Conscious Decoupling: GDP and environmental sustainability

Such is the ubiquity of GDP in public life, it is easy to forget it is not a naturally-occurring phenomenon but a human invention, like chocolate cake or the internal combustion engine. And like an old car trundling along the motorway, GDP is struggling to keep pace with the demands of the modern world. Indeed, some economists have indeed argued it is possible to ‘de-couple’ economic growth from environmental damage.

The International Resource Panel (IRP) of the United Nations Environment Programme points to evidence that advanced economies tend to achieve more growth at a relatively lower environmental cost – even if they continue to increase their use of resources in absolute terms – as they become more technologically sophisticated and efficient^[1].

The ongoing shift to green energy contributes to this kind of ‘relative’ decoupling. In an article for the journal Science in 2017, Barack Obama observed that the US economy grew more than ten per cent over the course of his presidency, even as carbon emissions from the energy sector fell by 9.5 per cent, thanks to a transition to greener energy sources^[2].

While this transition is to be welcomed, it should be noted that solar panels and wind turbines still use up finite environmental resources such as land and materials. And some countries that appear to be decoupling, such as Germany and Japan, are often ‘exporting’ their resource consumption by making use of goods that have been produced abroad using major quantities of water and minerals. Overall, advanced economies still consume far more natural resources than developing ones: the IRP has noted that the average citizen in a developed economy such as Canada consumes 25 tonnes of minerals, ores, fossil fuels and biomass per year, compared with four tonnes for the average citizen in India.^[3]

With the sustainability question in mind, some experts have called for alternative measures of economic welfare to replace the emphasis on GDP. Tim Jackson, professor of sustainable development at the University of Surrey and an adviser to Aviva Investors, framed his seminal 2009 report Prosperity Without Growth around the evidence that, beyond a certain point, growth does not increase human well-being.^[4] Diane Coyle calls for a shift of focus towards ‘access’ to economic benefits, with the preservation of ‘natural capital’ a key concern. Meanwhile, Jonathan Haskel argues the health of the environment could be encompassed within a reformed GDP framework, so that planting a forest counts as an investment in ‘environmental capital’ while polluting the Great Barrier Reef subtracts from it.

The New Economics Foundation’s Happy Planet Index is one of the first global measures of sustainable wellbeing. It captures global data on wellbeing, life expectancy, and ecological footprint to reveal an index of which countries are most efficient at producing long, happy lives for their citizens, while maintaining the conditions for future generations to do the same. ^[5]

There have been other attempts to put these kinds of reforms into practice. In the US, the Maryland state government now refers to an index called the Genuine Progress Indicator (GPI) before making its budget decisions.^[6]  The GPI supplements GDP figures with variables such as leisure time and unpaid housework, and subtracts so-called ‘regrettables’ including pollution and time spent commuting.

Similarly, in 2013 the Australian Bureau of Statistics launched a platform called Measures of Australia’s Progress (MAP) to track education, health and social trust alongside traditional economic variables. MAP showed that while the economy and per capita income had increased over the previous decade, social trust had stagnated and the health of the natural environment had regressed.

Despite these innovations, it is likely to be some time before the majority of states, economists and investors end their reliance on GDP. Economist Diane Coyle put it nicely when she said: "There’s a lot of interest in change at the moment, but it’s a bit like having a technical standard, like driving on the left side of the road. Nobody is going to switch until anyone else switches".

So there needs to be some kind of consensus and enough intellectual firepower behind switching to something else, as was the case when GDP was invented during the Second World War and immediately afterwards. As there is not yet any consensus on how to reform or replace GDP, it seems likely that the debate over the compatibility of economic growth and environmental welfare will run and run.

For now, GDP is the best metric we have for the state of economies, the flow of investment and per capita wealth. To paraphrase Winston Churchill’s famous observation about democracy, GDP remains the worst way of measuring economies apart from all the others that have been tried from time to time.

For further information.

^[1] ‘Decoupling natural resource use and environmental impacts from economic growth,’ UNEP, 2011

^[2] ‘The irreversible momentum of clean energy’, Science, June 2017

^[3] Op. cit.

^[4] Tim Jackson, Prosperity without growth: Economics for a finite planet (Routledge, 2009)

^[5] happyplanetindex.org/

^[6] ‘Maryland Genuine Progress Indicator,’ Maryland state government website

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