YES/ “The current indicator is not ‘sincere'”
By Patrice Geoffron, Professor of Economics at Paris-Dauphine University and Director of the Center for Geopolitics of Energy and Raw Materials
Obviously, we have a problem with the GDP, which is not a “sincere” indicator, masking costs that will reduce the wealth creation that it is supposed to reflect. This observation is obvious when looking at climate change, the effects of which affect the economy: massive fires, recurrent droughts, weakening of habitats… Certainly, when the climate is a global problem, integrating this dimension into the measurement of national wealth may seem like a dead end (since excesses depend above all on choices made by “the rest of the world”). This classic argument is simply false: decarbonizing reduces air pollution and its health costs, as well as sensitivity to energy shocks.
Very concretely, if France had been more decarbonized, the resilience of its economy would have been better in the face of the crises experienced in recent years, with a “whatever the cost” increasing the public debt by hundreds of billions of euros. Can we imagine a green GDP that would faithfully translate the creation of wealth, while avoiding masking the accumulation of an environmental debt? The UN tried to promote this approach as early as 1993, without much success, for lack of being able to give a monetary value to natural capital. The indispensable overshoot of the GDP requires rather the construction of dashboards which integrate physical measurements of the natural capital to limit its destruction (for example, by restricting the artificialization of the soil). Exceeding the GDP therefore presupposes mourning a “golden ratio” which, on its own, would reflect the state of economic health of a nation. First application: assessing the debt as a percentage of GDP simply does not make sense, as this indicator poorly reflects a State’s ability to repay it.
NO/ “GDP remains relevant for steering public finances”
By Philippe Zaouati, Managing Director of Mirova, a management company specializing in sustainable investing
Alternatives to GDP have existed for a long time, such as the Human Development Index (HDI). In 2008, a commission chaired by the Nobel Prize in economics Joseph Stiglitz worked on a new approach to measuring wealth. Jacques Attali had proposed for his part an index of the positive economy. The problem is: what do we do with these measures? If it is only a question of thinking about the best tool in theory, it remains a debate among intellectuals. The challenge is to change public decisions. Moreover, the GDP is not useless as an indicator. It is still the most relevant for managing public finances.
All over the world, tax revenues (VAT, corporation tax, etc.) are correlated to GDP, the financing of the economy and in particular of the energy transition as well. On the other hand, the level of happiness and prosperity of populations has not been indexed to GDP for a long time. In democracies, voters vote according to their state of satisfaction more than according to the rate of growth, which explains the success of populist parties. Finally, GDP growth always rhymes with going beyond planetary limits. The “decoupling”, which the proponents of green growth hope for, is still not very visible. In summary, the solution is not to invent a new miracle indicator, but to take into account the level of happiness of populations in a context of limited resources. Whatever the indicators, public policies must navigate between these two objectives.