The intention behind the NWI
In economy, the gross national product (GDP) is of the most important indicators. It is a measure for the creation of economic value through market transactions during a specific geographic region and during a specific year. Since the time of the „economic miracle“ in Germany, it is often used as an expression for welfare and the quality of live, although the scientists who invented the GDP never intended to do so. However, in the meantime the weaknesses of GDP get increasingly clearer; there is the danger that it is but an illusionary wealth that GDP is suggesting.
The National Welfare Index (NWI) is an attempt to find a remedy by an alternative and additional way of accounting that takes up the following critical points:
- Mass production and consumption can lead to negative external effects in the environment. They can be attenuated or at least partially repaired. The corresponding expenditures increase GDP although this is just an attempt to re-establish the status that had been existing bevor the environment had been harmed. This part of economic growth can be seen as „idle“; in any case, it does not contribute to a real increase of welfare.
- In addition to that, many damages of the environment still remain – to many fertilizers and biocides in the ground, vanished animal or plant species, pollutants in sediments and damages to forests – nothing is of any importance to GDP, but will cause considerable detriments to society.
- The exploitation of non renewable resources and the consumption of natural capital like topsoil, fresh water, near-natural areas are not considered in GDP, too.
- On the other side, to avoid damages and costs in the future can contribute to reduce GDP, for example by not undertaking risky economic activities today, because the long term positive effects of self-limitation are not depicted in the usual national accounts. In traditional welfare measures it is therefore possible that an ecologically oriented economy is systematically underrated, especially if saving and the renunciation of a throw-away mentality are an important focal point.
- In addition to that, the distribution of income is not taken up in GDP. In any given year, GDP does not tell whether there is a just distribution or whether only a very small part of the population benefits from an increase of GDP.
- Because the GDP looks only at the creation of value within markets, there are major activities of welfare creation that remain unconsidered – especially household work, and all types of voluntary work. These have to be included into a welfare measure.
These shortages of GDP lead to the following conclusions:
- Economic growth, measured as the growth rate of GDP, places a somehow out-dated statistical phantom into the center of public attention, that sends off wrong signals for the orientation of economic policy.
It is reasonable to put new concepts like the NWI to the foreground, especially if they can be connected to the system of national accounts. The developments of GDP and NWI can be compared – leading to a new perspective of structuring growth and welfare in a society.