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Principles for a New Economy: Rethinking the Meaning and Measurement of Progress

A new consensus is forming on how to measure economic purpose and progress

Submitted by: Dr. Allen L. White

Posted: Dec 07, 2011 – 04:00 PM EST

Tags: new economy, economy, gdp, sustainability, well being, environment

 
Allenwhite

By Allen White

What is economic progress? It depends upon one’s definition of the purpose of an economic system.

In a prior post, I described the effort of a working group of the New Economy Network (NEN) in developing 10 Principles for a New Economy. This post begins with a restatement of purpose as the point of departure for a tour of the 10 Principles that elaborates their intent and implications in a world fraught with economic volatility, inequity and uncertainty.  

The Preamble for the Principles begins with a statement of purpose: 

The purpose of an economic system is to help organize human activities in ways that create healthy and resilient human communities and ecosystems for both present and future generations.

This purpose, needless to say, is a dramatic departure from the purpose that commonly appears in mainstream Economics 101: the study of how scare resources are allocated across competing uses to create wealth. The NEN purpose statement offers an alternative that builds on the last two decades of a gradual, though far from conclusive, rethinking of the role the economy plays in enriching and preserving the quality of the human and ecological condition. It draws inspiration from the spectrum of thinkers – including many non-economists – working to reconceptualize economics under the rubrics of “inclusive economy,” “generative economy,” “ecological economy,” “solidarity economy” and “real economy.” Each has its own nuances, but more importantly, all share the view that contemporary economic systems are deeply flawed. To varying degrees, NEN argues, they are unsustainable, unfair, unstable and undemocratic. 

Systemic, not piecemeal nor incremental, transformation is the order of the day. Such a transformation must strive to end the damage associated with the myth of amoral economics and confront the reality that how we design economic systems and implement economic policies has profound effects on the human prospect. 

Even the father of modern economics, Adam Smith, nearly two decades before his seminal 1776 Wealth of Nations, recognized in Theory of Moral Sentiments (1759) the role of sympathy, passion, propriety and virtue in creating humane societies. NEN’s statement of purpose uses the terms “healthy,” “ resilient” and “communities.” It seeks to recapture the moral fiber that Smith advocated—terms his late 20th/early 21st century laissez-faire apostles have largely discarded amidst their determined march toward the sterility of modern mathematical modeling and the evangelism of free market fundamentalism.

Against the backdrop of NEN’s statement of purpose, how do we measure economic progress? Principle 1 for New Economy posits the following:

Principle 1. Measuring progress: Economic progress shall be measured in terms of the well-being of all living species and ecosystems. 

At the heart of progress are two core attributes. The first is well-being, a direct challenge to the hegemony of gross national product (GNP). The arguments against GNP as the paramount metric of economic progress are well known: its focus on the aggregate value of goods and services is at best loosely correlated with quality of life; its exclusion of non-monetized activities and conditions such as environmental quality, leisure, trust, community, personal security and other proven determinants of well-being; its failure to distinguish between market transactions that are socially beneficial (clothing, shelter, transport products and services) and those that are directly or indirectly harmful (nuclear weapons, hazardous waste disposal services, cigarette advertising); and its exclusion of the trillions of dollars’ worth of ecosystems services – e.g., the rainforest’s role in humidity and temperature control, freshwater protection, crop pollination – without which no economy can survive.

The second core attribute of Principle 1 is its recognition of the inseparability of long-term human and ecological prosperity. The notion that the two operate in parallel universes rather as a single, interdependent human-biospheric system has inflicted immeasurable damage on the planetary anatomy. If a new economy is to come to life in decades ahead, it must shift from the concept of separability and subordination of the Earth’s ecosystem of human needs to the concept of partnership and harmonization in the creation and expansion of real, long-term wealth along the lines advocated by David Korten.

The misplaced investment in and injurious effects of the domination of GNP and GDP have been recognized for decades. John Maynard Keynes argued that better use of leisure rather than ever expanding consumption was the surest path to enhanced quality of life. Robert Kennedy a few decades later lamented the failure of such measures to count “…the health of our children, the quality of their education, or the joy of their play…the beauty of our poetry or the strength of our marriages.” More recently, the Stiglitz Commission, convened by President Sarkozy of France in 2008, argues for an overhaul of national accounts and GDP-driven measures of progress to correct the multitude of shortcomings that persist to this day. 

Behavioral economists like Richard Layard (Happiness: Lessons from a New Science, 2005) looks to the work of neuroscientists, psychologists and sociologists to unravel the complexity of human happiness which, it turns out, has little correlation with GNP/capita levels beyond those required for basic levels of comfort and security. More broadly, in the context of building just and sustainable societies through a “Great Transition,” John Stutz sees the entrenchment of GNP as not only scientifically flawed but dangerously inappropriate for guiding economic strategy and policy-making.

In sum, the dual pillars of well-being and human-ecological partnership embodied in Principle 1 align with the growing chorus of academics, advocates and governmental authorities calling for the downgrade of GNP and upgrade of alternative measures for progress measurement. Continued dominance on GNP accounting is a recipe for fueling the unsustainable trajectory of over-production and over-consumption that is driving the overshoot of biospheric limits while failing to strengthen the true determinants of human and ecological well-being. 

The research is irrefutable. Citizen disillusionment is growing. Advocates are gaining ground. When will the political leaders finally muster the will to overcome the inertia that sustains the ill-founded dominance of GNP? Now is the moment for “Gross National Well-Being” (GNW).

Next in this series: Principle 2. Respecting natural limits: The economy shall draw from, and inject into, ecosystems only what is compatible with maintaining a sustainable, healthy and resilient natural world.

About Allen White, Ph.D.

Dr. Allen L. White is Vice President and Senior Fellow, Tellus Institute, Boston, USA, and directs the Institute's program on Corporate Redesign.

Readers: What would you like to see included in measuring economic progress? Tell us on Talkback!

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