6 February 2012 | Alan Bouquet
Finance/insurance

 

Industrial waste dumps are not usually a net loss to GDP.

The EU commissioner for Climate Action, Connie Hedegaard, has said that the Rio +20 conference should focus on the redefining of the GDP model of growth.

The conference has already been slanted to move away from climate as a theme, due to the current impasse seen at the COP events. Instead it will focus on sustainability and Hedegaard believes it is the ideal time to look again at what can be done to change people’s ideas of growth and what it means.

"The 21st century must have a more intelligent growth model, or else it's really difficult to see how we feed 7 billion people now and 9 billion people [by 2050]," she said. "Resources were cheap before, but it seems we are in for a period where resources become more and more expensive. Oil is coming up in price; so many other commodities are coming up in price. Food prices are rising. We need to deal with this."

The long held view of conventional economic theory is that growth is good, and that the way to measure growth is via an indicator such as Gross Domestic Product (GDP). GDP simply means the total sum of goods and services within a place and time. This is evaluated using monetary value only.

There are however, many alternatives to GDP, which have been discussed predominantly by academics for some time. The Index of Sustainable Economic Welfare (ISEW) for example, looks to measure other factors as well as GDP, such as income distribution, costs associated with environmental degradation and quality of life. Other versions of ISEW have been developed since, including the Genuine Progress Indicator and the Green Gross Domestic Product.

There has been very slow uptake of the indicators however, if at all. The problem is that world governments are so entrenched in the idea of GDP based growth, that it is very difficult to change the system. Overconsumption of resources and rising commodity prices could begin to change these ideas however.

A prime example of the failure of GDP lies in the example of an environmental disaster. An oil spill is often seen by GDP as a net benefit to the economy, because it fails to consider the environmental effects of the spill. Mop-up operations and remediation efforts create jobs and increase overall economic productivity, especially in regions where there is little tourism or fishing.

Other reasons for reluctance lie in the fact that many of these ‘green’ indicators show an overall decrease in ‘real’ growth for as much as the last 40 years. In some ways, changing the perception of GDP will be even more difficult than reducing carbon emissions.

Yet it could prove to be one of the best ways to reduce emissions; if governments were to take an alternative index seriously, it could drastically reduce negative externalities like pollution and social injustice.

"This is an opportunity to rethink [how we measure growth]," Hedegaard says. "The knowledge is out there, the analysis has been done. We can take this decision in Rio."
 

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