Genuine Progress Indicator

Economic growth - Gross domestic product (GDP) - metric

(GPI).

Author: Charitarth Sindhu, Environmental Sustainability & ESG Consultant

Traditionally, economic growth is often associated with progress.

The most common example being Gross Domestic Product (GDP), which refers to the total value of all final economic goods and services produced in a country during a specific period of time in local currency.

However, the limitations of GDP in capturing the full spectrum of human wellbeing have become increasingly evident.

Evolution of the Genuine Progress Indicator

Economist Simon Kuznets, in his report "National Income 1929-1935", introduced the concept of gross domestic product (GDP) while also cautioning that GDP alone would not be able to measure the welfare of the nation.

Thirty years later, in 1995, US.-based organization Redefining Progress expanded upon this idea to identify 20 social and environmental indicators overlooked by GDP and developed the Genuine Progress Indicator (GPI).

Measurement

GPI = Cadj + G + W - D - S - E - N

Cadj = personal consumption with income distribution adjustments G = capital growth W = unconventional contributions to welfare, such as volunteerism D = defensive private spending S = activities that negatively impact social capital E = costs associated with the deterioration of the environment N = activities that negatively impact natural capital

However, this formula is limited by the subjectivity in assigning monetary values to social and environmental factors.

The Genuine Progress Indicator (GPI) aims to provide a more holistic measure of societal wellbeing by accounting for social, economic, and environmental factors that contribute to overall welfare.

Unlike GDP, which focuses solely on economic activity, GPI considers a broader range of indicators, including:

Income Distribution: GPI adjusts for income inequality by accounting for the distribution of wealth among citizens. It recognizes that improvements in wellbeing are not evenly distributed across society.

Environmental Costs: GPI incorporates the costs of environmental degradation and resource depletion, providing a more accurate reflection of sustainability. By factoring in these negative externalities, GPI highlights the trade-offs between economic growth and environmental conservation.

Social Factors: GPI takes into account various social factors such as volunteer work, household labour, and the value of leisure time. It acknowledges that activities contributing to social cohesion and individual wellbeing are essential components of progress.

Challenges

Despite its merits, calculating GPI requires extensive data collection and complex modelling, making it more resource intensive than GDP.

Additionally, factors such as assigning monetary values to environmental goods and services can introduce uncertainties.

Due to high levels of subjectivity in assigning social and environmental impact costs GPI is subject to manipulation and interpretation biases.

Different weighting schemes and indicator choices can lead to varying results, undermining the comparability of GPI across different contexts.

Conclusion

With growing concerns about sustainability, equity, and wellbeing, the Genuine Progress Indicator offers a compelling alternative to traditional economic metrics like GDP.

The ongoing refinement and adoption of GPI provides a more inclusive and sustainable approach to measuring progress.

See also

• Black economy
• Gross domestic product (GDP)
• Gross national product
• Happy Planet Index (HPI)
• Inflation - see 'Points to note'
• Metric
• Natural capital
• Negative externality
• Office for National Statistics
• Product
• Real GDP
• Recession
• Wellbeing
• Welfare

Other resources

• Rethinking the Gross Domestic Product as a Measurement of National Strength, US Senate Hearing, 2008

• Design and meaning of the genuine progress indicator: A statistical analysis of the U.S. fifty-state model, M-J V Fox & J D Erickson, 2019

• Bank of England - What is GDP?

• Beyond GDP - UK Office for National Statistics blog