Why it’s time to leave GDP behind

Robert Costanza• Chair in Public Policy

Crawford School of Public Policy

Australian National University

Canberra ACT 0200, Australia

• Editor in Chief, Solutions (www.thesolutionsjournal.org)

Beyond-GDP in Africa: Innovative Ideas for a Regional Dashboard

October 28, 2014

Human influence on the earth system is now so large, that a new

geologic epoch (the Anthropocene) has begun. We now live in a “Full

World”

Business as usual is not an option

PLANETARY BOUNDARIES: THERE

ARE FUNDAMENTAL ECOLOGICAL

CONSTRAINTS Rockström, J., et al. 2009.

A safe operating space

for humanity. Nature

461:472-475

Steffen, W., J. Rockström,

and R. Costanza. 2011.

How Defining Planetary

Boundaries Can

Transform Our

Approach to Growth.

Solutions. Vol 2, No. 3,

May 2011

Fair distribution is essential to quality of life

VisionTools &Analysis

Implementation

PracticalProblemSolving

How the world isHow we

would like it to

be

Labor

Land

Economic

Process

Cultural

Norms and

Policy

Individual

Utility/welfare

Consumption

Improvement

Education,

Training,

Building

Investment

Property rights

Private Public

Capital

(Built)

“Empty World” Vision of the Economy

Research

Goods

and

Services

GDP

a country’s gross domestic product (GDP) measures

“everything except that which makes life worthwhile”.

Robert F. Kennedy 1968

.

Human Capital EconomicProductionProcess

GoodsandServices

EvolvingCulturalNorms andPolicy

Well Being(Individual andCommunity)

Consumption(based on changing,adaptingpreferences)

Education, training,

research.

Building

Investment(decisions about, taxescommunity spending,education, science andtechnology policy, etc., basedon complex propertyrights regimes)

Individual Public

GDP

Wastes

Common

Ecologicalservices/amenities

negative impacts on all forms of capital

Restoration,

ConservationNatural Capital

Built Capital

Complex propertyrights regimes

SolarEnergy

SocialCapital

Waste heat

Institutional

rules, norms, etc.

Materially closed earth system

“Full World” Vision of the Whole System

From: Costanza, R., R. de Groot, P. Sutton, S. van

der Ploeg, S. Anderson, I. Kubiszewski, S. Farber,

and R. K. Turner. 2014. Changes in the global value

of ecosystem services. Global Environmental

Change 26:152-158.

…we estimated the loss of eco-services from 1997 to 2011 due to land use change

at

$4.3–20.2 trillion/yr.

From: Costanza, R. B. Fisher, et al. 2007. Quality of Life: An Approach Integrating Opportunities,

Human Needs, and Subjective Well-Being. Ecological Economics 61: 267-276

PERMA: Well-being has five measurable

elements that count toward it

• Positive Emotion (of which happiness and life

satisfaction are aspects)

• Engagement (being in flow, being one with the

music)

• Good Relationships (social capital)

• Meaning and Purpose (belonging to and serving

something you believe is bigger than you are)

• Accomplishment, Achievement, and Mastery

Martin SeligmanZellerbach Family

Professor of

Psychology, University

of Pennsylvania

Positive Psychology

Goal

BasicFramework

Non-environmentallyadjusted measures

Environmentallyadjusted measures

AppropriateValuationMethods

___________

Marketed

value ofmarketed goods

and servicesproduced and

consumed in aneconomy

GNP(Gross National

Product)

GDP(Gross Domestic

Product)

NNP(Net National Product)

NNP’(Net National Product

including non-produced assetts)

Market values

EconomicIncomeWeak

Sustainability

1 + non-marketed goods

and servicesconsumption

ENNP(Environmental NetNational Product)

SEEA(System of

EnvironmentalEconomic Accounts)

1 + Willingnessto Pay BasedValues (see

Table 2)

___________

StrongSustainability

2 + preserveessential natural

capital

SNI(Sustainable National

Income)

SEEA(System of

EnvironmentalEconomic Accounts)

2 + ReplacementCosts,+

ProductionValues

Economic Welfare

value of the wefareeffects of income and

other factors(including

distribution,household work, loss

of natural capitaletc.)

MEW(Measure of Economic

Welfare)

ISEW(Index of SustainableEconomic Welfare)

3 +ConstructedPreferences

HumanWelfare

assessment ofthe degree towhich human

needs arefulfilled

HDI(Human

Development Index)

HNA(Human NeedsAssessment)

4 +ConsensusBuildingDialogue

A range of goals for national accounting and their corresponding frameworks,measures, and valuation methods

from: Costanza, R., S. Farber, B. Castaneda and M. Grasso. 2000. Green national accounting: goals and methods. Chapter in: Cleveland, C. J., D. I. Stern and R. Costanza (eds.) The nature of economics and the economics of nature. Edward Elgar Publishing, Cheltenham, England (in press)

GPI(Genuine Progress

Indicator)

SWB(Subjective Well-

Being)

Table 1. Some alternative National Indicators of Welfare and Well-Being.

Indicator Type Units Domains Indicators Explanation Area coverageTemporal Coverage

References Website

Index of Sustainable Economic Welfare (ISEW) and Genuine Progress Indicator (GPI)

GDP modification $ 4 26Personal Consumption Expenditures weighted by income distribution, with volunteer and household work added and environmental and social costs subtracted.

17 countries, several states and regions

1950-various 1-3 http://genuineprogress.net/

Genuine SavingsIncome accounts modification

$ 3 5level of saving after depreciation of produced capital; investments in human capital ; depletion of minerals, energy, and forests; and damages from local and global air pollutants are accounted for

140 countries 1970-2008 4,5

http://web.worldbank.org/WBSITE/EXTERNAL/TOP

ICS/ENVIRONMENT/EXTEEI/0,,contentMDK:20502

388~menuPK:1187778~pagePK:148956~piPK:2166

18~theSitePK:408050,00.html

Inclusive Wealth IndexCapital accounts modification

$ 4 8 Asset wealth including, built, human, and natural resources 20 countries 1990-2008 6 http://www.ihdp.unu.edu/article/iwr

Australian Unity Well-Being Index Survey-based index Index # 14 14 Annual survey of various aspects of well-being and quality of life Australia2001-present 7

http://www.deakin.edu.au/research/a

cqol/auwbi/index.php

World Values Survey Survey-based index Index # 10 100'sPeriodic (5 "waves" so far) survey of a broad range of variables. Most used for international comparisons is ranking of "how satisfied are you with your life?" question.

73 countries1981-2008 intermittent 8,9 http://www.wvsevsdb.com

Gallup-Healthways Well-Being Index Survey-based index Index # 6 39Annual survey in six domains: live evaluation, physical health, emotional health, healthy behavior, work environment, and basic assets

50 states in US2008-present 10 http://www.well-beingindex.com/

Gross National Happiness Survey-based index Index # 9 33Detailed in-person survey around nine domains: psychological well-being, standard of living, governance, health, education, community vitality, cultural diversity, time use, and ecological diversity

Bhutan 2010 11

Human Development Index (HDI) Composit Index Index # 3 4Index of GDP/person, spending on health and education, and life expectancy

177 countries1980-present 12 http://hdr.undp.org/en/

Happy Planet Index Composit Index Index # 3 3 HPI = subjective well being * life expectancy / ecological footprint 153 countries 3 yrs 13,14 http://www.happyplanetindex.org/

Canadian Index of Well-Being Composit Index Index # 8 80Includes community vitality, democratic engagement, education, environment, population, leisure, living standards, and time use

Canada1994-present 15

https://uwaterloo.ca/canadian-index-

wellbeing/

National Well-Being Index Composit Index Index # 5 5proxies for built, human, natural and social capital with weights based on regression with subjective well-being

56 countries 1 yr 16,17

OECD Better Life Index Composit Index Index # 11 25Includes housing, income, jobs community education, environment, civic engagement, health, life satisfaction, saftey, and work-life balance

36 OECD countries

1 yr 18,19 http://www.oecdbetterlifeindex.org

Well-Being of Nations Composit Index Index # 20 63 63 indicators in 20 domains weighted and ranked 180 countries 1990-2000 20http://sedac.ciesin.columbia.edu/dat

a/set/cesic-wellbeing-of-nations

Sustainable Society Index Composit Index Index # 5 22 22 indicators in 5 domains ranked with various weightings 150 countries 2 yrs 21 http://www.ssfindex.com/

Source: Deaton, 2008.

United States GDP/capita and GPI/capita

From: Kubiszewski, I., R. Costanza et al. 2013. Beyond GDP: Measuring and Achieving

Global Genuine Progress. Ecological Economics 93:57-68

From: Kubiszewski, I., R. Costanza et al. 2013. Beyond GDP: Measuring and

Achieving Global Genuine Progress. Ecological Economics 93:57-68

GPI /capita for the 17 countries for which it has been estimatedFrom: Kubiszewski, Costanza et al. 2013. Beyond GDP: Measuring and Achieving Global Genuine

Progress. Ecological Economics 93:57-68

From: Kubiszewski, Costanza et al. 2013. Beyond

GDP: Measuring and Achieving Global Genuine

Progress. Ecological Economics 93:57-68

Economic growth Un-Economic growth

Building the future we desire

requires that we measure

what we want, remembering

that it is better to be

approximately right than

precisely wrong.

OverarchingGoal:aprosperous,highqualityoflifethatisequitablysharedandsustainableEfficientAlloca on:BuildingALivingEconomy

FairDistribu on:Protec ngCapabili esforFlourishing

SustainableScale:StayingWithinPlanetaryBoundaries

An Overarching Goal for the UN Sustainable Development Goals

Robert Costanza1, Jacqueline McGlade2, Hunter Lovins3, and Ida Kubiszewski1

1. Professor and Chair in Public Policy, Crawford School of Public Policy, the Australian National University, Canberra, Australia

2. Chief Scientist, United Nations Environment Program, Nairobi, Kenya 3. President, Natural Capital Solutions, Longmont, Colorado 4. Senior Lecturer, Crawford School of Public Policy, the Australian National University, Canberra, Australia

To appear in Solutions (www.thesolutionsjournal.org)

Figure S1. Relationship between the overall goal of sustainable well-being and the subjective and objective

elements that contribute to it. Only the items in black are currently partially picked up in GDP. Double-

headed arrows indicate that influences go in both directions and that all elements are interconnected.

Source: www.asap4all.org

Fig. 1 – Scatterplot of real vs. predicted

values for those countries where both

data are available (r=0.90 ** ).

www.asap4all.com

Thank You