Genuine Progress Indicator

The Genuine Progress Indicator (GPI) is a “system of national accounts” (SNA) suggested as an alternative to the nearly universally used SNA, gross domestic product (GDP). SNAs [Page 274]are used to measure economic activity in a political unit such as a nation. Because GDP, the market value of all final goods and services produced in a country, is viewed as an indicator of economic health and well-being, it is closely watched by business, government, and the media. Critics of GDP argue that it is a flawed measure that undercounts or ignores certain contributors to economic well-being, and that it includes many forms of economic activity that harm societal and individual welfare. As such, these critics have attempted to promote the replacement of GDP with GPI or other SNAs.

Increasing economic growth as measured by GDP is a goal of politicians in almost every nation. Various policies are adopted in order to increase GDP, and potentially negative impacts on GDP are frequently cited as a reason to oppose policies aimed at improving environmental quality or other social goals. This often results in adopting policies that may maximize GDP, but suboptimize overall societal well-being. Flaws in GDP serve to blind the business sector to the negative impacts of traditional economic activity on the environment and reinforce the impression that environmental quality and economic growth are incompatible.

The GPI was developed in 1995 by Redefining Progress, a California think tank. GPI uses as its basis financial transactions that contribute well-being. These are then adjusted for economic elements that are not addressed within GDP. GPI is, therefore, much more a measure of economically driven well-being than of economic activity per se.

First, GPI adjusts personal consumption expenditures using a measure of income inequality. Dramatically increased wealth among the rich masks, within GDP, the impacts of stagnant or declining incomes among the poor and middle class. Second, GPI includes the value of nonmonetary work, such as parenting and volunteerism, as well as of services provided by past expenditures, such as infrastructure (dams, highways, streets, etc.) and consumer durables (cars, appliances, etc.). Third, GPI subtracts three groups of expenditures that are included in GDP: defensive expenditures that attempt to maintain household quality of life in the face of declines in social or environmental conditions (e.g., home security systems or guards, household water filtration systems, repairs due to auto accidents); depreciation of natural resources and other environmental assets (e.g., habitat loss, soil erosion, depletion of minerals); and social costs (e.g., divorce, losses to crime, loss of leisure time, pollution-related health and property damage). Finally, while GPI views investments in capital stock as contributors to well-being, it subtracts money borrowed from foreign sources. If foreign borrowing adds to capital stock, the effect on GPI is neutral, but if used to finance consumption, the effect is negative.

Given these modifications, GPI paints a very different picture of U.S. economic activity than does GDP. Although GPI is lower in both per capita and total terms than GDP (in year 2000 constant dollars), growth rates of the two measures were similar from 1950 to the mid-1960s in total terms and until about 1970 in per capita terms. A significant difference between growth rates—both total and per capita—began to occur in about 1975. Per capita GPI has been essentially stagnant or even declining since about 1978, when per capita GDP was $22,987 and per capita GPI was $14,595. By 2004, per capita GDP was $36,596, while per capita GPI was $15,036. It is clear that growth in GDP has served to hide stagnation in economic well-being for roughly two decades, assuming that GPI measures what it purports to.

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