Download GDP and Beyond

GDP and Beyond: Towards
New Measures of
Sustainability Based on
Catholic Social Thought
Ricardo Aguado
Jabier Martínez
Economics Department. Deusto Business School (Bilbao campus)
University of Deusto
IAJBS 2011 World Forum.
Lima (Perú), July 2011
Outline
Introduction
 Main Objectives
 Catholic Social Thought, GDP per capita
and sustainability
 GDP and complementary indicators
 Methodology
 Results
 Conclusions

Introduction
GDP is currently the main indicator to measure the success
and the evolution of a given economy
 The generally accepted idea behind this kind of comparison
is that bigger GDPs per capita mean higher levels of
development, wellbeing and economic progress

BUT…

GDP is a poor instrument to measure social wellbeing,
because it ignores wealth distribution and variation,
environmental damage, the quality of social relationships,
health and economic and personal security (Martínez and
Santacoloma, 2005), Fleaurbay (2009) and Catholic Social
Thought
Introduction

Along with wellbeing, the concept of sustainability has also
been linked to GDP in recent years

sustainable development as “development that meets the needs
of the present generations without compromising the ability of the
future generations to meet their own needs” (WCED, 1987)

3 reinforcing pillars of sustainable development: economic
development, social development and environmental
protection (UN, 2005)

Millennium Development Goals (UN, 2010)

Catholic Social Thought (Papal encyclicals)
Main Objectives

The main objective of this paper is to analyze the
suitability of using GDP as a proper indicator for
sustainability in a given national economy, identifying
the main features that a proper measure of sustainability
(composed by a set of indicators) should incorporate
according to economic literature and Catholic Social
Thought

A second and final objective is to measure the efficiency
of a given economy in terms of achieving sustainable
development, taking into account the 3 dimensions of
sustainability (social, environmental and economic),
building a taxonomy of national economies.
Catholic Social Thought,
GDP per capita and sustainability

Catholic Social Thought (CST):
◦ economic and social development
◦ taking into account environmental sustainability

CST and the 3 dimensions of sustainability:
◦ Rerum Novarum (Leo XIII) (1891): poverty of the masses
◦ Quadragesimo Anno (Pius XI)(1931)
◦ Pacem in terris (John XXIII)(1963): peace as the base of
any kind of social, economic or political system
◦ Populorum progressio (Paul VI) (1967)
◦ Laborens exercens, Sollicitudo rei socialis and Centessimus
annus (John Paul II) (1981, 1987, 1991): the promotion of
justice
Catholic Social Thought,
GDP per capita and sustainability
◦ Caritas in Veritate (Benedict XVI)(2009): integral human
development.
 Human development, inequality, poverty, justice and economic
development.
 Long term sustainability introduced in the economic, social, political,
cultural and environmental fields
◦ Multidimensional idea of sustainability:
 Canadian Conference of Catholic Bishops
 Catholic Social Teaching
 Society of Jesus
 CG 34: Global village. Economic, social, cultural and environmental
sustainability
 CG 35: Globalization in solidarity, globalization without marginalization
Catholic Social Thought,
GDP per capita and sustainability

The concept of sustainability is pointing out that our planet
has physical limits to support human activity

Sustainability requires the consideration of social wellbeing
from an intergenerational perspective, considering
present and future generations

Current wellbeing is based on economic resources, such
as income, and also on non-economic aspects, such as the
social, natural and political environments

Sustainability is linked to the maintenance of a given level
of current wellbeing over time. And this depends on
whether the stocks of capital that matter for people´s life
(natural, physical, human and social capital) are passed on to
future generations (CMEPSP, 2009).
Catholic Social Thought,
GDP per capita and sustainability

An indicator for sustainability should reflect the quantity
and quality of that stock and its fluctuations.

A sustainable economy requires the conservation (or
the increase) of that stock.

GDP per capita cannot be a measure of sustainability
because it may increase while the stock of capital is
decreasing.

This situation could put in danger future economic
growth and future wellbeing.

Global dimension of sustainability (CMEPSP, 2009)
GDP and complementary indicators

Economic development, social wellbeing and all
dimensions of sustainability (mainly economic, social and
environmental) are connected

Weaknesses of GDP as a sustainability measure:
◦ It does not take into account inter-generational relations
◦ It does not consider wealth distribution and social
marginalization
◦ It does not measure the remaining stock of minerals and raw
materials
◦ It does not take into account the environmental damage caused
by economic growth

GDP should be complemented with other indicators
that could give information about all relevant
dimensions of sustainability not considered by GDP
GDP and complementary indicators
Type
Input
Variable
Description
measure
Unit
Year
Education
Tertiary level educational attainment for age
group 24-65 (as a percentaje of the
population in the corresponding age group)
1-%
Percentage
2000
Unemployment
Harmonized Unemployment Rate (HUR)
%
Percentage
2005
Waste recycling rate
Waste Recycling Rate, papers and cupboards
(% of apparent consumption)
1-%
Percentage
2005
GDPpc
GDP per capita
US $/Per head
US dolars per
head
2005
CO2 emissions per
unit of GDP
CO2 emissions from fuel combustion per
unit of GDP
1 - (tonnes /
000,000 US $)
tones / million
US $
2005
Inequality
Gini coefficient (after taxes)
1 - Gini coefficient
[0-1]
mid2000
Poverty
Proportion of households with children living
on an equivalent income below 50% of the
national median income for the year 2005
1-%
Percentage
mid2000
Output
Methodology
Methodology

Our objective will be to measure the efficiency of a
given economy in terms of achieving sustainable
development

Data Envelopment analysis
output
D
C
efficient frontier
B
A
E
F
input
In this figure, A, B, C, D are efficient DMU .
On the contrary, E and F are relatively inefficient units.
It can be observed that Unit C achieves greater output
level with the same input level and alternatively unit B
achieve the same level of output with smaller level of
input.
Methodology
Efficiency Models
Input
Output
Education
Unemploy
ment
Waste
recycling
rate
GDPpc
CO2 emis.
per unit
GDP
Basic Model
m
m
m
m
m
Production
oriented efficiency
m
m
m
m
Environmental
friendly efficiency
m
m
m
Equality oriented
efficiency
m
m
m
Against
poverty
oriented efficiency
m
m
m
DEA MODEL
Inequali
Poverty
ty
m
m
m
m
m
Results
DMU
Basic Model
Production
oriented
efficiency
Environmental
friendly
efficiency
Equality
oriented
efficiency
Against
poverty
oriented
efficiency
AUS
Australia
0.93
0.76
0.48
0.92
0.91
AUT
Austria
0.89
0.72
0.74
0.88
0.89
BEL
Belgium
0.90
0.71
0.74
0.90
0.88
CAN
Canada
1.00
0.86
0.62
1.00
1.00
CZE
Czech Republic
0.76
0.36
0.35
0.76
0.73
DNK
Denmark
1.00
0.74
0.86
1.00
0.99
FIN
Finland
1.00
0.77
0.79
0.97
1.00
FRA
France
0.86
0.60
0.84
0.83
0.84
DEU
Germany
0.88
0.71
0.74
0.88
0.85
GRC
Greece
0.75
0.45
0.63
0.73
0.74
HUN
Hungary
0.78
0.30
0.64
0.77
0.78
ISL
Iceland
1.00
1.00
1.00
1.00
1.00
IRL
Ireland
1.00
1.00
0.98
1.00
1.00
ITA
Italy
0.69
0.51
0.68
0.67
0.68
JPN
Japan
0.99
0.74
0.87
0.99
0.97
KOR
Korea
1.00
0.63
0.71
1.00
1.00
MEX
Mexico
0.74
0.26
0.72
0.64
0.74
NLD
Netherlands
0.95
0.78
0.75
0.95
0.90
NZL
New Zealand
0.99
0.71
0.87
0.98
0.99
NOR
Norway
1.00
1.00
1.00
1.00
1.00
POL
Poland
0.63
0.24
0.36
0.63
0.63
PRT
Portugal
0.68
0.35
0.64
0.63
0.67
SVK
Slovak Republic
0.73
0.28
0.47
0.73
0.70
ESP
Spain
0.79
0.53
0.73
0.79
0.76
SWE
Sweden
1.00
0.88
1.00
1.00
1.00
CHE
Switzerland
1.00
0.92
1.00
1.00
1.00
TUR
Turkey
0.66
0.20
0.66
0.57
0.59
GBR
USA
United Kingdom
United States
0.91
1.00
0.70
1.00
0.83
0.67
0.85
0.91
0.91
0.92
Results
Correlation between models
Correlation coef.
Basic Model
Production
oriented
efficiency
Environmental
friendly
efficiency
Equality
oriented
efficiency
Against poverty
oriented
efficiency
Basic Model
Production
oriented
efficiency
Environmental
friendly
efficiency
Equality
oriented
efficiency
Against poverty
oriented
efficiency
1.00
0.91
0.66
0.98
0.99
1.00
0.69
0.89
0.89
1.00
0.62
0.68
1.00
0.98
1.00
Results
Clusters’ characterization
Environmental
friendly efficiency
Equality oriented
efficiency
Average cluster 1
0.55
0.96
Average cluster 2
0.76
0.91
Average cluster 3
0.39
0.71
Average cluster 4
0.67
0.69
Average cluster 5
0.95
1.00
0.74
0.86
cluster
Overall average
Results
NOR
1
CHE
SWE
ISL
0.9
NZL JPN
DNK
FRA GBR
Environmental frienly efficiency
IRL
0.8
FIN
AUT
ESP
MEX
0.7
ITA
TUR
DEU
BEL
NLD
KOR
USA
PRT
GRC
HUN
CAN
0.6
0.5
AUS
SVK
0.4
POL
CZE
0.3
0.3
0.4
0.5
0.6
0.7
Equality oriented efficiency
0.8
0.9
1
Conclusions (I)

Sustainability has 3 major dimensions (economic, social and
environmental), and GDP is not taking into account the last
two ones

In the second part of the paper we select input and output
indicators for the three dimensions of sustainability and we
measure the efficiency of 29 OECD countries in achieving
sustainable development using five different DEA models

In cluster 5 we have the leading countries in terms of
environmental care and equality, whereas in cluster 3 we have
countries with very weak positions in both dimensions.
Clusters 1,2, and 4 are in intermediate positions

These results show that it is possible to achieve at the same
time environmental care and social equality: it is not
necessary to choose between them
Conclusions (II)

Catholic Social Thought is in line with a comprehensive
understanding of sustainability, acknowledging the three
aforementioned dimensions of sustainability: social,
environmental and economic

GC34, GC35 and the Papal encyclicals analyzed in this
paper demand a fair distribution of wealth at the global level,
a global governance over environmental issues and economic
growth in order to ameliorate the situation of poor persons

CST principles (and many economists) are asking for a fully
sustainable development: economic growth that takes
care of the people and of the environment, so that future
generations would live in a more just, prosperous and
greener world