodwill we have for one another and the free time we have to do what we want. But these don't feature in GDP--and what we measure is what we get.

GDP vs GPI

Growing awareness of the inadequacy of GDP as a true measure of economic progress has led to the creation of another option. The Genuine Performance Indicator (GPI) has been specifically designed to take real wealth factors into account. Let's look at these two systems of measurement.

The GDP was developed for a war economy by Simon Kuznets. It was not his intention that it be used beyond this scope. But the strangest thing happened. The GDP as simple adding machine became the GDP as holy grail of progress. Kuznets spent the rest of his life pointing out GDP is not a true measure of a society's well-being and should not be construed as one.

That is because GDP is simply a gross measure of market activity, of money changing hands. It does not account for the immediate or long-term effects this money transfer has on either society or the environment. For instance, crucial economic functions performed in the household and volunteer sectors go entirely unrecognised.

As a result, GDP masks the breakdown of the social structure and the natural habitat on which the economy and life itself ultimately depends. Worse, it actually portrays such breakdown as economic gain. For instance, economic activity due to war, crime, prisons, pollution, addictions or gambling all contribute to a positive GDP.

New Zealand's Marilyn Waring, a public policy specialist who's made major contributions in this field, says the essential features of the GDP originate from the UN System of National Accounts (UNSNA). Required of every nation state and used to compare the supposed economic well-being of countries, it counts money but not human and environmental cost. …

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