Green National Product

Many economists, environmentalists, and citizens have recently criticized the Gross National Product. The criticism stems from the fact that this measurement of national product does not account for environmental depredation and resource depletion. A new approach to the situation of allocating these omitted environmental features in the national product has been the advent of the Green National Product.

Criticism of Gross National Product

The Gross National Product (GNP) measures the welfare of a nation’s economy through the aggregate of products and services produced in that nation. Although GNP is a proficient measurement of the magnitude of the economy, many economists, environmentalist and citizens have been arguing the validity of the GNP in respect to measuring welfare. Joseph Stiglitz, Nobel Prize winning economist, states that this standard measurement for any national economy has become deficient as a measure of long-term economic health in our recently resource-driven and globalizing world [>cite web | url=http://money.cnn.com/magazines/fortune/fortune_archive/2006/10/02/8387507/index.htm?postversion=2006092508 | title=Good Numbers Gone Bad | publisher=CNN | year=2006 | accessdate=2008-04-02] . Critics suggest that GNP often includes the environment on the wrong side of the balance sheet because if someone first pollutes and then another person cleans the pollution, both activities add to GNP making environmental degradation frequently look good for the economy [>cite web | url=http://www.gwagner.com/research/green_accounting/index.html | title=Green Accounting | publisher=Gernot Wagner | year=2007 | accessdate=2008-04-02] . Critics of mainstream economics complain that GNP compiles spending that makes us worse off, spending that allows us to stay in the same place, and spending that makes us better off all in a single measure, giving a nation no clue if they are making progress or not [ Cobb Clifford, and Cobb, John. "The Green National Product", University Press of America, c1994. p.2 "Intoduction"] . Manfred Max-Neef, Chilean economist, explains that politicians feel that it is irrelevant whether the spending is productive, unproductive, or destructive [ Cobb Clifford, and Cobb, John. "The Green National Product", University Press of America, c1994. p.2 "Intoduction"] . In this sense, it is common to see political policies that call to depredate a natural resource in order to increase the GNP. To take into account the environmental depredation and resource depletion there is a call to shift away from the traditional GNP and construct an assessment of national product that takes into account environmental effects.

History of the Green National Product

Measure of Economic Welfare

Ever since the Industrial Revolution scientists and economists have warned of an inflection point for the United States economy where expansion is inevitably limited by the steadily decreasing availability of natural resources. In 1973 William D. Nordhaus and James Tobin, Yale economists, were the first to question the GNP in “Is Growth Obsolete?” Nordhaus and Tobin developed a Measure of Economic Welfare (MEW) and stated that welfare must be sustainable in the sense that nations that devour their stock of capital are not as well as the national income would suggest [cite web | url=http://cowles.econ.yale.edu/P/cp/p03b/p0398a.pdf |format = pdf | title=Is Growth Obsolete? | publisher=Milton Moss | year=1973 | accessdate=2008-04-02] .

Index of Sustainable Economic Welfare

However, in “The Green National Product,” Clifford Cobb and John Cobb argue that the Measure of Economic Welfare failed to encompass the depletion of natural capital [ Cobb Clifford, and Cobb, John. "The Green National Product", University Press of America, c1994. p.10-11 "How to Measure Welfare: Some Options"] . In 1989 Herman Daly, John Cobb, and Clifford Cobb created what is known as the Index of Sustainable Economic Welfare (ISEW). This new measurement of welfare was created in the hopes that it would replace the flawed GNP. Herman Daly stated that the key flaw of the traditional GNP was that it ignored core accounting principles of business where all revenues and expenses are allocated to income [>cite web | url=http://www.gwagner.com/writing/2004/04/fixing-gdp-green-accounting-in-united.html | title=Fixing GDP: Green Accounting in the United States | publisher=National Public Radio | year=April 9,2004 | accessdate=2008-04-02] . ISEW called for ecological and economic sustainability to coincide since the economy is ultimately dependent on the natural resources that the earth provides [ Cobb Clifford, and Cobb, John. "The Green National Product", University Press of America, c1994. p.280 "Bridging Economics and Ecology"] . Rather than the original GNP, ISEW takes into account costs that are naturally unsustainable. By creating ISEW, they wanted to expand the current national product so that individuals, businesses, and governments could take actions that will generally enhance welfare instead of just the traditional GNP [ Cobb Clifford, and Cobb, John. "The Green National Product", University Press of America, c1994. p.280-281 "Bridging Economics and Ecology"] .

Genuine Progress Indicator

In 1995 Redefining Progress created the Genuine Progress Indicator (GPI) as an alternative to the traditional GNP. This new measurement of national income would allow policymakers to gauge how well citizens are economically and socially [>cite web | url=http://www.rprogress.org/sustainability_indicators/genuine_progress_indicator.htm | title=Genuine Progress Indicator | publisher=Redifining Progress | year=2008 | accessdate=2008-04-02] . Unlike welfare adjustments in the past like MEW and ISEW, GPI adjusts not only for environmental depredation, but also income distribution, housework, volunteering, crime, changes in leisure time, and life-span of consumer durables and public infrastructures [>cite web | url=http://www.rprogress.org/sustainability_indicators/genuine_progress_indicator.htm | title=Genuine Progress Indicator | publisher=Redefining Progress | year=2008 | accessdate=2008-04-02] . This was one of the first alternatives to the traditional GNP to be used by the scientific community and governmental organizations globally.

Green National Product in the United States

In 1992 the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce began to execute intensive work to create an environmental accounting system [cite web | url=http://rcted.ncu.edu.tw/speech/On%20Green%20NP%202007%201117 [1] .pdf |format = pdf | title=On "Green National Product": Theories and a Comparison Among Difference Approaches | publisher=Eolss Publishers | year=2007 | accessdate=2008-04-02] . The BEA began by creating satellite accounts with easily measurable commodities such as petroleum and coal. The first publication of the U.S. Integrated Environmental and Economic Satellite Accounts (IEESA) in 1994 [cite web | url=http://rcted.ncu.edu.tw/speech/On%20Green%20NP%202007%201117 [1] .pdf |format = pdf | title=On "Green National Product": Theories and a Comparison Among Difference Approaches | publisher=Eolss Publishers | year=2007 | accessdate=2008-04-02] . The initial results were quite significant and showed how GNP was overestimating the impact of mining industries in respect to the nations economic wealth [>cite web | url=http://www.gwagner.com/writing/2004/04/fixing-gdp-green-accounting-in-united.html | title=Fixing GDP: Green Accounting in the United States | publisher=National Public Radio | year=April 9,2004 | accessdate=2008-04-02] . Mining companies didn’t care for the initial publications for obvious reasons and in a matter of time until Alan Mollohan, a Democratic House Representative from West Virginia’s coal country, sponsored an amendment to the 1995 Appropriations Bill. In response Congress directed the BEA to suspend further work in environmental accounting and to obtain an external review on their findings [cite web | url=http://rcted.ncu.edu.tw/speech/On%20Green%20NP%202007%201117 [1] .pdf |format = pdf | title=On "Green National Product": Theories and a Comparison Among Difference Approaches | publisher=Eolss Publishers | year=2007 | accessdate=2008-04-02] .

Need for Green National Product

Many people are calling for a Green National Product that would indicate if activities benefit or harm the economy and well-being. This Green National Product would revolve around the social and economic issues on which many green movements have focused: care for the earth and all that sustain it [>cite web | url=http://www.gwagner.com/research/green_accounting/index.html | title=Green Accounting | publisher=Gernot Wagner | year=2007 | accessdate=2008-04-02] . This new national product would differ from the traditional GNP by addressing both the sustainability and well-being of the planet and its inhabitants [ Cobb Clifford, and Cobb, John. "The Green National Product", University Press of America, c1994. p.280 "Bridging Economics and Ecology"] . It is essential that this system takes into account national capital, which is currently hidden from our traditional measurement.

References