19 July 2013

Africa: Costs of Economic Growth Have 'Outweighed Benefits'

Buenos Aires — Development policies should urgently shift from trying to maximise production and consumption towards attempts to improve real welfare, which - unlike growth in GDP (gross domestic product) - has not improved since the late 1970s, according to a study.

The study, which examined 17 countries from 1950 to 2003, found that, although GDP has on average more than tripled in these countries, overall social wellbeing has decreased since 1978.

To reach this conclusion, researchers used the global 'Genuine Progress Indicator' (GPI). Among the things it considers are income distribution for each country, along with household and volunteer work (activities that enhance welfare but do not involve monetary transactions), and, for example, the cost of environmental degradation.

The countries for which GPI has been estimated comprise more than half the world's population, over five continents, as well as representing nearly 60 per cent of global GDP. They are: Australia, Austria, Belgium, Chile, China, Germany, India, Italy, Japan, Netherlands, New Zealand, Poland, Sweden, Thailand, United Kingdom, the United States and Vietnam.

"We got some pretty interesting results showing that global GPI per capita peaked in 1978. This means that, globally, the external costs of economic growth have outweighed the benefits since this year," Robert Costanza, professor of public policy at the Australian National University and co-author of the study, published in the latest issue of Ecological Economics, tells SciDev.Net.

The researchers also found that GPI does not increase once GDP per person reaches around US$6,500 a year.

Ida Kubiszewski, a senior lecturer at the Australian National University and the study leader, says: "GDP and GPI began to go in different directions when global per capita earnings hit this amount. After that, GDP kept growing, but GPI levelled off - or even decreased.

"This divergence occurs because the gains we have made over the past few decades are outweighed by the costs, most notably environmental degradation and [rise in] income equality."

Even though GDP was not designed to measure social or economic welfare, it is still the most commonly used indicator of a country's overall performance. In contrast, the study says that, "while GPI is not the perfect economic welfare indicator, it is a far better approximation than GDP".

The study also highlights the need to take a more considered approach to measuring success in societies, the authors say.

Walter Pengue, an ecological economics expert at the National University of General Sarmiento, Argentina, who was not involved in the study, says that "bringing together a lot of information which can be easily understood, not only by scientists but especially by decision-makers, is the main challenge" to building a unique indicator to assess development progress.

Pengue says that the study makes a valuable contribution as it evaluates GPI as an indicator that tries to integrate a number of issues that GDP does not capture.

Link to paper abstract

References

Ecological Economics doi: 10.1016/j.ecolecon.2013.04.019 (2013)

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