NATIONAL ACCOUNTS

Chapter 8 of Agenda 21 recommends that one means to integrate envi­ronment and development into decision making is for nations to estab­lish 'systems for integrated environmental and economic accounting'.

Problems with GNP as a measure of welfare

However, GNP does not give any indication of the state of a nation's environment and does not take into account environmental depletion that may result from rising GNP. The ways in which GNP neglects the environment are:

GNP only measures market transactions

GNP only includes services that are legally bought and sold. It does not include components of the environment such as wilderness areas or native birds that are not bought and sold. Keeping trees in a forest is not counted in GNP, and is not counted as contributing anything towards a nation's wellbeing; but when a tree is cut down and sold as timber it adds to GNP and therefore to economic growth. Marilyn Waring (1988: 1) discovered, as a politician in New Zealand, that in the system of national accounts:

the things I valued about life in my country - its pollution-free envi­ronment; its mountain streams with safe drinking water; the accessi­bility of national parks, walkways, beaches, lakes, kauri and beech forests; the absence of nuclear power and nuclear energy - all counted for nothing.

Similarly, Robert Repetto (1989), Director of the Economic Research Program of the World Resources Institute, points out that a nation 'could exhaust its mineral reserves, cut down its forests, erode its soils, pollute its aquifers, and hunt its wildlife to extinction' without affecting its measured income. Repetto argues that GNP as a measure confuses the using up of valuable assets with the earning of income, and that this is a particular problem for countries dependent on natural resources for employment and revenues, because they are using a system of accounting that ignores their principal assets.

GNP does not discriminate between costs and benefits

Hospital bills, car repairs and insurance costs add to economic growth because they are services that are provided and paid for. If there is a toxic spill which damages water supplies, GNP does not decline; in fact, it goes up if people spend money getting medical treatment for health problems or injuries caused by the spill. If the government spends mil­lions of dollars cleaning up the damage, GNP goes up because the money spent is considered to be a purchase of goods and services. In fact, in the year that the ship Exxon Valdez spilt its cargo of oil in Alaska, that state's GNP rose dramatically because of all the money spent trying to clean up the spill.

The destruction of environmental resources and the costs of cleaning up after the destruction are labelled 'growth' and 'production' in GNP measurements.

Depreciation of the environment is not counted

Natural resources which have been used up or degraded - such as open space, wildlife, scenic landscapes, and the quality of air and water - are not counted in the national accounts, even though it is obvious that these things contribute to a nation's social wellbeing. Repetto (1989) gives the example of a farmer who cuts down some timber and sells it to pay for a barn. In the farmer's accounts, she or he has lost the timber but gained the barn.

In the past, economists have not thought of the environment as being used up or worn out in the same way as are buildings and equipment. This is because they assumed that natural resources - the resources obtained from the environment - were so abundant that a small loss would not be noticed. Also, they have assumed that natural resources were 'free gifts of nature' because they required no investment to obtain them. However, as economists usually value things according to what price they can be sold for, rather than how much it has cost to produce them, this stance is inconsistent. Repetto (1989: 40) argues that the true measure of depreciation 'is the amount that future income will decline as an asset decays or becomes obsolete'. Soils depreciate as they are degraded, and become less fertile, in just the same way that machines depreciate as they get older.

Modifying GNP

In recent years, the problems associated with national accounting and GNP have been widely recognised. Many people have called for national accounts to be adjusted to take account of environmental resources lost in the process of generating wealth so that they will provide a better indi­cation of the true wealth of a nation.

Various modifications to GNP have been proposed over the years as a way of incorporating social and environmental factors. As early as 1972, economists William Nordhaus and James Tobin (1972) recom­mended modifying GNP by subtracting the cost of pollution and other 'negative' goods from the final figure, and adding services which do not get paid for, such as housework. They called their new indicator 'net eco­nomic welfare' (NEW).

Alternative indicators have been resisted by governments because they are seen as too difficult to measure. Additionally, politicians prefer to use indices that emphasise and even exaggerate progress.

In order for the environment to be integrated into national accounts, however, it has to be valued in monetary terms - and this creates prob­lems. It is relatively simple to assign a value to minerals and resources that have a market value, but not so easy to put a value to non-commer- cial wild species, for example, or ecosystems.

The people who put together the United Nations' system of national accounts, based on GNP, have decided that there should not be any major changes to them. Rather, they suggest that a separate system of satellite accounts should be worked out that would give measures of natural resources; and that, at some time in the distant future, these might be incorporated into the main GNP figures. Norway, Canada and France have instituted extensive systems of resource accounts which are separate but supplementary to their national economic accounts. These are physical measures of the country's natural resources such as forests, fish and minerals.