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Genuine process indicator

09/21/04 12:00AM By Brendan Fisher
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(Host) When calculating economic vitality, commentator Brendan Fisher suggests that quality as well as quantity should be part of the equation.

(Fisher) Gross Domestic Product, or GDP, is a poor indicator of social well-being, but it's often cited when politicians or the media are asked the open question: "How is the country doing?"

GDP measures the total market value of all final goods and services produced within a country. But it doesn't account for whether we are producing sneakers or cleaning up oil spills. All activity is counted as positive.

The recent hurrcane devastation will actually add to GDP because of massive cleanup and rebuilding efforts.

In short, the measurement of GDP lumps 'goods' and 'bads' together, with little concern for how these affect quality of life.

In contrast, the Genuine Progress Indicator, or GPI, is an attempt to more comprehensively measure economic activity and its effect on our overall welfare. The GPI corrects GDP figures for things like pollution costs, the costs of commuting, and the loss of leisure time. It also attempts to quantify activities that have a positive effect on social welfare but are not considered in traditional economic accounting, such as household labor and volunteer work.

Using this as their intellectual starting point, a group of researchers at the University of Vermont, including scientists, economists and students, undertook the task of calculating the Genuine Progress Indicator for the state of Vermont.

They analyzed data from the past 50 years on topics such as investment, income, social indicators, and land use change. They found that Vermont had significantly higher GPI per capita since 1980 than the national average.

Why does Vermont score so well against the National figures?

The main factors explaining the difference had to do with Vermont's environmental performance, as well as Vermont's low population density.

For instance, Vermont's per capita reliance on non-renewable fossil fuels for its energy needs is fairly small relative to the national average. Relying on Hydro Quebec statewide, and Burlington's wood fired power plant locally, along with pushing energy conservation measures across the state, points to a more sustainable economic landscape, as compared to its national counterparts.

The researchers concede data limitations and consider their attempt a first cut,' but they contend that is does start to give one a picture of why Vermont constantly pops up on surveys as being a state with a very high quality of life.

Where GDP measures economic quantity, GPI attempts to gauge the quality.

We may never have a truly accurate assessment of social well-being, but we know that GDP is well off the mark. The Genuine Progress Indicator is far from perfect, but as Nobel laureate economist, Amartya Sen says, it is better to be vaguely right, than precisely wrong.

This is Brendan Fisher of Burlington.

Brendan Fisher is a PhD student in Ecological Economics at the University of Vermont.
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