How GDP impacts the planet

In May 2012, writer Jeanette Winterson spoke to a packed audience at the Sydney Opera House. In attempting to articulate the sacred in our secular world, Winterson did something most unexpected. She referred to the gross domestic product, or GDP. She said, “We do also wonder where the sacred has gone, and we can’t find language for that any more; we can’t find a way of expressing that any more — the part of us that isn’t to do with GDP, that isn’t to do with the national debt, that isn’t to do with gross income …”

I know what Winterson was driving at but in the 21st century I think we can no longer afford to consider ourselves as separate from the GDP. It seems to me there is no longer any part of us or our planet that isn’t to do with the GDP — and that our failure to realise this is imperilling the future of life on earth. Numbers like the GDP shape every major policy decision made by our governments, our financial institutions, corporations and communities. They now act like beacons to guide the good ship Earth.

This one miraculous figure, the GDP, apparently compresses the immensity of a national economy into a single number — and governments and many people believe that only this one statistic can really show whether things are getting better or getting worse. However, GDP figures exclude most of the things we hold dear and they are systematically encouraging us to ruin the planet.

Money talks

In GDP terms, the 2010 BP oil spill in the Gulf of Mexico was worth more than a living rainforest in the Amazon. We can put a dollar price on cleaning up an oil spill, so the cost of managing this disaster can be included as a boost to our national wealth. Yet, because we haven’t yet put a dollar price on the value of a living rainforest, it counts for nothing. This is just one example of the many alarming anomalies our GDP accounts generate because of the way we currently value — or don’t value — nature.

A project conducted in 2003 in New York City, Neighborhood Tree Survey, provides a telling example of the way the pricing of nature affects our attitudes and behaviour towards it. The survey priced every tree in New York City and found they were worth a total of US $1,038,458, or an average of US $3225 per tree. Suddenly, with the trees now bearing price tags, people began to realise just how valuable they were.

The Parks Department’s chief of forestry and horticulture said of the experiment, “People always knew there was some vague benefit to trees, but you could never quantify it. But once you have the methodology to equate trees with dollars, now you’re talking. It’s no longer about hugging trees because they’re good, but because you have hard data in a language more effective in the public dialogue.” The ecological value of America’s urban forests is worth US $4 billion annually in terms of clean air and water. They also cool cities, buffer rainstorms and look beautiful.

Birds and insects also work hard for our benefit but, like trees, they are also excluded from our measures of wealth. In just one small example, Worldwatch senior researcher Janet Abramovitz found that honeybee pollination activity is 60 to 100 times more valuable than the honey they produce. The value of wild blueberry bees is so enormous — each one pollinates up to 19 litres of blueberries in its lifetime — that farmers call them “flying $50 bills”. But their work is not included in the GDP because we think of it as free.

Nature walks

The work of nature in general counts for nothing in our GDP accounts. But as Abramovitz says, “Nature’s services are not, in fact, free and the future will bear the hidden costs of losing them.” We’ll pay their costs in environmental destruction and climate change.

Because we don’t value nature’s services in the way we currently structure our economies, we have no incentive to care for them. In fact, there’s an incentive to wear them down and tear them apart, as we’ve been doing at increasing rates for the past 250 years. Under current GDP measures, countries that cut down forests for timber exports, dynamite their reefs for fish, pollute and degrade their soil for intensive agriculture and allow farms and factories to contaminate their waterways get rich.

GDP origins

GDP accounts were first constructed in 1933 in Washington to help guide the Roosevelt administration through the Depression using accounting principles that had evolved in Britain during the industrial revolution when natural resources seemed abundant. They were then implemented in Great Britain during World War II at the instigation of economist John Maynard Keynes.

But from the beginning they were partial and deeply flawed, as even their creator, Simon Kuznets, acknowledged. Both Keynes and Kuznets considered GDP accounts to be temporary measures, for use only in emergencies such as wars and depressions. But they quickly became enshrined in public life and after the war, courtesy of new international financial organisations such as the World Bank and the IMF, GDP accounts were imposed on almost every nation on earth. Today, their narrow view of wealth rules government policy across the globe and makes “economic growth” the single driving force of the modern nation.

For economic growth is no more and no less than an increase in the GDP and GDP rises when we cut down trees, buy cigarettes, pay for the chemotherapy to treat lung cancer, pay for the petrol we use to sit in cars in peak-hour traffic, buy Ritalin and junk food, pay hospital bills for obesity and diabetes, build weapons of mass destruction, pay the costs of environmental destruction.

Beyond GDP

The first politician to rail publicly against the GDP was Senator Robert Kennedy in a speech he made in March 1968. “Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our gross national product … counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage.” But it “measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile.”

There has been almost universal resistance to valuing the goods and services nature provides — until now. Today, many economists are beginning to acknowledge the environment’s contribution to economic life. They have coined the term “ecosystem services” to describe the many ways nature helps our economies through its production of raw materials, water purification, waste decomposition, soil maintenance, pollination, pest control, the carbon absorption of forests, coastal defence of coral reefs and the regulation of local and global climates.

In 2008 the Living Planet survey initiated by the World Wildlife Fund found we are running up an ecological debt of some US $4.5 trillion every year. This figure happens to be twice the amount of the estimated losses suffered by the world’s financial institutions from the 2008 global financial crisis. The authors of the report said, “The possibility of financial recession pales in comparison to the looming ecological credit crunch” and called for politicians to respond to the environmental crisis with the same urgency and magnitude as for their multibillion rescue plan for the failed financial system.

Remarkably, more than 40 years after Bobby Kennedy first raised the alarm, politicians are now responding. But, before we look at how governments are rethinking our GDP accounts, let’s consider that other great legacy of the industrial revolution that increasingly governs our lives: the corporation.

Corporate takeover

Economist Raj Patel points out that, while every civilisation has had its traders and markets, only modern market society has spawned the corporation, “a novel human creation moved by the search for profit”, to which we’ve granted extraordinary powers. Some 126 years ago we gave these inanimate collectives of capital the same status as people. In 1886 the US Supreme Court famously ruled that corporations were “persons”, entitled to the same rights granted to people under the US Bill of Rights. Today, corporations are legal people in most jurisdictions of the world and dominate the planet.

In their 2003 film The Corporation, a group of Canadian filmmakers decided to treat the corporation like the person it legally is and test its psychological profile. They found the corporation shares many of the characteristics that define psychopaths: corporations break the law if they can, hide their behaviour, sacrifice long-term welfare for short-term profit, are aggressively litigious, ignore health and safety codes, and cheat their suppliers and workers without remorse.

Yet even when they go about their lawful business, corporations cause harm simply because of the cost–benefit logic of their profit-making imperative. The following real-world business decision perfectly illustrates the inadequacies — and immorality — of this cost–benefit thinking.

In 1977, the Ford Motor Company conducted a cost–benefit analysis to weigh the relative benefits of adding or not adding a safety device to its Pinto car. The analysis entailed assessing the “cost of safety parts versus the cost of lives lost”, where the “cost of lives lost” was the dollar value of men, women and children potentially killed in the unsafe vehicles.

Ford’s cost–benefit analysis found that the costs of the safety device far exceeded its benefits. Naturally, Ford decided not to spend money on the safety feature (even though its benefits included saving lives), based on the inexorable logic of two simple numerical equations. It was a classic example of accounting-driven cost–benefit analysis and it resulted in some 500 people burning to death in Pinto crashes before the practice was exposed.

The way forward

So how can we challenge the profit-maximising powers of corporations and the GDP-maximising economic-growth logic of national economies? At least three recent initiatives come to mind:

1. The first, driven in Europe and the US by environmental degradation and the 2008 financial collapse, is the construction of accounts that supplement the GDP and measure a range of key national indicators, from the environment and natural capital to education, health, the arts and culture. Examples of these extended accounts include the Better Life Index in Europe and the State of USA in the US.

The United Nations has also been working to value natural capital and factor it into the global economy. In 2012 it adopted a new international standard to give “natural capital” equal status with GDP.

2. The second is the attempt to give dollar values to natural wealth, which is being done by organisations such as the Millennium Ecosystem Assessment. Its findings are staggering. For example, the carbon storage potential of forests ranges between US $360 and $2200 per hectare, far more than their worth when cleared for grazing or crops. Intact tropical mangroves are worth around US $1000 a hectare, but cleared for shrimp farms their value falls to about US $200 a hectare.

3. The most radical and promising development comes from South America: the enshrining in law of the rights of nature. For example, in January 2011 the government of Bolivia passed its Mother Earth law, which gave legal rights to nature. The new law defines Mother Earth as “the living and dynamic system formed by the indivisible community of all life systems and living things who are interdependent, interrelated and which complement each other, sharing a common destiny. Mother Earth is considered sacred by worldwide communities and indigenous peoples.”

This law recognises natural resources as “blessings”, allows for a Ministry of Mother Earth and an ombudsman to advocate the rights of the earth. It grants nature 11 rights, including the right not to have cellular structure modified or genetically altered; the right to continue vital cycles and processes free from human alteration; and the right to pure water and clean air.

The Mother Earth legislation is Bolivia’s attempt to end the serious environmental damage it’s suffered at the hands of corporate profit seeking, especially mining. It seems only fair that the planet be granted similar rights to those of the corporation in its fight to survive the ravages of corporate profit-seeking.

Environmental lawyer Begonia Filgueira calls Bolivia’s Mother Earth law a legal milestone, “the only way to balance the rights that humans have with the protection of the planet and ultimately the human race”.

It seems that Mother Earth versus profits and economic growth is shaping up to be one of the biggest battles of our times. For this century must be the one in which we learn to take our planet into account because, unless we start accounting for our transactions with the Earth, we will bankrupt it for all future human habitation.

Jane Gleeson-White is the author of Double Entry: How the Merchants of Venice shaped the modern world — and how their invention could make or break the planet and blogs at bookishgirl.com.au and overland.org.au.