November 30, 2007


GPI, GNH, GCH: True Indicators of Progress

Keywords: Newsletter 

JFS Newsletter No.63 (November 2007)

Gross domestic product (GDP) is often used as an indicator to measure progress in the economy and society. Everyone usually welcomes GDP growth, and when we think it's not growing enough, we try to find effective measures to raise it. But is it really better when GDP continues to get larger and larger? Can GDP really indicate true progress, including happiness?

GDP goes up when money flows for whatever reason. It adds up any economic activity, that is, the total market value of all final goods and services produced, regardless of whether or not they contribute to people's happiness. It doesn't take into account the aim for which the money flows. In other words, besides goods and services we want, the more traffic accidents, environmental damage, or domestic violence we have, the higher GDP rises. That is because, as part of measuring national economic growth, the GDP also counts up the medical cost for those who suffer, for example, from asthma due to soot and smoke, and the overtime work hours of police devoted to investigating heinous crimes.

We shouldn't be simply delighted when GDP increases. We should very carefully examine the details of any increase in GDP.

Let's think about other kinds of activities not accounted for by GDP, but they create happiness, such as housekeeping, child rearing, and so on. When parents read their children some picture books, for example, everyone would agree that they're making their children happy, but since there is no money flow, their activities don't influence GDP. And no matter how hard someone works as a volunteer, the work doesn't affect GDP either, unless a financial transaction occurs.

Because GDP includes what makes us unhappy, and excludes what makes us happy, it cannot be a true indicator to measure social progress. It only measures the amount of money flowing in the economy.

To remedy this, Redefining Progress, a sustainability think tank, created the Genuine Progress Indicator (GPI) as an alternative to GDP, insisting that relying on GDP as a shorthand indicator of progress is not good for either the Earth or humanity.

The new GPI starts with the same personal consumption data that GDP is based on, but then it makes some crucial distinctions. It adds factors such as the value of household and volunteer work, which are excluded from GDP, as the value equivalent to the cost that would be paid for workers doing the same job. Furthermore, it subtracts factors such as the costs arising from crime, pollution, resource depletion, family breakdown, and the estimated cost of damage to human health and the environment.

In a comparison of the two indicators over time, the GPI increased in parallel with the growth of the GDP per capita in both Japan and the United States until somewhere between the 1960s and 1970s. After that, however, while the GDP steadily increased, the GPI stopped rising or even fell. In other words, despite the GDP increases per capita, our level of happiness may not be bigger, or it may even be fading. If so, is it right to continue advocating economic and national policies that seek ever-higher GDP?

Today's media and government officials alike still insist that we must boost the GDP growth rate, or that no growth is no good. Consider thought, that if the economy grew by three percent per year for 24 years, the GDP would be doubled, something beyond our imagination, given the human and natural resources, and production and financial capital required for this to happen. In today's social economy, however, shortsighted people, or those who have to take the short-term view, keep investing on a short-term basis, parroting that "at least three percent of growth" is crucial.

Unlike our GDP-oriented society, there is another country that takes a unique and fundamental approach: Bhutan. The country is attracting increasing attention because the Bhutanese consider Gross National Happiness (GNH), instead of GNP, as the indicator to measure national progress.

GNH attempts to measure national power and growth by happiness instead of production. The term is said to have been used first by Bhutan's King Jigme Singye Wangchuck (then 21 years old) in 1976, when he stated at the Fifth Conference of the Non-Aligned Countries that GNH is more important than GNP. He thought that simultaneous improvement of material and spiritual wealth is vital.

From the 1960s to the early 1970s, Bhutan studied the experiences and models of developed countries. King Wangchuck eventually concluded that economic development -- often causing North-South confrontation, poverty, environmental destruction, and cultural loss -- does not always lead to happiness. So he decided not to use the GNP enlargement policy but the idea of GNH instead, which seeks people's happiness. "Progress should be people-oriented." That is the basic philosophy for progress as well as the final goal of progress, according to GNH.

Bhutan is now directing its development based on the four pillars of the GNH: (1) economic growth and development; (2) preservation of cultural assets, and transmission and promotion of traditional cultures; (3) preservation and sustainable use of the environment; and (4) good governance.

As happiness is subjective and can't be internationally measured using a unified scale, GNH has been thought of as a conceptual idea. Nevertheless, it became popular, and many people wondered if GNH could be expressed as a quantitative indicator like GNP, which prompted the establishment of the Center for Bhutan Studies in 1999 to start targeted research.

To begin with, the center is aiming to develop an indicator that can be used within Bhutan that measures the concept of happiness using the following nine elements (in random order): living standard, cultural diversity, emotional well being, health, education, time use, ecosystem health, community vitality, and good governance.

So, how are people spending their time? How vital is the community? These factors would seldom influence GDP. Actually, in the GDP-oriented world, if you're relaxing (not consuming) or spend your time on community activities without being paid, you would be considered to be "unproductive" and creating a drag on GDP.

But what truly measures national progress? When your children or grandchildren are grown up, which do you think, when looking back, was good? Was it that your country's GDP continued to grow, or was it growth of GNH?

Defined in terms of GDP, Bhutan is a developing country with a low GDP per capita. The country, however, is blessed with an abundant natural environment; 26 percent of its land is nature reserves, and 72 percent is covered by forest. There are no homeless people or beggars on the street. According to a survey, 97 percent of the Bhutanese people answered yes to the question "Are you happy?" What percentage of people would say, "Yes, I'm happy," if the same question was asked in your country?

Does the pursuit of money and economic growth really make us happy? Isn't there anything that might be undermined by seeking them? Bhutan's GNH concept prompts us to reconsider our true purpose in life.

Mukouyama Painting, a company in Japan inspired by the GNH concept, is doing business based on its own idea of measuring the company's success. With about 20 employees, it is located in Kofu City, Yamanashi Prefecture, and deals with a wide range of paint products for industrial and home use.

See also: The End of Growth: Efforts in Japanese Society and Business to Slow Down

Its corporate philosophy is represented by the following mottos: "The purpose of our work is to make the Earth clean" and "Our business will provide satisfaction to customers as well as to the environment of Mother Earth." The management of the company thinks that it would be no use making profits if we ruined the Earth and turned it into a deserted planet.

Mukouyama Painting, however, had a different business policy until about a decade ago. In those days, the company was making every effort to go public, with the primary focus on sales figures. Setting an ambitious goal, such as a 20 percent increase in sales annually, the company urged employees to meet the goal by finding new customers. But this didn't work. Many workers quit their jobs, and it was difficult to recruit replacements. Then-president Kunifumi Mukouyama (now senior advisor) had a tough time in dealing with these situations, and felt depressed. He seriously asked himself, --"What am I? What is a company? What should I do?"

When struggling to get out of the depression, he was influenced by various people. Now, he is sure that he wants to live in a world full of love, peace, harmony, cooperation, and self-sufficiency, although he is actually in a capitalist society where individuals tend to be motivated by self-interest. When Mr. Mukouyama heard about Bhutan's GNH, he immediately decided to adopt a new idea, what he calls "GCH" (Gross Company Happiness), namely, the total happiness of all employees.

At that time, company-wide efforts based on ISO 14001 resulted in an annual cost reduction of 15 million yen (about U.S.$130,000), an equivalent to the net income from the sales of 300 million yen (about $2.6 million). "If we have such gains, some reduction in sales won't hurt the company," Mr. Mukouyama thought. In 1995, he started making a business plan with a reduced amount of sales, say 92 percent of the previous year's sales. The company is aiming at "negative growth" rather than becoming a listed company.

Meanwhile, Mukouyama Painting has been successfully enhancing its corporate values by improving its services to the current customers. The company also has established positive relationships with people in the community by inviting them as citizens' ombudsmen for its internal auditing based on ISO 14001.

In response to the question, "Are your sales decreasing as planned?" Mr. Mukouyama replied, "No, I'm afraid not. Because of unexpected circumstances such as the closedown of a competitive company, the sales are not decreasing. But we are not involved in the activities to get new customers, and no sales quotas are assigned. This allows employees to have pressure-free work life. It is not my intention to run a company at the cost of employees' humanity. I'd like to do human-centered business. At one time, the turnover rate was so high and half of the workforce left the company in a year, but now employees rarely quit the company."

Mukouyama Painting believes that it can provide better services to customers and society when its employees are satisfied with the company, and that the happiness of the company depends on the total happiness of all employees. We are pleased to introduce this Japanese company that measures its success not by the amount of sales, but by GCH that's Gross Company Happiness.

Perhaps it's time to take this discussion into the corridors of power in big businesses and governments worldwide. Shouldn't we all have a say in how to measure progress and plan for the future? Which indicator would you vote for: GDP, GPI, GNH, GCH, or a combination?

(Written by Junko Edahiro)