The devastation left behind by Hurricane Sandi is a tragic reminder of how unprepared we are to face the escalating conditions of new severe weather that confronts us. And although the full impact of Sandi may not be immediately known, the larger question is why many Americans are still left disputing what the rest of the world has taken to heart: that climate change is the result of human activity and unsustainable economic policy. As the cost of Hurricane Sandi will amount to a magnitude much greater than the cost of the 9/11 attack on the World Trade Center, many are already speculating what kind of policies will be implemented for the sake of national security. If environmental national security should replace terrorist-based national security, then is stands to reason that new environmental policies implementing a reduction to environmental degradation and resource depletion should be the greatest priority for the next administration.
But something else occurred this week that has the potential of having a positive impact on the reduction of climate change, globally. The National Bureau of Statistics just announced that China will revise its gross domestic product (GDP) accounting methods in line with international standards.
The bureau told Xinhua News Agency on Tuesday that China’s current methods are derived from the 1993 version of the United Nations System of National Accounts, which was revised in 2008. The bureau is studying the 2008 version and will gradually revise the system to comply with it.
Why anyone should care about the shift of accounting standards from the largest manufacturer and importer of raw materials in the world should be of significance, and can be found not only in the accounting details of GDP calculation, but also in the policy within the United Nations Statistical Division.
A good example is how the United States having already shifted their GDP accounting to be in line with the 2008 UN SNA, has already shown significant growth benefits by shifting its military accounting from being an inventoried account to being a fixed asset, thereby accounting for military systems for its “anticipated future investments,” (see below for more).
Additionally, there are many advantageous reasons for China to adopt the 2008 SNA– arguably, military system accounting would be of less significance considering Chinese investments in its military is substantially less than the US.
Having just presented a paper on this subject to a closed conference on trade and civil society taking place in Fiji this week, China’s announcement reminded me of the old TV game show, Let’s Make a Deal, where behind three doors is the grand prize.
In my imaginary episode, behind door number one is Netanyahu’s bomb representing the change in accounting of military systems from an inventoried account to a fixed asset; behind door number two is an eviction notice representing changes to the accounting of financial services and instruments; and behind door number three are new opportunities for innovating Research and Experimental Development as fixed assets for both public and private sectors, including the 2012 adoption of the System of Environmental and Economic Accounting (SEEA) framework to the national accounting system.
There are many ways to approach China’s adoption of the 2008 SNA, and although this analogy to Let’s Make a Deal may be a stretch, the point is that we don’t really know the full outcome of how adopting this revised global accounting system will impact economies large or small. One thing we do know is that the SEEA behind door number three is a framework with no rules as to how to account for our global ecology and that current critical examination of these rules by civil society are slim, and quite outside the frame of debates around climate change reduction.
With the devastating impact of Hurricane Sandy, the image of New York being literally underwater has penetrated our collective imagination, and this should signal a wake up call for ecologists, indigenous peoples, gender rights advocates and the global south to participate in a very rare opportunity whereby we could demand guidelines to implement new rules for determining resource depletion and environmental degradation. Within this maddening shell game called National Accounts, we need to be behind door number three.
Both the Financial Times and the Wall St. Journal have stories citing how Sandy’s devastation creates new financial opportunities and investment. New insurance products like Catastrophic Bonds (CAT bonds) are already taking advantage of recent investment rules that limit access of certain types of stocks and bonds to individual investors.
Now to be clear, there were many technical changes made to the accounting of GDP, and this post by no means is a comprehensive analysis of all these changes, but again this is a unique invitation to critically examine the fundamentals of currency valuation and trade in the international economy, so in the words of Monty Hall, “Let’s make a deal…”
Navigating the SEEA (excerpt)
What I’d like to present to you is a more systemic approach to resisting many on the changes that are coming down the pipe as a result of new trade agreements, militarization, climate change as well as an economic rivalry with China that is creating a very aggressive atmosphere over resources- one of which, profoundly impacts the Pacific. Arguably there may be a very small window of opportunity to assert a new kind of integration: one that is based on free prior and informed consent, and develop a new integrated ecological standard that does not reward environmental degradation or resource depletion. These new climate change reduction initiatives have already been embraced by APEC, ADB, the TPP, Wall St and the investment regime, and currently these initiatives have no rules, because at this time, it is just framework.
Since 1953, Gross Domestic Product (GDP) has been the international standard for measuring a nation’s economic well-being. Since the post war period, really since the 1948 Economic Cooperation Act otherwise known as the Marshall Plan or the European Recovery Program, this has been the standard for assigning currency valuation in international trade. (and this is not to be confused with currency exchange) Statistical indes were accounted for via a technical aggregate, and these changes measured overall growth in manufacturingproduction, employment, cost-of-living, purchasing power, capital formation, and the imports and exports of goods and services. Again I want to reiterate that GDP is the key measurement assigning currency valuation to trade.
According to this early GDP, the more we spend, consume and produce the more the GDP rises. Such a metric of economic progress, however, was fundamentally flawed because it made no distinction between production that contributes to genuine improved well-being and the activities that degrade our personal, community and environmental conditions.[v]
At its inception, the UN Statistics Division (UNSD) developed a technical and international standard through which the economic growth of national economies—including Pacific Island countries—could be measured, called the System of National Accounts (SNA). The UNSD agreed that an international accounting standard based on the US accounting of GDP should be the standard measurement, and that trade and currency valuation would be measured against the dollar. This formulation however, had disastrous consequences in the global South and in the last decade, there have been a growing number of proposals advancing alternative indicators that aim to reduce the gap between disparate economies.
Most significantly, the Genuine Progress Indicators of Sustainable Well-being Accounting (GPI)[vi] challenged the GDP hegemony and offered a cohesive route towards fundamentally changing the ecological and economic barriers for the global South. In 2001, GPI advanced the possibility of creating a deficit to unsustainable policies that include resource extraction, depletive industrial fishing and farming practices.
In 2003, the SNA, arguably building upon the GPI, produced the Integrated System of Environmental and Economic Accounting (SEEA 2003) to complement, if not replace the current GDP formulation. This proposal was rejected during the 2008 SNA revision process.
Unfortunately, what was adopted in this 2012 SEEA was only the central framework, and the Commission failed to include the alternative well-being indicators that were in the previous drafts. Ecological issues that account for resource depletion and environmental degradation, food security, democracy, the revision of outdated economic boundaries to include women’s rights, household labor and child-care, although addressed, were not adopted. However, the Statistical Division has provided us with a working template—the 2003 SEEA—that could be used to revise our national accounts despite its rejection by the current neoliberal economic regime.
Although this should be given more attention, this is an example of how these accounting aggregates are not permanently fixed and how the UN Statistics Division periodically revises the SNA to account for economic policy shifts.[xi] During the 2008 SNA revision, Military Systems were removed from being an inventoried account to being a fixed asset.[xii] This move towards being a fixed asset, accounts for projected future investments,[xiii] and resulted in militarized economies raising their GDP several points,[xiv] despite relatively flat unemployment growth figures[xv] and household spending.[xvi] This accounting change to the SNA unfairly creates further disadvantages to countries, [xvii]that do not allocate a substantial percentage of their economy to militaries.
Now I want to remind you that in 2008 the SEEA was not adopted while military systems was and here are some of the major a
As the global economy moves as the global economy wants to move, and for many of us in the global south, if we waited for advanced economies to embrace ecological change, it will have already been too late. We need to devise a strategy to create a more level exchange between the global south and the north.
If our small island states participated in an integrated ecologically based accounting system, opportunities for challenging already existing trade and investment policy among international networks could arise. Sustainable environmental solutions could be achieved through ecological accounting and embracing these revisions could potentially reverse some of the negative impact resulting from climate change.
[i] Clinton, Hillary Rodham, “America’s Pacific Century,” November 2011, Foreign Policy Magazine. [http://www.foreignpolicy.com/articles/2011/10/11/americas_pacific_century] 14 October 2011.
[v] ibid. p.2.
[vi] Anielski, Mark. “Measuring the Sustainability of Nations: The Genuine Progress Indicator System of Sustainable Well-Being Accounts” Paper delivered at the Fourth Biennial Conference of the Canadian Society for Ecological Economics: Ecological Sustainability of the Global Market Place, August 2001, Montreal Quebec.
Note: Healthcare and social services are not accounted for as fixed assets– generally, community and social services are accounted for as deficits in a non-market sector which, in my opinion, is why lobbyists and many in government are advocating to privatize these sectors.