Sustainable Development and GDP

updated November 2016

The economy is one of the “three pillars” (alongside human development and the environment) by which the aim of sustainable development should be pursued. However, the method of measuring national economies is widely acknowledged to be unfit for purpose.

Gross domestic product (GDP) is calculated as the value of goods and services produced within a country, without adjustment for any change in environmental assets or citizens’ well-being.

The more damaging the economic activity, the more perverse are the results. For example, the construction of a new airport has a positive effect on GDP. Climate change, noise and air pollution, loss of habitat and the increase in inequality (airports benefit people who can afford to fly) are all excluded from the calculations.

Yet GDP is universally regarded as the most important of all economic indicators. The phrase “economic growth” has unequivocally positive connotations, elevating policies which favour the present at the expense of the future.

The same forces are at play within individual corporations. Like national accounts, their balance sheets do not present the “true and fair view” so prized by accountants because they do not internalize environmental costs. Shareholders also opt for short term strategies because there is no accounting for the long term damage to the planet.

This incompatibility between sustainable development and GDP was recognised in the set of Rio Principles drawn up at the UN Conference on Environment and Development in 1992 as a framework for stabilising the environment. Principle 16 states:

National authorities should endeavour to promote the internalization of environmental costs

“Environmental costs” refer to the depletion of the earth’s natural capital – ecosystems, biodiversity and mineral resources – and the damage caused by waste pollution.

Social costs within contemporary economic models experience similar neglect. Attempts to explain the outcome of the 2016 US presidential election have focused on reports of citizens feeling worse off, despite experiencing strong economic growth.  This may illustrate the failure of GDP to explain that only the richest minority are benefiting from growth.

The cumulative effect of this inability to correct the inverse relationship between economic growth and sustainability is alarming. Towards a Green Economy, a major report for policymakers published by the UN Environment Programme (UNEP) in 2011, concludes: “over the last quarter of a century, the world economy has quadrupled….in contrast 60% of the world’s major ecosystem goods and services that underpin livelihoods have been degraded or used unsustainably.”

This uncontrolled lurch towards our planetary boundaries is often branded as the failure of capitalism, deregulated open markets or our obsession with growth. These economic mechanisms do have much to answer for but the root dysfunction is the exclusion of social and environmental costs from national and corporate accounts.

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Going beyond GDP – the deficiencies of economic growth as a measure of progress or happiness inspire new questions
from eutube


Gross National Happiness – the alternative to economic growth pioneered in Bhutan
animation created by MortenSondergaard.com

more SDGs briefings
What is Sustainable Development?
Teething Troubles for Sustainable Development
From MDGs to SDGs
Green Economy
Safe and Just Space for Humanity
Source material and useful links

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