Magazine article New Internationalist

Re-Thinking Progress: Examines the Way That Economists Measure Wealth and Concludes That the Gauge Is Both Seriously Warped and Ultimately Dangerous

Magazine article New Internationalist

Re-Thinking Progress: Examines the Way That Economists Measure Wealth and Concludes That the Gauge Is Both Seriously Warped and Ultimately Dangerous

Article excerpt

Re - thinking progress

TODAY we find ourselves in an absurd situation. Twenty per cent of us, mostly in the so - called First World but also the rich elsewhere, live a suicidal lifestyle that is simply not sustainable. There is hardly a patch on this Earth that we are not yet in some way exploiting or getting ready to exploit for our orgies of consumption. We are messing up all life - support systems and this cannot continue much longer.

Yet all our economic thinking is based on the premise that the whole planet should develop like the US or Germany. 'Progress' is measured by what economists call the Gross National Product (GNP). GNP as a measure of progress is the most stupid, the most absurd and the most pernicious index that could ever have been thought of by a discipline that calls itself scientific. GNP was originally meant to be only a measure of total income; therefore it is the sum of all the money that flows in an economy, without asking why that money flows or what causes it to flow. Whenever money changes hands somebody has an income, though this says nothing about what that income is for. As used today it is nonsense. When robbers and bandits cause money to flow it also increases GNP. When a plane crashes, say a 747 jumbo - jet, that moves more than a hundred million dollars, the amount the airline receives from the insurance company. When the airline buys a new plane, the GNP grows by the same amount again. And if there are survivors all the medical and healthcare costs will also increase the GNP, as will the bills of the undertakers who bury the dead. So the more accidents and calamities we have, the better.

Here's another aspect. Suppose you are the owner of a pub and you buy a barrel of beer at a price X. After you sold the beer to your customers you had a turnover of 2X and you had a lot of expenses, too. A sane business person would take the 2X minus X and then subtract all the expenses. Whatever is left would be profit. But what do governments do? They add the X (the cost of the beer) plus the 2X, the income from it, plus the expenses. They add everything because they start with the idea that every time money changes hands, somebody gets an income. But they don't ask what that income is doing to the economy. I might as well, if I am the owner of that pub, buy beer at 2X and sell it at X. I would have a high turnover and would feelgreat. Unfortunately I would be broke. And this is the kind of calculation that most governments make.

Today in my country, Brazil, we are flooding thousands of square kilometres of pristine rainforest to make electricity for three mills that export aluminium. In our national accounts the foreign earnings from exporting the aluminium are added to the GNP, but nowhere do we deduct for the permanent loss of the ore or the demolition of the mountains. In another operation 100,000 square kilometres of forest were destroyed for charcoal to make pig iron for export to Europe. And nowhere do we deduct anything of that sort from our national accounts.

So I would say we need a completely different index to measure progress, one that takes into account losses as well as gains in national wealth. When we make a new superhighway and cover thousands of hectares of agricultural land with pavement we need to deduct that from our capital, including all future productivity lost. In my business I add up all my income plus my existing capital and deduct all my costs and my depreciation. I have tractors and trucks and cranes. When a machine breaks down I deduct it from my capital; as my machines age they are written off. But there is no write - off in our national accounts. Every country today is poorer than it was ten years ago. The irony is we all consider ourselves richer.

According to present economic thinking the economy is only healthy when it grows. An economy that doesn't grow is sick. But how long can something grow? It is really incredible to see that what economists and public administrators call growth is mostly demolition - the demolition of nature, the demolition of life - support systems. …

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