Some Constructive Criticisms of the Index of Sustainable Economic Welfare

Abstract

The Index of Sustainable Economic Welfare (ISEW) was first calculated for the United States by Daly and Cobb (1989). It draws upon an earlier tradition of attempts to build a comprehensive indicator of economic welfare, beginning with Nordhaus and Tobin (1972). Since then it has been applied to a handful of other countries, including several in Western Europe as well as Australia, Chile and Thailand (see Table 9.1). As Table 9.1 shows, some practitioners have chosen to change its name. It has appeared as the Genuine Progress Indicator (GPI), the Sustainable Net Benefit Index (SNBI) and most recently as the Measure of Domestic Progress (MDP).1 It would be fair to say that these linguistic turns reflect the degree of confidence different practitioners have placed in the ISEW’s ability to measure welfare, sustainability and ‘genuine’ progress. Different practitioners have also made incremental but significant changes to the methodology for calculating some of the index’s component parts. In general, no two studies are quite the same. We shall have much more to say on this point below. Fundamentally, what the original proponents of the ISEW were trying to do was create a combined indicator of welfare and sustainability.2 They understood welfare to be the satisfaction of human preferences, whereby the emphasis was placed on a comprehensive notion of preferences including much more than just income and consumer products. What they understood by sustainability is not as easy to explain. Almost certainly they supported the notion of strong sustainability, according to which at least a portion of a nation’s natural capital resources (including sinks such as the atmosphere) must be preserved for all time. However, it is possible to show that by adding and subtracting different forms of capital in calculating the ISEW (see below), it is technically an expression of the notion of weak sustainability, according to which the task is only to preserve the