GDP Misses the Boat

I was recently asked to “substitute” for a colleague on a sustainability presentation with regard to the economic measures used to quantify “green” or sustainable programs and buildings. He was kind enough to provide me with some background articles for the class.

The first was an OP-ED from the Times by Eric Zencey, a professor at Empire State College, and can be found at:
http://www.nytimes.com/2009/08/10/opinion/10zencey.html

…and a paper by Timothy F. Slaper, Ph.D, Director of Economic Analysis, Indiana Business Research Center, Indiana University Kelley School of Business titled “The Triple Bottom Line: What is it and How Does it Work?”

As I interpret the summaries of both documents, I would say that G.D.P. (Gross Domestic Product) is basically a false measurement that should be put out of its misery. At the very least, the Triple Bottom Line as a real measure of economic growth should replace it.

Essentially, the G.D.P. is a false measure because it does not include a differential between costs and benefits. For example, Mayor Bloomberg recently announced a plan for a $20 billion investment plan for flood controls to protect the City from future storms.

Under traditional G.D.P. measures, if this money is spent, the G.D.P. will show this as growth. As Dr. Zencey points out, it ignores the value of associated benefits that would be associated with avoiding this construction by reducing the impact of future floods through proper land planning and avoided risk through environmental destruction of wetlands and coastal areas.

Taking this further, the rebuilding of the shore will bump the G.D.P. because of new construction and the associated purchases. Of course, had the dunes been maintained and areas such as Sea Bright not been developed in obvious flood zones, there would be no damage to rebuild.

Flood Damage

So what does this lead us to? A discussion on the value of the natural world versus the capital world that uses resources in an inefficient and nonsustainable manner. In Dr. Zencey’s Op-Ed, he notes that one market value estimate is that natural capital services are worth as much as $33 trillion per year.

Ok, there are arguments to kill the G.D.P.

What are the arguments for the Triple Bottom Line? First, what is the Triple Bottom Line (TBL)?

“The TBL is a way of measuring the impact of an organization’s activities on the world…including, both its profitability and shareholder values and its social, human and environmental capital.” – Slaper

The measures are noted as economic, environmental and social. As I see it, we would not be giving a great deal of credit to the $20 billion in new flood controls and all of the rebuilding at the shore. Why; because these projects are all questionable in some ways as to their social and environmental impacts.

On the positive side, TBL is a great way to look at change in an organization that is designed to improve the environment as well as improve social conditions of the people that work in that environment. A healthier work environment is generally more productive, and thus more profitable.

A healthier living environment generates fewer ill health effects on those in it and thus lowers the costs to society as a whole.

Yes, it is time that we consider scrapping the G.D.P. and move to a more holistic and inclusive economic measure.

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