As part of the 6th Global Media Forum, held in Bonn from 17 – 19 June 2013, UNU-IHDP together with UNU‐WIDER and GIZ conducted a workshop entitled “Beyond GDP: Inclusive Measures of Economic Progress”. IHDP Executive Director Prof. Anantha Duraiappah and Academic Officer Dr. Pablo Muñoz were among the panelists who gathered at the World Conference Center’s plenary chamber to discuss the need to shift from a focus on economic growth to one on economic progress. The panel was structured around three topics: 1) the Inclusive Wealth Index (IWI) – a new measure of a nation’s wealth that accounts for natural, human, and produced capital, 2) inclusive growth research and 3) the economics of land degradation.
Along with the other panel members – Prof. Tony Addison (UNU-WIDER) and Mark Schauer (GIZ) – they argued that Gross Domestic Product (GDP) was an insufficient and misleading indicator of both economic progress and human well-being, as it only focused on short term economic production and failed to reflect the state of a nation’s natural environment, long-term sustainable growth, or inequality. “GDP is not a measure of well-being, we are living under the false assumption that we will be fine as long as GDP increases”, stressed Prof. Duraiappah. Focusing on GDP, a nation could deplete all of their natural resources and still display positive GDP growth; however, this growth would come at the expense of the environment, human well-being, and future sustainability. Consequently, new metrics for measuring wealth were urgently needed.
The Inclusive Wealth Report
In response to this need, the Inclusive Wealth Report released in 2012 by UNU-IHDP in collaboration with the United Nations Environment Programme (UNEP) introduces a new economic index: the Inclusive Wealth Index (IWI). The IWI takes a more holistic approach to calculating a nation’s wealth by taking into account natural (e.g. forests, fossil fuels), produced (e.g. machinery, infrastructure) and human capital (e.g. education). The IWI of 20 countries were assessed by the report, representing 56% of the world’s population and 72% of world GDP. “The report found that while all of the countries showed positive GDP growth, 19 of the 20 countries are depleting their natural capital signaling a real physical impact of GDP growth,” stated Dr. Muñoz. By performing a more comprehensive analysis of a nation’s wealth, the IWI illustrates whether economic growth is sustainable in the long-term and whether this growth comes at the expense of other resources.
Inclusive growth research: Capturing the dimensions of human development
Prof. Addison addressed the challenges and opportunities facing inclusive growth research. He identified the need for better metrics to capture the many dimensions of human development as one of the core challenges of inclusive growth research: “At the moment we have a global economy, which is a very sophisticated aircraft, but the pilots of that economy and society have very ineffective instruments. We are piloting the global economy with the instruments the Wright brothers had.” To illustrate the limited scope of current metrics, Prof. Addison used the example of a low-income African woman whose function of childcare is essential to human progress and development, yet her time and effort is not accounted for in current economic measures. Research needed to address how to better measure the inputs of those who are on the lower end of development as well as develop better metrics for measuring the concentration of wealth in society. Prof. Addison also suggested that inclusive wealth research needed to move beyond the goal of poverty reduction to the more ambitious goal of promoting equality.
Economics of land degradation: Managing resources for sustainability
“The sustainable management of land is the basis for development and for fighting poverty,” stated Mr. Schauer. “Without managing our natural resources we will not be able to ensure that our national policies are sustainable over time.” Mr. Schauer emphasized the need for indicators such as the IWI to prove to decision-makers that it was worth investing in natural capital as a way of reinvesting in wealth. He also remarked that if we were to successfully adopt new ways of thinking about a nation’s wealth, there needed to be stronger partnerships and communication between science, politics, and the private sector.