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What does the Genuine Progress Indicator GPI mean?

What is Genuine Progress Indicator GPI?

The Genuine Progress Indicator measures the economic performance of countries. While the gross domestic product (GDP) as an economic indicator ignores the social and ecological effects of economic development, the Genuine Progress Indicator (GPI) also takes into account their open and hidden costs, such as environmental damage, crime or declining health of the population.

The GPI is based on the Index of Sustainable Economic Welfare developed in 1989, whose abbreviation ISEW comes from the English "Index of Sustainable Economic Welfare". From the mid-1990s, the GPI established itself as a more practical successor. In 2006, the GPI, in German the "real progress indicator", was revised again and adapted to current developments.

GPI draws a net balance

The GPI is based on estimates of private consumption weighted by an index of income inequality. The social costs of inequality are also taken into account. In contrast to GDP, the progress indicator also values ​​the benefits of unpaid volunteer work, parenthood and housework, as well as public infrastructure. Purely defensive expenses, for example in connection with environmental pollution, traffic accidents, loss of leisure time, but also through the wear and tear or destruction of natural capital, are deducted. The GPI thus draws a net balance of costs and benefits for the local economy.

GPI: Growth does not equal prosperity

Historically, the GPI is based on the "limit hypothesis" of Manfred Max-Neef. This states that above a certain threshold value in a macroeconomic system, the benefit of economic growth is lost or reduced by the damage it causes - an approach that also supports the demands and theses of the degrowth-Movement supports. This criticizes the concept of unlimited growth and advocates a post-growth society.
The economist is considered to be the inventor of the “real progress indicator”. Phillip Lawn. He developed the theoretical framework for the cost/benefit calculation of economic activities for the GPI.

Status quo GPI

In the meantime, the GPI of some countries worldwide has been calculated. The comparison with GDP is particularly interesting: GDP for the USA, for example, suggests that prosperity doubled between 1950 and 1995. However, the GPI for the period 1975 to 1995 shows a sharp decline of 45 percent in the USA.

Austria, Germany, Italy, the Netherlands, Sweden and Australia are also showing growth in prosperity according to the GPI calculation, but this is much weaker compared to GDP development. The Impulse Center for Sustainable Economics (ImzuWi) sees the importance of indices for evaluating economic activities, such as the GPI, as follows: “The GDP is still firmly in the saddle. The attempts, some of which are decades old, to depict the dependency on and the effects of our economy on people and nature more realistically have lost little of their radicality and urgency to this day. (...) A mere replacement of the GDP by another key indicator will not be the solution. Rather, we see it this way: RIP BIP. Long live economic diversity!”

Photo / Video: Shutterstock.

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