GDP bad for the environment?

18 Jun 2021

This our attempt to do a “The Big Short” version of “GDP + the Environment” (sadly, there’s no Brad Pitt, Ryan Gosling, or Margot Robbie I’m afraid).

So, you may know the basics of what GDP is, but for those who need a quick explanation: GDP stands for Gross Domestic Product. It is essentially a way of valuing a country’s worth. GDP tells us how much a country has ‘produced’ in any given amount of time. Its normally measured annually or quarterly. Government always wants to “grow” GDP as it means our economy is “growing” because we are producing and selling things.

So, that seems fine right? What’s the problem with measuring a country’s value? Well, its WHAT it values that creates the issue.

GDP only looks at production, and to produce things we must use certain items – namely natural resources. So, to grow in terms of GDP we must keep consuming more and more natural resources.

And the worst part – the system of measurement doesn’t account for all of the bad that comes from this. So, if we produce power by burning coal – that’s a tick on the growth score and there’s no-one saying well actually that’s not growth, that’s damage.

GDP also doesn’t value anything that is already in the economy that gets repurposed or reused – it only values NEW production.

So, it hides all the problems and failures in our system and allows government and business to pursue economic “growth” at any cost.

We need a new system which also accounts for the impact on the environment and society – only then can we declare any form of “growth” a success. In essence GDP = production and consumption, at any cost, and we can all agree that’s not a great thing.

The good thing – economists are all very well aware of this issue and there are already different systems being proposed instead of GDP. In New Zealand for instance, the amazing Jacinda Arden has  (following in the footsteps of Bhutan) adopted the Happiness Index instead of GDP.

So, what’s the solution? Moving to a circular economy.

A circular economy is about moving away from the traditional business model of “take-make-waste”. A circular economy, by design, will benefit business, society and the environment all at once. However, it takes a long-term view to see the value of this new model, and lots of businesses are very focused on short term returns – especially if they are being publicly traded.

A great resource to learn more about Circular Economies is the Ellen MacArthur Foundation.

Or to understand more about the issues of unrestrained GDP and how we can look align economics with what the planet is capabale of supporting, we'd suggest reading about "Doughnut Economics" by the inspiring Kate Raworth.