Greening the GDP provides an opportunity to improve the measure of social welfare without adopting arbitrary assumptions about relative weights of various physical aspects of human well-being. This is not the only alternative economists have explored, having realized that traditional GDP misrepresents welfare. There is also a strong tendency to analyze physical accounts as more adequate for representing the quality and intensity of economic activities (Ayres 1998). The approach is best manifested in the critical natural capital concept. Although other indices are interesting and sometimes justified, the greened NDP has the advantage of being closest to what politicians and policy analysts are familiar with.
A major theoretical advantage of the greened NDP is its affinity with the concept of sustainable development. By definition, this indicator is sensitive to instances of natural capital depletion. Likewise, it reacts positively to investments in environmental quality. Therefore, its changes provide good indications of what makes the society improve or worsen its long-term perspectives for economic growth. Additionally, by comparison with the conventional GDP, it indicates whether the present generation lives sustainably or whether it eats up the capital to be handed over to the next one. If the greened NDP is lower than the conventional one, it means that the present generation compromises the ability of future generations to meet their own needs. If it is the other way around, then the present generation accumulates wealth that can be used by its successors. Consequently, the greened NDP is not a measure of present welfare. A low or declining index signals that the present generation lives at the expense of future generations, but its own welfare can be high and perhaps even growing.
There are many issues to be sorted out before a greened NDP can be calculated. One of the most challenging ones is pricing nonmarket goods such as clean air, soil, and biodiversity. Economists refer to hypothetical or surrogate markets in order to estimate the prices that cannot be observed in actual transactions (Shechter 2000). For instance, in order to approximate the value people attach to silence, one can analyze differences in real estate prices caused by differences in the noise in their neighborhoods. Likewise, in order to approximate the value people attach to the preservation of species, analysts develop scenarios of hypothetical protective actions that may be taken and ask people how much they would be willing to pay for these actions to be carried out. Values revealed by such exercises are questionable, but a lot of progress has been achieved in the last several decades in soliciting them and making them more credible.
An important question remains: whether sustainability can be assessed with just one indicator. It is a complex, multifaceted, and multidisciplinary issue and therefore can never be reflected fully by a single number. Therefore, a set of sustainability indicators rather than a unique figure should be sought. Nevertheless, economists tend to develop aggregate measures to approximate people's general perception of certain phenomena. Because sustainability is likely to remain high on the policy agenda, fundamental yes-or-no questions have to be expected. If we were to answer whether a given economy develops sustainably, then—in addition to reviewing an entire set of sustainability indicators, some of which may suggest movement in different directions—we should refer to a composite index. Many such indices can be conceived, but most of them are arbitrary in the choice of elements and the weighting system. The greened NDP concept offers a solution to the arbitrariness problem and comes closest to what many people identify as sustainable welfare.
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