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June 19, 2012
Replacement for GDP Proposed at Rio+20
    by Robert Kropp

The Inclusive Wealth Index would provide a definition of wealth that encourages sustainable economic and social development.

What gets measured gets managed, Peter Drucker once said. To phrase it differently, "What we measure affects what we do," according to the Report by the Commission on the Measurement of Economic Performance and Social Progress. "Statistical indicators are important for designing and assessing policies aiming at advancing the progress of society, as well as for assessing and influencing the functioning of economic markets."

However, that report continued, "If our measurements are flawed, decisions may be distorted. Choices between promoting GDP (Gross Domestic Product) and protecting the environment may be false choices, once environmental degradation is appropriately included in our measurement of economic performance."

In other words, to frame policies and the notion of progress on the illusion that economic growth based on GDP can be sustainable is to invite a world much like the one we have today. Externalization of environmental liabilities and severe economic inequality are the results of our fixation on GDP.

There have been many efforts to conceptualize a measurement of progress that accounts for environmental and social factors. This week, as the Rio+20 Conference on sustainable development gets underway, another indicator aimed at encouraging sustainability—the Inclusive Wealth Index (IWI)—has been proposed.

Developed by the United Nations University's International Human Dimensions Program on Global Environmental Change (UNU-IHDP) and the United Nations Environment Program (UNEP), the IWI was unveiled in a report entitled the Inc lusive Wealth Report 2012 (IWR). "A more inclusive definition of wealth that will secure a legacy for future generations is urgently needed in the discussion of sustainable economic and social development," it states.

The report measures the inclusive wealth of 20 nations, which account for 56% of the world's population and 72% of world GDP. To cite an example, the GDP of China grew by 422% between 1990 and 2008. However, its IWI increased by only 45%, largely because of a decline of 17% in natural resources.

In fact, of the 20 countries analyzed in the report, only Japan showed an increase in natural resources, because of increases in forest cover.

When population growth is factored, "almost all countries analyzed experienced significantly lower growth," according to the report.

"Rio+20 is an opportunity to call time on Gross Domestic Product as a measure of prosperity in the 21st century, and as a barometer of an inclusive Green Economy transition," said UNEP Executive Director Achim Steiner. "IWI is among a range of potential replacements which world leaders can consider as a way of bringing great precision to assessing wealth generation in order to realize sustainable development and eradicate poverty."


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