Measuring genuine progress in New Zealand

A recent study lays the foundations for a Genuine Progress Indicator to measure the inclusive well-being of New Zealanders. Unlike the widely used, but narrowly focussed Gross Domestic Product, the GPI accounts for social and environmental health as well as economic gains. The GPI is an essential guide to meet the challenges to our survival in the 21st century, reports KAY WEIR.


The acme of economic success for a country is considered to be continually increasing its Gross Domestic Product, year after year. GDP measures economic output and is accepted by economists, financiers and governments worldwide. It is used also as a proxy for the well-being of people and societies. But it fails to account for poverty, unemployment, overwork, unpaid home and community work, and degradation of environmental resources on which economic and human health depends. With continually growing economies worldwide, and the rise of consumerism, the failure to account for the increasingly dangerous consequences of environmental damage, including rising greenhouse gases, means it’s urgent to adopt measures that will account for these concerns. After all, there’s not much point to an economy which has destroyed its resource base.

New measures assessing the costs as well as benefits of human activity have been worked on since the 1970s, and are being developed around the world. The United Nation’s Sustainable Development Goals support well-being for all, and the UN has published major studies on ecosystem services (see other article in this issue).

Towards A Genuine Progress Indicator for New Zealand (1) published in 2013, lays the foundations for a new metric in this country. Authors Vicky Forgie of Massey University, Palmerston North, and Garry McDonald of Market Economics Ltd, Auckland, note at the outset that their research is the beginning of a process to establish and maintain procedures for ongoing data collection that will lead to a comprehensive GPI for New Zealand. The study reviews a huge body of data on social and environmental issues over a significant 36-year period from 1970 to 2006. This includes a turbulent period in NZ history, the radical economic reforms from 1984 onwards, with deregulated financial markets opening society to “market forces,” the sale of state assets, and substantial reduction in the social support structure of the more customary “welfare state” in New Zealand.

Developing the methodology and gathering the data as the basis for the GPI is a massive undertaking, with Forgie working on the project since 2006. Though assigning a monetary value to socio-economic and environmental contributions to our well-being is a complex task, it gives a more realistic picture of socio-environmental economic trends than GDP. One difficulty is that different countries include different measures because there is as yet no international agreement on what should or should not be included. An early achievement for this project was establishing a set of 20 key measures covering the main aspects of the lives, economic activities and environmental consequences for all in New Zealand (Table 1). They are divided into 3 categories: socio-economic benefits, socio-economic costs, and environmental costs.

Table 1. Costs/Benefit categories in the GPI calculation2 Letters A to T link categories to values in Table 2.
Table 2. Annual costs (in $NZ2006billion) for each category for the first year of decades from 1970 to 2000, extracted from Table 1, (1) and their summation as GPI for comparison with GDP. Shading indicates GPI costs.

The authors note a lack of data in some categories. For example, monitoring for air quality and emissions studies has been carried out in New Zealand for only a short time and only in some regions. Some exclusions from the GPI are noted, for example, the costs of gambling, drug abuse, alcoholism, child abuse, and money laundering and fraud. Child poverty and ill health are also not included.

Some key points from the study

Unemployment numbers and income inequality were low in NZ before the reform period from 1970 to 1984, and personal consumption (GDP) was relatively static. Both GDP and GPI were on a similar level, and in the early 1970s GPI actually exceeded GDP. However from 1988 to 1994, there was a step increase in income inequality, the [Gini coefficient rising from 2800 to 3700 (3) — Ed] with uneven impacts on society. At the same time job losses in manufacturing and in the primary sector brought deteriorating circumstances for many in the move to a more “service-oriented” economy. From 1985 to 2006 commuting costs rose by a factor of 2.8, overwork by 1.6 and crime by 1.2. Unemployment costs leapt by a factor of 3 from 1985 to 1990 but have reduced since then.

Figure 1. New Zealand Genuine Progress Indicator compared with Gross Domestic Product for the period 1970 to 2006 (1).

The main conclusion is that throughout the study period (1970–2006) GDP rose from $60 billion to $160 billion, an increase of 260%. However GPI, initially $65 billion, rose only until 1980 before flat-lining to 1996 and rising again to reach $112 billion, an increase of just 70% (Figure 1). The two measures began to diverge substantially during the 1980s. The broad implication of the two curves is that after the early 1980s economic wealth increased a little to 1990 and substantially more after that, but these gains were largely offset by socio-economic and environmental costs. The GPI curve does begin to rise after 1996, but is still falling behind GDP.

Environmental GPI factors

The GPI considers the economy as a subsystem of the invaluable natural environment on which humans are totally reliant for survival. Privatising ecosystem services in the marketplace is inappropriate. But to understand the scale of nature’s contributions to the economy, which are ignored by GDP, the GPI gives an approximate dollar value to natural resources. Society needs to be well-informed to make decisions which affect ecological and human well-being. Estimating monetary values for nature’s services contributes vital information to the knowledge base. For example, the study shows that in the category of soil loss alone the loss is significant, starting with an estimate of $0.1billion in 1970 rising to $4.6 billion in 2006, representing one sixth of all GPI costs.

Ten environmental factors of genuine progress are assessed. The authors note the monetary estimates of environmental costs are conservative. In the study period, NZ’s population increased from 2.87 million to 4.18 million and with the high 260% GDP increase in material economic growth, both contributed to a decline in natural capital per capita. Consequently, the study reports: “drawdown of the nation’s natural capital has occurred to deliver the goods and services we consume and to assimilate the waste we generate with our modern-day life styles.” A summary of some environmental aspects of the GPI study follows.

Soil ecosystems are vital for life and the economy. Costs of losing farmland to urban land-use increased exponentially between 1970 ($22m) and 2006 ($824m). Although expanding cities account for under 20% of the loss, they take a “disproportionate amount of elite soils.” Beyond the cities erosion costs, the biggest component of soil loss, conservatively increased from $0.1 billion in 1970 to $3.7 billion in 2006. “Erosion causes permanent long-term loss of productive capacity as well as external effects not captured by market values, e.g. impacts on landscape quality, siltation of dams and rivers, reduced biodiversity, and reduced water quality. (4) Soil, especially soil with high organic matter content, provides ecosystem services that include improved water storage and release, biodiversity protection, as well as the ability to filter and degrade wastes.

Cars, congestion, health/environmental effects: Post reforms with public transport privatised, and tariff reductions and import licensing regimes dismantled, motor vehicle costs fell and car imports increased substantially.5 More cars on roads increased greenhouse gas emissions and road congestion, and commuting costs also doubled (Table 2 column I). This also led to a significant increase in noise pollution (Table 2 column T). Also particulate emissions rose with many more cars on roads with detrimental health effects. The problems have continued to grow since the end of the study period, as the reforms have led to greater road congestion. Government response has been more funding, for motorway projects in particular. This favoured option of government to deal with congestion is, however, meeting increasing opposition on health and environmental grounds.

Air pollution: Air quality monitoring and emission inventory studies have only been carried out in New Zealand for a short time. With lack of national data, air quality statistics from Auckland and Christchurch were used to estimate air quality trends between 1996 and 2006, as they have kept records for the longest time. PM10 are particulates less than 10 microns in diameter and invisible to the human eye, but being suspended in air they can carry carcinogenic material into the lungs. (6) The Forgie & McDonald study shows these costs peaking in the 1990’s at around $0.6 billion. This is possibly an under-estimate since a study specifically on air pollution in New Zealand (7) calculated the annual cost of air pollution, excluding background effects, at $1.1 billion in 2001. This study covered 67 urban areas included because of size, local activities, and/or monitoring data that showed high levels of air pollution.

Climate Change: Although New Zealand accounts for only 0.15% of the world’s total greenhouse gas emissions, New Zealand’s emissions per person in 2012 were the fifth highest among the 40 developed “Annex 1” countries. (8) The GPI includes costs for New Zealand’s greenhouse gas emissions because of their contribution to the global rise in emissions and both the short and long term consequences for climate and the environment, now firmly established by the Intergovernmental Panel on Climate Change. (9)

Greenhouse gas emissions were costed from the New Zealand Greenhouse Gas Inventory 1990–2006, (10) with a number of earlier sources for the period from 1970 to 1989. Costs were based on a value of NZ$200650 per tonne of carbon dioxide derived from the Stern Review estimate of $US30 per tonne in 2000 for a 450ppm CO2-e stabilisation goal. (11) Climate change costs were highest in the mid-1970s due to lack of sequestration benefits in this period from land-use, land use change and forestry. New forest plantings increased during the 1970s when tax breaks and export incentives encouraged plantings. At the same time removals were large with increases in rough-sawn timber and demand from the pulp and paper industry through government incentives such as the Export Manufacturing Investment Allowance. In the 1970s and 1980s sequestration increased and energy emissions were relatively low, but from 1988 to 2006 emissions increased due to population and economic growth. The contribution to GPI costs in 2006 was $2.7 billion (Table 2).

WATER: Loss of water quality affects drinking water, health, swimming, fish consumption, water for livestock, food processing and tourism. The study notes: “Water degradation is caused by pollutants affecting water quality or from siltation damage. Although water is probably the most monitored aspect of the New Zealand environment, there are no established water standards to assess degradation. A more rigorous estimation method is needed. Loss of water quality increased over time, mainly due to nitrogen leaching and fertiliser use, both increasing from the 1990s as a result of agricultural intensification. For the GPI, separate valuations were done for river water and lake water, then added together.”

River water quality. In the 1970s and ’80s river pollution was recognised but data on sources were limited and costing hard to assess. However the study goes to some lengths to provide an estimate for non-point pollution based on River Environment Classification and a riparian management strategy along with a Farm Environment Award Trust worksheet designed for costing the management of farm waterways. (12) The cost of damage to waterways from point sources was extrapolated from riparian planting costs, leading to an estimate of $4.3 billion for the period from 1970 to 2006. This cost for non-point source pollution was proportioned over this period based on stock numbers and fertiliser use. Point source costs were spread based on Biological Oxygen Demand trends in New Zealand rivers. The study notes loss of water quality costs are very conservative and the approach used does not take into account costs associated with invasive weeds, such as didymo (an alga discovered here in 2004), with clean-up efforts adding to GDP. Logically this work should be recorded as an additional cost in the GPI.

Lake water quality. In New Zealand’s 700 or so shallow lakes, between 10% and 40% are eutrophic, (13) with nutrient concentrations so high and dissolved oxygen levels so low that many fish and aquatic organisms cannot survive. The report gives details of clean-up costs for Lake Taupo and the four worst affected Rotorua lakes, totalling around $300 million over 10–15 years, around $1.2 million per square km. (14) A 1986 study found that other lakes then described as eutrophic had a total surface area of 439 square km, indicating a clean-up cost of another $500 million (15). The total of $800 million was then apportioned over the 1970–2006 period as was done for the river water costs.

WETLANDS provide several ecosystem services, including regulation of water flows, water purification, gas regulation, habitats for birds and fish, and flood protection. The services are provided forever if the wetland remains intact. When wetlands are drained, no account is taken of their services and society needs to counteract loss of wetlands by investing in expensive waste treatment and water purification plants, and developing man-made constructions to control erosion and flooding.

Loss of wetlands was high in 1970, the study notes, an estimated 6800 ha yearly with decreases annually levelling off in 2004. After 2004, wetland reinstatement is assumed to balance drainage. The vast majority of New Zealand wetlands were drained or modified for coastal land reclamation, farmland, flood control, road construction and creation of hydro-electricity reservoirs. Most wetlands losses occurred between 1920 and 1980, but loss was still occurring up to 1997. (16) Wetland conversion was encouraged by government with the Rural Banking and Finance Corporation funding Improvement Loans, Livestock Incentive Schemes and Land Encouragement Loans. (17) The end of government subsidies for flood control and drainage schemes in the mid-1980s stopped wholesale drainage and infilling. Yet even in the 1990s, conversions were taking place, linked with dairying and urbanisation. As loss of ecosystem services from wetlands is permanent once drained, the hectares lost are treated as cumulative over time. Over the study period a total of 120, 800 hectares of wetland were lost. The total value of New Zealand wetlands in 1994 is estimated at $35,053 per hectare yearly, and the total ecosystem value for agricultural land is estimated at $1,583 per hectare yearly. Net loss from converting wetland to agricultural land is estimated at $33,470 (1994) or $42,184 (2006) per hectare yearly. To reflect the increase in the marginal value of wetlands as their scarcity increases, the dollar value per hectare (expressed in constant 2006 dollars) increases by 2% yearly from 1970 onwards.

Conclusion

Despite gaps in knowledge and data, the study clearly shows the GPI to be a far more realistic measure than GDP because as the authors say: “It does not arbitrarily place a zero value on factors essential for long-term well-being.” In accounting for nature and society’s inputs alongside GDP, the failings of GDP become very obvious. GPI and GDP were more or less on a par in the 1970s, in the early years of this study, after which GDP leapt ahead of GPI, when inequality increased in NZ. This helps explain why the more harmonious, equitable society some of us can still recall in the 1970s is sadly different from the society we now have. We may have many more goods and gadgets galore today, but life is now a greater struggle for many people.

To put it bluntly, it’s dangerous to use GDP as a measure of progress when it encourages destruction of vital resources we depend on for survival. The 260% increase in economic production or GDP in NZ from 1970 to 2006 is considered to be a good thing by conventional economists but as the study shows, it does not take into account the resulting degradation of ecosystems. For example, the huge destruction of soil ecosystems between 1970 to 2006 is a threat to food production and food security. According to the UN Food and Agriculture Organisation, it takes 1,000 years to generate three centimetres of topsoil. Can New Zealand afford to lose more soil? Pollution of water resources largely caused through agricultural intensification is a threat to human and environmental health. Huge loss of wetlands means remaining ones should be sacrosanct, as highly valued natural storm buffers. New Zealand’s net emissions of greenhouse gases rose by 42% between 1990 and 2013, according to figures from Ministry for the Environment’s April 2015 inventory. Our continually rising emissions are adding to climate instability with ongoing costly problems: storm damage, drought, and flood. Sea-level rise, and very legitimate climate refugees from Pacific Islands are on the horizon.

It’s very important that work continues on a Genuine Progress Indicator for NZ. Funding for the project has run out but more must be found. The GPI calculation framework can be used to drive data improvement efforts, as the authors say. They recommend a database of information sources be established for the various socio-economic and environmental factors, as well as regularly collected data and development of regional GPIs, perhaps supported by statistical sources from Statistics NZ. Since 2006 other useful studies have been published that would feed important information into the GPI. A recent example is the report NZ Dairy Farming: Milking NZ for all it’s Worth, (18) which concludes that a conservative cost of remediating environmental damage of intensive dairy farming in New Zealand today is between $2 and $15 billion yearly, while the contribution of dairying to GDP in 2010 was $5 billion.

A national discussion on the GPI and what could be included in its measures is suggested. Environmentalists and social justice advocates, such as the Living Wage and Child Poverty groups could be keen to contribute. The work to construct and maintain a GPI in NZ and everywhere is fundamental, accounting for what’s most important in life and awakening society to the ecocidal trajectory of GDP. GDP may be an icon of success and respectability, but it’s now proven to be unsound.

In our modern times when technology has been carefully developed that allows people to fly to the Moon, it’s ironic that here on Earth our economic system is based on ignoring the bio-physical realities of our complex, inter-related life support systems. It certainly wouldn’t do for scientists to ignore lack of gravity in outer space, where space suits and much more is required for humans to survive in that naturally unliveable habitat for humans. So it’s more than a little bizarre that the economic system continues to ignore our dependence on the integrity of soil, water, air, and all the magnificent life-sustaining ecosystems of planet Earth which have evolved over billions of years. As years go by and our economic system continues liquidating ecosystems, the survival of life and people is at stake on this glorious, one and only life-sustaining planet Earth. Supporting development of the GPI, and its eventual replacement of GDP, is a powerful and practical way to help bring an essential change in economic direction and a more hopeful future for life on Earth.

Kay Weir is the founding editor of Pacific Ecologist, previously editor of Pacific World, she has worked full time on sustainability issues since 1994.

References

1 Forgie, VE, McDonald GW, 2013, Towards A Genuine Progress Indicator for New Zealand In Dymond JR ed. Ecosystem services in New Zealand — conditions and trends. Manaaki Whenua Press, Lincoln, New Zealand.

2 From Forgie, VE, McDonald, GW, 2013, Op.cit., Figure 1.

3 www.nzchildren.co.nz/income_inequality.php

4 Dymond J, Betts H, Schierlitz CS 2010. An erosion model for evaluating land-use scenarios in New Zealand. Environmental Modelling and Software 25: 289–298.

5 New Zealand Institute of Economic Research 1998. Parallel importing: a theoretical and empirical investigation. Report to Ministry of Commerce. Wellington, NZIER

6 Auckland Regional Council 2006. Auckland air emissions inventory 2004. Auckland Regional Council.

7 Fisher G, Kjellstrom T, Kingham S, Hales S, Shrestha R, Sturman A, Durand M 2007. Health and air pollution in New Zealand. Wellington, Health Research Council of New Zealand, Ministry for the Environment, Ministry of Transport.

8 New Zealand’s Greenhouse Gas Inventory & Net Position Report 1990–2012, Ministry for the Environment. www.mfe.govt.nz/sites/default/files/media/Climate%20Change/ghg-inventory-2014-snapshot.pdf

9 IPCC AR5 Synthesis Report 2014 www.ipcc.ch/report/ar5/syr/

10 Ministry for the Environment, 2008. New Zealand’s Greenhouse Gas Inventory 1990–2006: An overview. Wellington, Ministry for the Environment. www.mfe.govt.nz.

11 Stern N 2006. Stern Review: The economics of climate change. HM Treasury. mudancasclimaticas.cptec.inpe.br/~rmclima/pdfs/destaques/sternreview_report_complete.pdf

12 Farm Environment Award Trust 2004. Work out the cost of managing waterways on your farm. www.waikatoregion.govt.nz/PageFiles/984/fea1.pdf

13 Ministry for the Environment, 1997. The state of New Zealand’s environment. Wellington, Ministry for the Environment.

14 Environment Waikato 2003. Protecting Lake Taupo — A long term strategic partnership. Hamilton. www.ew.govt.nz/policyandplans/taupo/ documents/index3.pdf Environment Bay of Plenty 2005. Govt help needed to fund $170m Rotorua lakes costs.

15 Livingston ME, Biggs BJ, Gifford JS 1986. Inventory of New Zealand lakes: Part I North Island and Part II South Island. Water and Soil Miscellaneous Publication 81. Wellington, Ministry of Works, Water and Soil Directorate.

16 Ministry for the Environment, 1997. The state of New Zealand’s environment. Wellington, Ministry for the Environment.

17 National Water and Soil Conservation Organisation, 1983. Wetlands: A diminishing resource (A report for the Environmental Council), in: Water and Soil Division, Ministry of Works & Development (Ed.), Water and Soil Miscellaneous Publications No. 58, Wellington.

18 Foote KJ, Joy KM, Death, RG, 2015. New Zealand Dairy Farming: Milking Our Environment for All it’s Worth. Environmental Management DOI 10.1007/s00267–015–0517-x