Genuine Progress in Brazil: accounting for social and environmental costs

Daniel Andrade (UFU, Brazil) Philip Lawn (FBS, Australia) Junior Garcia (UFPR, Brazil)

Belo Horizonte-MG, December 4th 2014

1

OUTLINE

Main objective

Rationale for the GPI calculation

Main Brazilian economic features (1970-2010)

Methods

Results

Policy implications

Final remark

Main objective: Estimate the Genuine Progress Indicator (GPI) for Brazil

from 1970 to 2010:

To what extent Brazil has experienced genuine progress over 1970-2010?

Brazil: intense GDP growth throughout the 20th

century: 7th largest economy in terms of GDP;

Brazilian GDP growth: has not increased the living standards of most Brazilians Brazil has one of the most unequal societies in the world.

One of the most fascintating ilusions of modern industrial civilization is the confusion between growth and development

“Growth in GDP is a means to an end. Hopefully, it brings with it a better life for the masses. Yet, unless GDP growth raises general living standards, true ‘development’ does not take place” (Back, 1994, p. 631).

“The most unforgivable sin of development planners is to become mesmerised by high growth rate in GDP and to forget the real objective of development” (Haq, 1976, p. 24)

Overall, we can say Brazil is an intersting “platypus”;

Heterogeneity is not exclusive of the Brazilian society: all underdeveloped economies have a certain degree of hybridity in their productive structures;

Economic development should include structural changes

within a society!

Rationale for the GPI calculation: GPI: modern version of the ISEW (Daly and Cobb,

1989);

GPI: alternative index to GDP; GPI: comprises a set of monetarily valued items

distributed into three domains (economic, social and environmental);

GDP: main limitation is the lack of accounting for the costs (social and enviromental ) of a growing economy;

Rationale for the GPI calculation: GDP: has been

errousneoly considered a measure of progrees “time to leave GDP behind” (Costanza et al., 2014) and “beyond GDP” initiatives; Costanza et al., Nature

January 2014

GPI: embraces the challenge of better understanding the side effects of a growing economy;

GPI: supported by ecological economists may be a realiable indicator for the optimal macroeconomic scale and the uneconomic growth

The “threshold hypothesis” (Max-Neef, 1995; Lawn & Clarke, 2010).

9

Uneconomic growth

is a real possibility

under the

ecological-economic

perspective

We need to identify

the sustainable

scale and the

macroeconomic

optimal scale

What should be taken into account when assessing the progress of nations?

The GPI in a global perspective

“While global Gross Domestic Product (GDP) has increased more than three-fold since 1950, economic welfare, as estimated by the Genuine Progress Indicator (GPI), has actually decreased since 1978.” (Kubiszewski et al., 2013)

The GPI in a global perspective

Source: Kubiszewski et al., 2013

The GPI in a global perspective

Source: Kubiszewski et al., 2013

Item Domain Contribution to GPI

Consumption expenditure Economic Positive

Defensive and rehabilitative expenditures Economic Negative

Expenditures on consumer durables Economic Positive

Services from consumer durables Economic Positive

Income distribution index Economic Positive/negative

Welfare generated by publicly-provided

infrastructure

Economic Positive

Value of non-paid household labour Social Positive

Value of volunteer labour Social Positive

Cost of unemployment and underemployment Social Negative

Cost of crime Social Negative

Cost of family breakdown Social Negative

Change in the foreign debt position Social Positive/negative

Cost of non-renewable resource depletion Environmental Negative

Cost of lost agricultural land Environmental Negative

Cost of timber depletion Environmental Negative

Cost of air pollution Environmental Negative

Cost of waste-water pollution Environmental Negative

Cost of long-term environmental damage* Environmental Negative

Genuine Progress Indicator (GPI) Sum of items

Population

Per capita GPI GPI ÷ population

Items typically used to calculate the GPI

Main Brazilian economic features:

Subperiod Main features

Real GDP

annual growth

rate (%)

Real per capita

GDP annual

growth rate (%)

1970-1979

The 1970s may be considered the last attempt to industrialise the Brazilian

economy under the national developmentalism philosophy. There was a real

GDP boom from 1968 to 1973 (also known as the ‘Brazilian economic

miracle’). From 1975 to 1979, the II National Development Plan was executed.

In this entire decade, there was an authoritarian military government.

8.4 5.8

1980-1989

The so-called ‘lost decade’ for the Brazilian economy. In this decade, there

was the ‘debt crisis’ and the ‘State crisis’. The Brazilian State lost its ability to

conduct the import substitution policy. High inflation rates (near

hyperinflation) and monetary instability were recurring features throughout

this decade. At the end of the 1980s, there was a deterioration in the

distribution of income as a result of high inflation.

2.2 0.1

1990-1999

This period is best known as the ‘decade of stability’. In 1994, the Real Plan

finally defeated inflation. Neoliberal policies were implemented and there

was also a wave of privatisation of public assets to promote economic

efficiency. Notwithstanding the monetary stability, the economic performance

was poor, and in 1999 there was an economic crisis which provoked the

exchange rate fluctuation and the adoption of the inflation targeting system.

2.3 0.8

2000-2010

A social-oriented political party rose to power. However, macroeconomic

policies were unaltered, although they were coupled with social policies

aimed at reducing income inequality and increasing educational

opportunities. The main economic drive of this decade was increased

consumption and credit expansion. Brazil’s economy also benefited from the

world economic bonanza (high commodities prices) until the Financial Crisis

in 2008.

3.6 2.5

Main Brazilian economic features:

Main Brazilian economic features:

Annual growth rates over 1970-2010: 4.0% (GDP) and 2.2% (per capita GDP)

Main Brazilian economic features:

Main Brazilian economic features:

Growth rates over 1970-2010: - 48% (per capita biocapacity), 19.5% (per capita ecological footprint) and - 58.2% (ecological

surplus)

Methods: Brazilian GPI: followed the traditional approach with

minor deviations (data shortage) 17 items

Economic domain: CONtotal (private and public); DRE; DI; WPPI ADJ_CONweighted

Social domain: LABOURhousehold; LABOURvolunteer ; COSTunemployment ; COSTcrime ; COSTfamily; DEBT

Environmental domain: COSTnon-renewable; COSTland ;

COSTtimber; COSTair ; COSTwater; COSTlong-term_damage

LNCS: equal to the sum of all items in the environmental domain weighted by the EHI.

Results:

Year

Real GDP

(billion reais

at 2010

prices)

Real GPI

(billion reais

at 2010

prices)

Per capita

real GDP

(reais at

2010 prices)

Per capita

GPI

(reais at

2010 prices)

Per capita

real GDP

(Index value:

1970 =

100.0)

Per capita

GPI

(Index value:

1970 =

100.0)

1970 783.52 413.03 8,156.51 4,299.68 100.00 100.00

1971 872.02 449.35 8,859.44 4,565.28 108.62 106.18

1972 977.12 480.26 9,692.41 4,763.91 118.83 110.80

1973 1,113.71 502.98 10,788.74 4,872.51 132.27 113.32

1974 1,214.41 526.58 11,489.92 4,982.17 140.87 115.87

1975 1,277.67 525.47 11,806.25 4,855.60 144.75 112.93

1976 1,402.76 565.76 12,659.32 5,105.73 155.21 118.75

1977 1,467.37 588.14 12,933.49 5,183.87 158.57 120.56

1978 1,514.79 621.22 13,040.48 5,347.93 159.88 124.38

1979 1,617.29 640.25 13,599.34 5,383.68 166.73 125.21

Real GDP, real GPI, per capita GDP, and per capita GPI: Brazil, 1970-1979

Results:

Real GDP, real GPI, per capita GDP, and per capita GPI: Brazil, 1980-1989

Year

Real GDP

(billion reais

at 2010

prices)

Real GPI

(billion reais

at 2010

prices)

Per capita

real GDP

(reais at 2010

prices)

Per capita

GPI

(reais at 2010

prices)

Per capita

real GDP

(Index value:

1970 = 100.0)

Per capita

GPI

(Index value:

1970 = 100.0)

1980 1,764.64 698.49 14,495.10 5,737.53 177.71 133.44

1981 1,687.11 684.57 13,539.06 5,493.70 165.99 127.77

1982 1,696.90 705.92 13,306.39 5,535.49 163.14 128.74

1983 1,639.04 627.95 12,563.98 4,813.49 154.04 111.95

1984 1,725.41 604.68 12,937.54 4,534.05 158.62 105.45

1985 1,862.50 618.94 13,672.46 4,543.54 167.63 105.67

1986 2,011.29 799.64 14,467.25 5,751.86 177.37 133.77

1987 2,083.68 663.02 14,697.89 4,676.78 180.20 108.77

1988 2,081.55 567.04 14,409.88 3,925.41 176.67 91.30

1989 2,149.81 548.15 14,616.73 3,726.91 179.20 86.68

Results:

Real GDP, real GPI, per capita GDP, and per capita GPI: Brazil, 1990-1999

Year

Real GDP

(billion reais

at 2010

prices)

Real GPI

(billion reais

at 2010

prices)

Per capita

real GDP

(reais at 2010

prices)

Per capita

GPI

(reais at 2010

prices)

Per capita

real GDP

(Index value:

1970 = 100.0)

Per capita

GPI

(Index value:

1970 = 100.0)

1990 2,057.37 717.10 13,748.01 4,791.93 168.55 111.45

1991 2,088.48 744.26 13,726.11 4,891.47 168.28 113.76

1992 2,078.72 745.50 13,446.00 4,822.18 164.85 112.15

1993 2,175.70 709.47 13,856.98 4,518.59 169.89 105.09

1994 2,291.76 798.72 14,374.45 5,009.78 176.23 116.52

1995 2,392.98 1,020.18 14,781.46 6,301.64 181.22 146.56

1996 2,444.43 1,041.99 14,869.49 6,338.40 182.30 147.42

1997 2,526.93 1,071.84 15,138.08 6,421.06 185.60 149.34

1998 2,527.83 1,077.15 14,915.87 6,355.92 182.87 147.82

1999 2,534.29 1,074.31 14,733.69 6,245.73 180.64 145.26

Results:

Real GDP, real GPI, per capita GDP, and per capita GPI: Brazil, 2000-2010

Year

Real GDP

(billion reais

at 2010

prices)

Real GPI

(billion reais

at 2010

prices)

Per capita

real GDP

(reais at 2010

prices)

Per capita

GPI

(reais at 2010

prices)

Per capita

real GDP

(Index value:

1970 = 100.0)

Per capita

GPI

(Index value:

1970 = 100.0)

2000 2,643.41 1,056.09 15,148.05 6,051.94 185.72 140.75

2001 2,678.17 1,131.94 15,133.60 6,396.27 185.54 148.76

2002 2,749.30 1,150.11 15,325.49 6,411.08 187.89 149.11

2003 2,780.83 1,176.99 15,300.03 6,475.79 187.58 150.61

2004 2,939.72 1,237.97 15,975.85 6,727.75 195.87 156.47

2005 3,032.51 1,292.84 16,291.33 6,945.41 199.73 161.53

2006 3,152.46 1,370.61 16,756.41 7,285.25 205.44 169.44

2007 3,344.61 1,439.51 17,603.50 7,576.49 215.82 176.21

2008 3,517.51 1,516.35 18,342.74 7,907.30 224.88 183.90

2009 3,505.96 1,662.93 18,119.50 8,594.34 222.15 199.88

2010 3,770.09 1,676.06 19,312.96 8,585.94 236.78 199.69

Results:

Annual growth rates over 1970-2010: 3.6% (GPI) and 1.7% (per capita GDP)

Results:

GPI-GDP ratio: 0.53 in 1970 and 0.44 in 2010

Results: 1970s: best decade in terms of per capita GDP growth

but not in terms of per capita GPI growth;

1980s: ‘lost decade’ in Brazil negligible growth in per capita GDP and 35% decline in per capita GPI;

1980s: uneconomic growth due to socio-political and institutional factors;

1990s and 2000s: per capita GPI increased at a faster rate than per capita GDP.

Policy implications (PI): Per capita GPI in Brazil: overall growth despite the

increase in social and environmental costs;

Per capita GPI in Brazil: non-ideal pattern of growth marginal costs of GDP growth have accelerated over the study period;

PI # 1: immediate offical adoption of GPI as to monitor externalities provoked by growing the economy;

PI # 2: foster investment in critical infrastructure

Policy implications (PI): PI # 3: consolidate improvements in the distribution of

income and wealth;

PI # 4: curb the social costs: fight crime events and protect family integrity;

PI # 5: absolute necessity of limiting the material and energy use as to keep the rate of physical throughput within the resilience threshold;

PI # 6: improve material and energy efficiency;

PI # 7: ecological tax reform.

Final remark:

What does the Brazil GPI study tell us?

Overall, genuine progress has been achieved, but in a non-ideally way. The marginal costs related to the growing Brazilian economy are huge and may

outweigh the marginal benefits in the near future.

Thank you for your attention!

Contact info: Daniel Andrade: caixetaandrade@ie.ufu.br Philip Lawn: phil.lawn@flinders.edu.au Junior Garcia: jrgarcia@ufpr.br