Definition and methods
Macroeconomic accounting establishes the size of the economy by measuring the Gross Domestic Product. It is called ‘gross’, because the depreciation and amortisation of capital (deduction of capital expenses over a period of time) has not yet been deducted from it, to yield the National Income. There are three ways of calculating GDP, and all yield the same final number. The first way is to calculate the sum of all revenues or incomes in the economy, wages plus firms’ profits plus land rents. The second is to calculate the total expenditures, in consumption and investment. The third method is to count the sum of all ‘values added’ in the economy, that is the market sales of goods and services minus the costs. When we allow, as we must, for the existence of government, we include its expenditures that are financed by taxes on incomes or on sales. However, notice that one could calculate the GDP of a state-less economy (or with a state consisting only of one GDP accountant). The GDP must not be confused with the government budget.
There are very small differences between the GDP and the GNP (Gross National Product) that do not concern us here. What is important is that there have been many critiques against GDP accounting from the environmental point of view. As recently as September 2009, President Nicolas Sarkozy addressed the French national statistics agency and requested that the agency give greater consideration to factors such as quality of life and the environment (versus solely relying on GDP’s reporting of goods and services marketed) in determining the nation’s overall ‘health’. In fact, Sarkozy should have referred to previous critiques of national income accounting by the early ecological economists Nicholas Georgescu-Roegen, Roefie Hueting, Herman Daly and René Passet. Even more disgraceful was not to quote Sicco Mansholt, a president of the European Commission who in 1972 wanted to debate GDP growth. Acknowledging the critiques against GDP from the 1960s and 1970s is a matter of intellectual honesty. It also reinforces today’s arguments, because one cannot attribute the critique of GDP in Western countries only to sour grapes in the economic crisis of 2008–2009.
Eco-feminist economists (like Marilyn Waring, 1999) have long insisted on the fact that unpaid work (domestic and voluntary work) comprising a large number of hours is not included in the GDP. As Julie Nelson writes in Ecological Economics (2009): ‘One would search in vain in the most paradigmatic models of economics for any inkling of where the materials used in production came from, or where the detritus from the production process goes. Similarly, one would search in vain … for a discussion of where economic agents come from, or where they go (and who takes care of them) when they are broken or used up.’
In other words, economic accounting focuses on production for the market. It forgets the costs of social and environmental reproduction. Along these lines, Jeroen van den Bergh, a leading ecological economist, in 2009 authored an article (its initial title was ‘Abolishing GDP’) trying to explain why despite ‘all theoretically and empirically motivated criticism of GDP as a social welfare and progress indicator, its role in economics, public policy, politics and society continues to be influential’.
In many countries, some economic indicators are deteriorating (or improving), some environmental indicators improving (or deteriorating) and some social indicators improving while others are deteriorating. These should not be added up into a single index. The Human Development Index takes into account social factors apart from GDP but it does not take into account environmental damages. It also correlates closely with GDP per capita. A single convincing economic–social– environmental index does not exist. Therefore, what is needed is a ‘political downgrading’ of GDP, and the introduction of participatory multi-criteria assessments to judge where the macro-economy is going where it should be going (Shmelev and Rodríguez-Labajos, 2009).
References
Nelson , J.A. (2009) Between a rock and a soft place: ecological and feminist economics in policy debates, Ecological Economics, 69 (1) 1-8.
Waring, M. (1999) Counting for Nothing: What Men Value and What Women are Worth, Toronto, University of Toronto Press.
van den Bergh, J. (2009) The GDP Paradox, Journal of Economic Psychology, 30 (2) 117-135.
Shmelev, S. and Rodríguez-Labajos, B. (2009) Dynamic multidimensional assessment of sustainability at the macro level: The case of Austria, Ecological Economics, 68(10):2560-2573.
For further reading:
Georgescu-Roegen , N. (1971) The Entropy Law and the Economic Process , Cambridge, MA Harvard University Press.
Daly, H. E. (1991). Elements of environmental macroeconomics. Ecological economics: The science and management of sustainability, 32-46.
Daly, H. E. (1994). For the common good: redirecting the economy toward community, the environment, and a sustainable future (No. 73). Beacon Press.
Hueting, R. (1989). Correcting national income for environmental losses: towards a practical solution. Environmental Accounting for Sustainable Development, The World Bank, Washington, DC, 32-39.
Mansholt, S. (1972). Ecología y revolución. Editorial Universitaria.
Passet, René. 1979. L’Economique et le vivant. Paris: Payot.
Passet, René. 2001. L’Eloge du mondialisme. Paris: Fayard.
Useful websites:
Human Development Index http://hdr.undp.org/en/statistics/hdi/
This glossary entry is based on a contribution by Julien Francois Gerber
EJOLT glossary editors: Hali Healy, Sylvia Lorek and Beatriz Rodríguez-Labajos
