New Economic Indicators Highlight Quality Of Life
by Hazel Henderson

Trying to manage today's complex societies using Gross National Product (GNP) as an indicator of national wealth and progress is like trying to fly a Boeing 747 with nothing on the instrument panel but a single oil pressure gauge. Equipping these national instrument panels with more diverse and realistic indicators is not difficult; much of the data needed has already been compiled by diligent statisticians.

Recent efforts to redefine indicators of national wealth and progress, beyond the outdated model of the GNP index, may eventually depose economics from its current catbird seat in the policy arena.

One new indicator, the United Nations Development Program's Human Development Index (HDI) is a first step in challenging the narrow economic definitions of progress that make up the GNP index. The HDI, by incorporating widely available statistics on literacy, life expectancy and purchasing power, has energized the debate on reforming national indicators.

The GNP index was originally devised to measure the mobilization of arms production during World War II -- and still includes the production of bombs, bullets and tanks. But it completely ignores the value of natural resources, education, unpaid subsistence labor, and self-employment labor which accounts for over half of the world's production and nearly 80 percent of its capital investments.

Many politicians in less-developed countries believe the GNP scorecard is rigged in favor of industrial countries. They cite perverse, no-win effects of trying to please the International Monetary Fund by boosting their GNP growth: increasing environmental depletion rates, increasing unemployment, and, often, uneven income distribution. We already see similar effects in Eastern Europe where GNP-oriented economic reforms are creating dangerous economic backlashes, such as soaring unemployment in Poland.

In the emerging global village, the study of national economics has become increasingly combined with the study of social and ecological issues that are far too important to be left to the economists' realm. Until recently, developed nations' governments and their economic bureaucracies have helped perpetuate the legitimacy of the GNP, since charging these comparative scorecards might show them in an unfavorable light.

So, for instance, depending on what assumptions are made in national accounting methods, a national deficit can be made to look even larger than it is, or the budget in surplus (by treating education, for instance, as investment rather than expenditure as it is currency treated).

But each government puts its own spin on national economic statistics. For example, in the 1 970s and 1980s, the USSR systematically overstated its GNP growth. Similarly, the Organization for Economic Cooperation and Development (OECD) countries have downplayed unemployment figures by redefining full employment from 2 percent unemployment in the 1960s to 7 percent in the late 1980s. Virtually all countries ignore environmental costs, natural resource depletion rates, and, oddly, add into the GNP as useful production the costs of environmental cleanups.

As The Economist noted last year in an article addressing some of the GNP quirks: "It would be easier for politicians to talk rationally about the effects of sensible environmental policies upon growth if governments agreed to remove some of these oddities from the way they keep their economic books."

In spite of a growing awareness that economics has become little more than politics in disguise, the important alternative statistics, such as those included in HDI, are still viewed by the old guard at the UN, World Bank and IMF as incidental data to real economic statistics.

The most obvious crack in the GNP is its reliance on money-dominated, per capita incomes in an era of wildly fluctuating currencies. Thus, GNP statistics cannot give comparisons of the hours a Russian must work to buy a loaf of bread to how long it takes a Japanese to eat a bowl of rice. But because the HDI takes into account purchasing power parity, among other non-traditional economic indicators, the US ranks 18th as opposed to its GNP ranking of second behind Switzerland. Meanwhile, countries that are usually considered poorer by GNP standards, such as Sri Lanka and Costa Rica, rank much higher under HDI indicators.

Another inadequacy of the GNP is its narrow, at times ethnocentric, view of wealth and progress. By definition, the GNP ignores diverse visions of the goals of development -- not to mention cultural differences that lie far beyond the scope of most economists' concerns.

The Country Futures Indicators, which I have advocated over the past decade (see below), are deliberately open-ended to encourage the much needed multi-cultural debate about definitions of development and progress. Beyond the North-South debate about who is developing and who is developed, we need to recognize that all countries are developing in different ways-and developing in a world of increasing interdependence.

Thus, I believe that new indicators measuring so many diverse paths to development must first be unbundled to avoid the GNP's mistake of simply piling obsolete economic formulas on top of one another to come up with an aggregate score. These traditional economic measurements assume a certain degree of agreement on development goals and are predicated on outdated notions, such as immobile capital.

The Country Futures Indicators are of greater interest to most people than the many arcane economic indicators that seem to be of interest only to investors and the readers of financial pages.

Unlike the GNP, the Country Futures Indicators assume that users will not necessarily be governments, but millions of average citizens in all countries who are yearning for greater democracy, freedom, and participation. Today, citizens everywhere wish to hold all their institutions, including governments, more accountable to their promises and performance.

But the intrinsic value to devising new types of national wealth indicators is that they often spark more discussion in the ongoing and necessary debate about which economic indicators are useful and what existing definitions of progress are valid. Unfortunately, traditional economic indicators such as productivity and unemployment have lost their meaning and usefulness since they've become the property of media consultants and "spin doctors" who use them to blatantly obscure economic issues at election time.

New economic indicators will help citizens decide if governments are delivering the best services for the specific quality they are seeking. And politicians will need better information to deliver those services.

The following Country Futures Indicators offer new ways to measure national progress:

Elements of a reformulated GNP:

  • Purchasing power parity

  • Income distribution

  • Informal and household sector production

  • Deduction of social and environmental cost

  • Account for depletion of nonrenewable resources

  • Energy input/GDP ratio

  • Community-based accounting

  • Military/civilian budget ratio

  • Capital asset accounts for existing infrastructure and public resources

Complementary indicators of progress toward societal goals:

  • Education: literacy levels, school dropout and repetition rates

  • Health: infant mortality, low birth weight, weight/height/age ratio

  • Nutrition: e.g., calories per day, protein/carbohydrates ratio, etc.

  • Basic services: telephones, water, sanitation, electrification, etc.

  • Shelter: housing availability/quality, etc.

  • Child development

  • Political participation and democratic process

  • Status of minorities, ethnic populations and women: e.g., human rights data

  • Environmental pollution levels

  • Environmental resource depletion

  • Bio-diversity and species loss

  • Cultural and recreational resources

Hazel Henderson is an independent futurist and consultant in over 30 countries. Her articles have appeared in over 200 journals worldwide, including The Harvard Business Review, The New York Times, Newsweek, U.S. News & World Report, The Christian Science Monitor, E1 Diario (Venezuela), and World Economic Herald (China). Her books are Creating Alternative Futures, The Politics of the Solar Age, and Knowledge Systems.

She is a board member of the Calvert Social Investment Fund, Cousteau Society, the Council on Economic Priorities, Worldwatch Institute, and Green Seal. From 1974 to 1980 she served on the U.S. Congress Office of Technology Assessment Advisory Council

Copyright © 1996. The Light Party.

Back to Top

Back to Visionary Directory