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Economy 4.0

Alternative Indicator: The Genuine Progress Index

Emilie Mutert Oct 26, 2010

There’s more to evaluating a country’s well-being than merely looking at GDP – that’s why the non-profit public policy institute Redefining Progress developed the Genuine Progress Index in 1994.

Today the GPI is one of the first alternative indexes to be given the figurative seal of approval from the scientific community as well as governments worldwide.

What is it?

In 2004, the U.S. GPI was calculated to be $4.42 trillion. This is in contrast to the 2004 U.S. GDP, which was approximately $10.76 trillion. At least eleven countries have recalculated their GDP using the GPI. The data for European countries and the U.S. show a steady decline over the last 30 years.

What does is measure?

According to Redefining Progress, GDP in relation to GPI is analogous to the relationship between the gross profit and net profit to a company. While GDP represents all the monetary exchanges in a country over time, GPI represents the actual value of monetary exchanges after subtracting the long-term costs of environmental damage and unsustainable practices.

How do they get there?

The GPI is evaluated according to a broad set of 51 economic, environmental and social indicators. The index incorporates factors such as occurrence of gambling addiction, average time spent commuting, levels of hazardous waste production and amount of household debt. Indirect effects of crime, drug use, environmental pollution and other harmful activities are evaluated as financial costs and are weighed against whatever positive economic effects come from activities like volunteerism and economic diversity.

What can it tell us (really)?

The GPI’s strength is in its attempt to monetize the values of human action that are not immediately apparent to us. It’s useful to compare the GDP and the GPI, and then from that comparison, examine the causes behind the differences between the two values.

But nobody’s perfect

Some have criticized the methods used to create the single GPI dollar value and argued that it isn’t accurate enough to directly compare it to GDP numbers. It has also attracted critics who were concerned about the methods used in creating a single bottom line number (expressed in dollar terms) that was comparable with the GDP.

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