In case you missed it Vol 25, No. 01 - January 2021

Economic statistics alone paint an inadequate picture of development, experts warn

Leading experts, speaking at an event hosted by the UN Department of Economic and Social Affairs, the Bennett Institute for Public Policy at the University of Cambridge and the Federal Ministry for Economic Cooperation and Development of Germany, warned that present economic statistics omit critical information about the state of ecosystems and societies that underpin the economy.

“After the Second World war, we assumed that if we got the economics right, everything else would fall into place,” said UN Chief Economist Elliott Harris. “We’ve seen that that is simply not true. The measure of economic prosperity that we’ve been using doesn’t allow us to understand how we’re doing on the social and environmental dimensions.”

Until now, the economy and the environment have been regarded as being in different spheres, said Diane Coyle, Bennett Professor of Public Policy at the University of Cambridge. But the imperative for sustainability “is that you have to think about the future.  We have to embed sustainability in decision-making.”

The experts warn that while a statistic such as GDP does a good job of showing the value of produced goods and services, it does not show the true value of assets that will be handed to the next generation. GDP does not reflect the degradation of natural capital, such as the deterioration of air quality or the loss of a forest. Economists call these unaccounted for spillover effects externalities.

It is estimated that human activity has severely altered 75 per cent of the planet’s terrestrial – and 66 per cent of its marine environment, leading to a 47 per cent decrease in ecosystem extent and condition indicators, compared to their natural baselines.

“Externalities are so perfidious because they are hidden,” said UN Chief Economist Elliott Harris. “This system exposes them to clear scrutiny.  It is a major step in the right direction.”

“Policy makers are used to the well-established accounts behind GDP which focus on flows of economic activity rather than stocks or assets,” said Sir Partha Dasgupta, Professor at Cambridge University. “It is absolutely essential to have accounts for natural capital assets. The entire future is reflected in the assets you’ve got.”

Already, more than 30 countries have tried this new system. Most recently, Brazil, China, India, Mexico and South Africa have tested this new method of accounting under the EU‑funded project Natural Capital Accounting and Valuation of Ecosystem Services.

For further information, see:

How Natural Capital Accounting Contributes to Integrated Policies for Sustainability and associated reports (United Nations, 2020); and

Building Forward: Investments in a Resilient Recovery (Agarwala, et al 2020).

The Dasgupta Review on the Economics of Biodiversity (HM Treasury, 2020).

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