At International Monetary Fund and World Bank meetings in Washington this week, there will be much debate about slowing global growth, the impact of the US-China trade war, the role of central banks in preventing a global recession, the risk of disruption to oil markets, and much more. What you won’t hear, beyond a few platitudes, is a detailed plan for combating climate change and slowing the depletion of the earth’s resources.
This pattern of neglect won’t change unless we do a much better job of linking the climate to economic progress. That in turn will require changing the way we measure development.
The world still looks at human progress in almost exclusively economic terms. Countries view growth in their stock markets and their GDP per capita with chest-thumping pride. Almost three decades ago, the United Nations Development Programme tried to produce a more nuanced measure of progress by including life expectancy and education along with income in its Human Development Index (HDI). While a welcome innovation, the original HDI is still relatively crude, failing to account for such things as sustainability and inequality.
How much those omissions can matter became clear recently, after the UN added an inequality-adjusted index (IHDI) to its 2018 Human Development Report. Including inequality as a factor dramatically altered countries’ rankings. The US, for instance, fell from 13th on the original index to 25th on the adjusted one. By contrast, Finland rose from 15th to fifth place.
Accounting for climate damage would likely have an even bigger impact. Countries that rank high on the human development index also use more carbon and deplete more natural resources than those below them. In other words, our metrics favour unsustainable, environmentally damaging growth. (Using more energy also produces a higher ranking, but only up to roughly 100 gigajoules per person; beyond that, countries are wasting energy in inefficient systems, not improving human development.)
The same applies to the relationship between the HDI rankings and a measure known as an “ecological footprint.” Up to the middle of the list, where around 140 mostly low- and middle-income countries sit, the footprint is relatively small, less than 2 global hectares per capita (a measure of the world’s global ecological capacity per person). That number rises sharply among countries with higher development levels, however, increasing to as much as 8-10 global hectares.
If we want leaders to consider how badly their policies are damaging the environment, we need a new development index, one that takes account of various environmental variables such as CO2 emissions per capita, SO2 emissions (a measure of air quality), groundwater extraction and share of renewable energy. Doing so would drop the rankings of countries from the US to Kuwait, Saudi Arabia and Australia by over 15 spots apiece. If the ecological footprints of countries were considered, the rankings of Canada, Estonia and, surprisingly, Finland in addition to those countries would drop by over 20 places.
Other attempts to produce a more sophisticated measure of development haven’t gotten traction. While the UN agreed to pursue its Sustainable Development Goals in 2015, the system— which includes 17 goals and 169 indicators—is too complicated to measure succinctly. The Happy Planet Index hasn’t gained wide acceptability because it mixes observed data on things like life expectancy and inequality with survey results measuring well-being. (Its rankings show Costa Rica and Vietnam in the top two positions, with New Zealand the only fully industrialised country among the top 20; the US ranks 105th.)
A Social Progress Index, inspired by the writings of Nobel-winning economists such as Amartya Sen, Joseph Stiglitz and Douglas North, produces rankings that don’t differ all that much from the HDI. The World Bank has introduced the concept of adjusted net savings to measure changes to wealth (a stock) rather than GDP (a flow), while accounting for additions or depletion of natural capital. But, the measure doesn’t adequately address the huge stock of accumulating CO2, SO2 or methane in the atmosphere, the country-sized swarms of plastic now floating in the oceans or the melting of glaciers—all things that show we may be at an environmental tipping point.
Over the last 30 years, the shift from looking just at GDP to judging countries on health and education outcomes has produced real progress, as the world has improved its human development index by over 20% since 1990 and, more meaningfully, in the least developed countries by over 50%. If we want real action on climate, we now need to include damage to the environment and depletion of natural resources as factors in measuring development. Otherwise all these fine-sounding speeches are just more hot air.
(This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.)