Genuine Progress Indicator

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Genuine Progress Indicator, or GPI, is a metric that has been suggested to replace, or supplement, gross domestic product (GDP) as a measure of economic growth. GPI is designed to take fuller account of the health of a nation’s economy by incorporating environmental and social factors which are not measured by GDP. For instance, some models of GPI decrease in value when the poverty rate increases.^[1] The GPI is used in green economics, sustainability and more inclusive types of economics by factoring in environmental and carbon footprints that businesses produce or eliminate. ”Among the indicators factored into GPI are resource depletion, pollution, and long-term environmental damage.”^[1] GDP gains double the amount when pollution is created, since it increases once upon creation (as a side-effect of some valuable process) and again when the pollution is cleaned up, whereas GPI counts the initial pollution as a loss rather than a gain, generally equal to the amount it will cost to clean up later (plus the cost of any negative impact the pollution will have in the mean time). While quantifying costs and benefits of these environmental and social externalities is a difficult task, ”Earthster-type databases could bring more precision and currency to GPI’s metrics.”^[1] ”Another movement in economics that might embrace such data is the attempt to ‘internalize externalities’ – that is, to make companies bear the costs” of the pollution they create (rather than having the government bear that cost) ”by taxing their goods proportionally to their negative eco-impacts.”^[1]

GPI is an attempt to measure whether the environmental impact of the products produced and consumed in a country is a negative or positive factor in economic health, and also account for the amount of people currently dependent on the government for support. Businesses are beginning to expand services/products that have actually resulted in the improvement of the environment and are starting to take ecological transparency seriously enough to embed it in their strategic thinking. GPI advocates claim that it can more reliably measure economic progress, as it distinguishes between the overall ”shift in the ‘value basis’ of a product, adding its ecological impacts into the equation.”^{[1](Ch. 10.3)}

Comparatively speaking, the relationship between GDP and GPI is analogous to the relationship between the gross profit of a company and the net profit; the Net Profit is the Gross Profit minus the costs incurred; the GPI is the GDP (value of all goods and services produced) minus the environmental and social costs. Accordingly, the GPI will be zero if the financial costs of poverty and pollution equal the financial gains in production of goods and services, all other factors being constant.

Contents

• 1 Motivation
• 2 Theoretical foundation
  • 2.1 ”Income” vs. ”capital depletion”
• 3 Applying the genuine progress indicator to legislative decisions
• 4 Calculation formula of GPI
• 5 The components of GPI
• 6 Development of the GPI in the United States
• 7 Development of the Finnish GPI
• 8 Development of Finnish regional GPIs
• 9 Criticism
• 10 Supporting countries and groups
• 11 See also
• 12 References
• 13 Further reading
  • 13.1 News articles
  • 13.2 Scientific articles and books
• 14 External links