Any accountant will tell you an economy's true output is the difference
between what it produces and what it loses. The benefits and the
costs. But environmental damage caused by man, whether it's oil
spills or ravaged rain forests, is not deducted from GDP as a
cost to the economy. In fact, it contributes to the GDP in the
form of income, when someone is paid to put it right.
Because the environmental costs are not taken into account when
GDP is calculated, we think we are much wealthier and healthier
than we actually are.
"This is dangerous", says Claude Martin, Director General
of WWF International, "since governments, international banks,
aid agencies, politicians, the press, and the business sector
all use GDP as a primary basis for decisions about the future."
THE JAPANESE EXAMPLE
According to conventionally calculated GDP, Japan is one of the
richest countries in the world per capita. But how reliable a
guide is this to real wealth and welfare?
Researchers at the University of Tsukuba tried to find out. They
corrected Gross National Product (GNP, a variation of GDP) by
accounting for social and environmental costs over a 30-year period.
Until 1980, the corrected GNP soared, creating a new "wealth"
record every year.
After 1980, everything was turned on its head. Japanese GNP continued
to rise, but the corrected GNP plunged to less than one tenth
of the former's value within five years. The Japanese have a lot
of cash, the research confirmed, but their quality of life is
falling.
This doesn't only apply to Japan, of course. Traffic pollution,
long commuting times, and work-induced stress are a feature of
life in every industrialized country. Yet they are not seen as
costs in the traditional calculation of GDP.
TRUE GDP: A NEW INDICATOR
An environmentally adjusted GDP, a True GDP, would make for better-informed
decisions and encourage sustainable development. How do we calculate
a new GDP? By placing money values on the loss and use of nature's
resources and deducting them from the traditional GDP.
One attractive possibility is tax reform to reduce resource use
and increase employment by decreasing tax on human labour. Industry
and con-sumers forced to pay spill-over costs for the environmental
damage they cause would think twice before inflicting it and the
money received could be set aside for investment in nature.
There would be winners and losers with a nature-adjusted GDP.
Countries would see environmentally damaging industries go out
of business, while sectors that enhance the environment would
increasingly contribute to economic growth. Financial institutions
would then alter funding policies to encourage good businesses
and discourage the bad.
The need for a system of more accurate economic indicators has
never been greater. In the UK, national income rose by 230% between
1950 and 1990. But the cost of water, air, and noise pollution
is reckoned to be $35.4 billion, 6% of national income over this
period.
In Brazil, the inclusion of timber depletion costs in agricultural
output reduces the latter by a fifth. In the Philippines, depreciation
for forestry, soil erosion, and coastal fisheries amounts to 4%
of GDP, which is greater than the annual rise in external debt.
It is neither sustainable nor economically prudent to continue
ignoring these real costs. Nature needs to be given value at a
micro- and macro-economic level for GDP to make sense.
COSTING A RUBBER PLANTATION
Loggers, for instance, are not required to consider the costs
of the trees they fell. Labour, transport, saws and ropes, yes.
But trees, no. Logging is counted entirely as generating income.
The spill-over cost is picked up by society as a whole. The managers
of a rubber plantation in Nigeria did their sums properly before
expanding into the Okomu Forest Reserve. They found that the true
costs of the development outweighed the benefits. Direct investment
was initially estimated to be just $450,000, compared to expected
turn-over of $1.58 million. At first, it seemed logical that the
project should go ahead.
Later, however, the spill-over cost of clearing the trees was
taken into account. After consideration of the potential loss
of fuel wood and building materials, food and clothing from wildlife,
as well as tourism and traditional medicine, the overall cost
turned out to be $1.64 million. The true costs far exceeded the
potential income.
If the internationally agreed system for calculating GDP is not
changed, we will continue to plunder the planet's natural resources
and pollute the environment as if it were an infinite resource
- without ever registering a fall in the GDP.
Think of the earth as a bank account. We live off the interest
on its capital. GDP is the interest. Natural resources are the
capital. When resources are eroded, the interest must fall. But
under the present system,we spend capital while pretending it
is only interest. Balance expenditure against that and we are
spending more than we have. We are living beyond our means.
The present system of calculating GDP is past its sell-by date.
It came out of a 1928 League of Nations meeting, at a time when
mass production and mass pollution were about to change the face
of the earth.
As a complement to conventional national accounts, the UN introduced
the System for Integrated Environmental and Economic Accounting
(SEEA). Though far from perfect, this could lead to the calculation
of True GDP and replace the old system.
THOSE WHO SHOULD ACT NOW
WWF is challenging international organizations and national governments
to switch over to the True GDP by 31 December 1999. They should
immediately acknowledge the flaws in the current system and commit
themselves to making the change. "This is the same timetable
as the European Commission sets in its own Fifth Environmental
Action Programme," says Tony Long, Director of WWF's European
Policy Office.
The World Bank and the UN Statistical Commission should form and
lead an international working group that includes the International
Monetary Fund, the OECD, and the European Union. Its task will
be to develop and implement a new, comprehensive, and reliable
accounting system to meet the challenges of the next century.
The working group must mobilize financial, technical, and institutional
support, allowing national statistical offices to compile new
accounts that value natural resources and put a cost on pollution.
Developing countries must be adequately represented. There should
be open debates on methodologies and policy applications, fully
involving non-governmental organizations.
The group should also take the lead in publishing adjusted national
economic indicators.
Unless there is an internationally coordinated effort to implement
a more accurate system of national accounts, "growth"
today will mean poverty tomorrow.
WHO WOULD YOU PREFER TO BE?
The early riser on $40,000 a year, two hours to work, two hours
back again, half an hour for lunch - a hard-drinking, heavy-smoking,
stressed-out, crèche-paying city worker? Or the stay-at-home,
slipper-wearing, child-minding telecommuter on a few thousand
dollars a year less, shying away from extortionate transport costs,
traffic jams, and vehicle smog? It would depend on how long you
wanted to live, for how long you were prepared to risk burn-out.
The same goes for the environment. The earth has a finite amount
of resources, on which future economic activities depend. Failure
to account for the use of these resources in the GDP means their
burn-out rate is hidden.
WHY THE PRESENT SYSTEM IS FLAWED
Wages, imports, taxes, budget deficits, government spending and
borrowing, depreciation in the value of machines, vehicles, and
buildings are all accounted for in the System of National Accounts
(SNA), the global economic information system. But the environment,
the fundamental basis for any economy, is not included. The SNA
is for monitoring the behaviour of national economies. It provides
a basis for economic policy- and decision-making. The SNA is also
used for international comparison, to score countries' economic
performance as a teacher measures the performance of students.
Imagine the economy is a car. The SNA is the dashboard behind
the steering wheel. For safe driving, all dials and indicators
must work accurately. Without a dial telling you how much petrol
is in the tank, or whether the engine is overheating, you would
feel threatened. The same applies to the economy. A flawed GDP
means wrong information. For a more accurate GDP, the depletion
of the environment must be taken into account. That is how governments
can make the right decisions about the road ahead.
|
THE ACTION PLAN 1995
Firm commitments to change to True GDP from governments, parliaments,
international organizations, the EU, and industry federations
International working group set up, coordinated by World Bank
and UNSTAT
EU begins publishing nature-adjusted national accounts on pilot
basis
JANUARY 1997
EC publishes environmental pressure indices and performance indicators
for main economic sectors
DECEMBER 1997
European system of integrated environmental and economic accounting
system introduced
At least ten EU states have a nature-adjusted SNA
Ten developing countries set up nature-adjusted SNA, helped by
World Bank and UNSTAT
International working group introduces guidelines for nature-adjusted
SNA
IMF requires its members to submit nature-adjusted accounts
31 DECEMBER 1999
Full global implementation of nature-adjusted SNA
European system of integrated accounting formally adopted
|