What is the Genuine Progress Indicator (GPI)?
A Genuine Progress Indicator (GPI) is a metric designed to measure the economic growth and overall well-being of a country. Unlike the Gross Domestic Product (GDP), which primarily accounts for economic transactions, GPI includes additional figures representing the costs of negative effects associated with economic activities, such as crime, pollution, and resource depletion.
Key Takeaways
- GPI serves as a national-level measurement of growth, emphasizing both prosperity and well-being.
- It includes externalities like environmental degradation and social issues, often absent in GDP calculations.
- Celebrated for providing a holistic view, GPI is considered superior from a green or social economics perspective.
- Critics argue that the metric’s subjective components can undermine its reliability.
How Genuine Progress Indicator Works
The GPI aims to assess whether the environmental and social costs of economic activities yield a positive or negative impact on overall well-being. Rooted in green economics, GPI extends beyond mere economic output to consider sustainability and social welfare.
History of Genuine Progress Indicator
In the 1930s, Simon Kuznets developed GDP for the U.S., cautioning it couldn’t measure national welfare. In 1995, Clifford Cobb, Ted Halstead, and Jonathan Rowe introduced GPI to offer a more comprehensive metric. GPI evolved to GPI 2.0, incorporating adjustments for consistency and accuracy.
Calculating GPI
The GPI formula is:
GPI = Cadj + G + W - D - S - E - N
where:
- Cadj = personal consumption with income distribution adjustments
- G = capital growth
- W = unconventional contributions to welfare, such as volunteerism
- D = defensive private spending
- S = activities negatively impacting social capital
- E = environmental deterioration costs
- N = activities negatively impacting natural capital.
Assigning monetary values involves methodologies like market price estimation, surveys, and shadow pricing, despite inherent subjectivity.
Assigning Monetary Values in GPI Calculations
Valuing non-market goods and services within GPI poses challenges. Market price estimation, surveys, and shadow pricing are common methods used to approximate these values. Despite complexities, efforts are made to quantify benefits like volunteerism and costs like environmental damage.
GPI vs. GDP
Unlike GDP, which increases upon pollution creation and cleanup expenditures, GPI accounts for pollution as a loss. GPI reflects the true costs by factoring in social and environmental externalities, akin to comparing a company’s net profit with its gross profit, subtracting the societal costs from the GDP.
Advantages and Disadvantages of GPI
Advantages:
- Encompasses environmental and social factors ignored in GDP.
- Values societal contributions like volunteering.
- Quantifies economic, social, and environmental impacts in a singular metric.
Disadvantages:
- Challenges in comparative analysis due to subjectivity.
- Broad definitions lead to varied interpretations and calculations.
- Requires assumptions for non-monetary variables.
Example of GPI
Take the Maryland Quality of Life Initiative. This effort leverages GPI 2.0 to assess the state’s quality of life, using 12 categories and 50 indicators. From 2012 to 2019, Maryland’s GPI declined by $14.41 billion, highlighting shifts in household expenditures and defensive costs, yet noting gains in leisure and unpaid labor.
Conclusion
The Genuine Progress Indicator (GPI) provides a multidimensional view of a nation’s economic health, integrating environmental and social dynamics into traditional economic metrics. GPI better illustrates the true welfare of a country by incorporating factors beyond mere economic transactions. Embracing GPI fosters a deeper understanding of how policies and activities shape society’s overall well-being.
Related Terms: GDP, Green Economics, Economic Growth, Sustainability Metrics, Environmental Economics.
References
- International Labour Organization. “2: Toward more Inclusive Measures of Economic Well-being: Debates and Practices”, Pages 1,3.
- Maryland Department of Natural Resources. “Maryland’s Genuine Progress Indicator: What is the Genuine Progress Indicator”.
- American Economic Association. “National Income and Economic Measurement at the NBER”, Pages 9-11.
- U.S. Government Publishing Office. “Rethinking the Gross Domestic Product as a Measurement of National Strength”.
- ScienceDirect. “Genuine Economic Progress in the United States: A Fifty State Study and Comparative Assessment”.
- ScienceDirect. “Genuine Progress Indicator 2.0: Pilot Accounts for the US, Maryland, and City of Baltimore 2012–2014”.
- Bureau of Economic Analysis. “GDP and the National Accounts: One of the Great Inventions of the 20th Century”.
- Organisation for Economic Co-operation and Development (OECD). “Including Unpaid Household Activities: An Estimate of Its Impact on Macro-economic Indicators in the G7 Economies and the Way Forward”.
- Department of Natural Resources. “Maryland Genuine Progress Indicator.”
