Green GDP and China
GDP (Gross Domestic Product) as a leading economic statistic is obsolete and misleading, Nobel Economic laureate Joseph Stiglitz said in his Fortune magazine column.
Not the first one to champion the green GDP concept, Stiglitz’s advocacy adds more weight on the debate on sustainable development. An expert on economy globalization, Stiglitz voiced his concern from a global angle. Green GDP is particularly important to China, where the government is sacrificing the environment to bulwark a high-speed economy, which is treated as the premise of a stable society and the justification of the communist ruling.
Sensing the danger of the unsustainable development, conscientious economists and socialists have been appealing for a healthy economic growth. Even the central government realized the importance of an environment-friendly economy. The National Bureau of Environment Protection released China Green GDP Accounting Studying Report a month ago. The report said in 2004, pollution cost the nation 511.8 billion yuan, accounting to 3.05 percent of that year’s GDP. The pollution cost is nearly half of the GDP of Zhejiang Province, one of the richest provinces in China.
We all know that without considering the environment impact, GDP is composed of consumption, investment and net export. If we include “environment consumption” into the accounting of GDP, 511.8 billion will be deducted from 2004’s GDP, which is 13.65 trillion.
The central government is intent to establish a green GDP framework in the nation in 3 to 6 years. Considering the resistance from local officials, who routinely take local economy as the ground to higher level positions, let’s estimate the time to be at least 10 years. By that time, there might be nothing left for the country to squander.
As soon as the economy slows down, there will be more unemployment and more instability. This is what keeps the central officials awake at night. This also worries the rest of the world.
Good numbers gone bad
Why relying on GDP as a leading economic gauge can lead to poor decision-making.
By Joseph Stiglitz
(Fortune Magazine) — Gross domestic product, the leading economic measurement, is outdated and misleading.
Long the standard scorecard for any national economy, GDP has become deficient as a measure of long-term economic health in our resource-driven, globalizing world.
Think about it. It’s like grading a corporation based on one day’s cash flow and forgetting to depreciate assets and other costs.
In today’s business reality, where intangible assets have become increasingly important, cash flow can be a particularly bad indicator of a company’s value. A startup can have no cash flow and yet be creating a software program of immense value. A company with positive cash flow can be running itself into the ground as its capital depreciates. Economies are no different (more).
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