Economic Growth

Alternative Measures of Growth

The measure of gross domestic product is widely known, and as a similar figure is produced in most countries around the world international comparisons can be made.  But as we have just seen there are many limitations to this measure.  Economists have struggled to establish an alternative measure of economic growth for many years, and a variety of alternatives have been suggested.

The Genuine Progress Indicator

In countries like France, the Netherlands and (to a certain extent) Germany, the government has moved towards an assessment of a figure known as the Genuine Progress Indicator (or GPI).  This measure is gaining considerable support around the world, as it is based on concepts with which most people would agree.

In simple terms, the GPI measure states that economic growth is only worthwhile to the extent that it increases living standards.  If we achieve economic growth, but the cost of achieving that growth is too high, then we haven’t actually made any progress.  This raises an obvious question: What costs are associated with progress, but aren’t accounted for in the calculation of economic growth?  To answer that question, consider this example.

Most people today like to use mobile phones.  In each mobile phone is a very small amount of a mineral derived from coltan, which is mined in the Democratic Republic of Congo.  Each year over one billion mobile phones are made, and so the demand for mining coltan is increasing.  This has damaged the habitat in that area.  The Democratic Republic of Congo is home to the last of the world’s lowland gorillas.  As the mining increases, the habitat of this animal is reduced.  In a very direct way, each time you get a new phone you are contributing to the possible extinction of this animal.  Economists can compare the costs and benefits of your decision to buy a new phone – is the benefit of now being able to send picture messages or download the latest ringtone greater than the cost of eradicating an entire species?  The answer is obvious.

At a domestic level, there are many costs associated with economic growth that do not factor into the calculation of GDP.  For example:

1.    The costs associated with depleting non-renewable resources

2.    The cost of increased crime

3.    The costs involved when pollution levels increase

4.    The social cost of increased workload on family time

The calculation of GPI attempts to include these extra costs.  For example, if fish are taken from a farmed situation, rather than from the wild, this will score very well in the calculation of GPI because it is considered sustainable.  On the other hand, if fish are taken from the wild without licensing or quota restrictions, this might add to GDP but it could detract from GPI; it simply isn’t sustainable.

Measuring Australia’s Progress (MAP)

The Australian Bureau of Statistics has worked to develop a wide ranging assessment of whether or not the Australian economy has progressed.  In this case rather than an individual figure, the final publication is an extensive report.  Each reader is invited to place their own weighting of relative importance on the different sections contained in the report, and as a result they will be able to determine whether or not they believe that the country has progressed.

For example, in the 2009 series the MAP publication included an assessment of the following areas (among others):

Each section is covered in an extensive report, and then an assessment is made as to whether the country has progressed or declined.  As is noted on the ABS website, “A reader's assessment of whether Australia is, on balance, progressing will depend on the relative importance he or she places on each dimension. For some readers, an improvement in the health and education of Australians might be more important than a decline in our biodiversity. Others might disagree.”

You can access reports going back to 2002 by clicking here.

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