Chapter 3 The Cornerstone of Conservation-oriented Economy: To Build A Resource-conservation-oriented National Economic Accounting System

Section A Basic Theories of Resource-conservation-oriented National Economic Accounting System

1 GDP Accounting and Its Defects

With the deep introspection of current resource environment and industrial civilization, the world fundamentally changes its cognition of environment, that is, the traditional develop a mode of chasing economic magnitude of highly consuming resources and “control after pollution” could no longer meet the demand of the current and future development, and human beings must choose a road of sustainable development. In order to conform to this action, international organization, governments and scholars from all countries in the world advocate that we should bring the accounting of environment and resource into the system of national economic accounting (SNA), build a new mode that meets the needs of strategy of sustainable development, which is called resource-conservation-oriented national economic accounting system (or green national economic accounting system).

GDP is the most important key index in the national economic accounting system which is to calculate the growth of national economy and measure whether the economy has been improved or not. There are two methods for calculation: one is the income approach, which counts the total income of all factors (i.e. salary, interests, profit); the other is the expenditure approach, which counts the total expenditure of all factors (i.e. consumption goods, investment goods, net export). However, as the growing challenge of global shortage of resources and the deterioration of the ecological environment, this index, which was held in esteem by Keynes—a great master of economics and developed for 300 years, is now questioned by some economists and scholars. They think that when GDP reflects the economic growth it has the following defects:

First, the current GDP accounting system cannot comprehensively reflect a country's real circumstance. The current GDP account does not involve the factors of the environment and ecology, so sometimes the data of calculation result seems ridiculous, because environmental pollution and ecological damage could enhance GDP. For instance, a flood disaster could cause great loss to people's life and finance, but the current system never counts the loss; on the contrary, it counts the investment for homeland rebuilding. This method has not only overestimated the current GDP, but also lets people see the economic prosperity only, but not the damage of environment and resource behind the prosperity.

Second, the current GDP index cannot reflect the devotion of natural resources. The current GDP accounting is based on the value of market dealing, which measures economic growth by market output, but the resource factors like water, air and soil have not been counted in. Hence, the current accounting system cannot reflect the devotion of natural resources, and also the damage to the environment caused by human economic activities, so this system cannot effectively reflect the relationship between economic development and environmental pollution.

Third, the current GDP accounting system cannot reflect the situation of social welfare. What GDP index reflects is the total amount of economic development, but the process of developing must be the process of resource using, and also the process of environmental disruption. Robert, an economist from WRI, pointed out that a country or area would exhaust its mineral, forest, land, water, and animal resources, and at the same time, the GDP will go up. Thus, the current GDP accounting system cannot reflect the situation of social welfare.

2 The Emergence and Development of Green GDP Accounting System

2.1 The Emergence of Green GDP Accounting System

According to the defects of the current GDP accounting system, people have to rethink about it. Since the 20th century, as the rise of environment protecting and sustainable development, Japan and some European countries have tried to count in the environment factors, consider the resource depletion and environmental disruption, and comprehensively reflect the change of environment economy. To aim at the defect of GDP accounting system, these countries suggested adjusting the current GDP index by the loss value of natural resources and the cost of ecological environmental recovery. Once we deduct these values from GDP, it comes out the green GDP. The notion of green GDP was first proposed in 1993 in the book The System of Integrated Environmental and Economic Accounting(SEEA)published by The United Nations Statistics Agency. This book not only proposes the notion of green GDP, but also recommends the accounting system of it, and formulates statistical standards and valuation methods of natural resources and the environment.

2.2 The Development Situation of Green GDP

After the presentation of green GDP, the United Nation, governments, famous international bodies and scientists have been working hard on building green GDP accounting indexes. However, there is no acknowledged green GDP accounting mode in the world. According to the current documents, there are several opinions about green GDP accounting methods.

2.2.1 Revise Current GDP and Use Accounting Total to Reflect Relations between Environment and Economy

This opinion means to revise the current GDP index, there are two different methods, one counts the green GDP, anther counts welfare GDP.

The accounting of green GDP was launched after the proposition of Environment Domestic Products (EDP) in SEEA, but there is no standard of green GDP's notion and computational formula. In SEEA, the method is to count in the environment input, and deduct it from the economic aggregate, and finally gets an output index which involves environment factor adjustment, and this index is called EDP or green GDP. Its accounting formula is: green GDP=current GDP- (non-economic resources+reduction of natural assets). The notion and accounting formula is developed through scholars' researches. Some scholars think the formula should be: green GDP=current GDP-(the value of natural resource consumption+the value of environment pollution); in order to reflecting the economic output after environmental input, some others scholars think from the angle of input and output: green GDP=current GDP-(productive assets depreciation+environmental input). Although there are many different views on the accounting formula, it is obvious that the accounting of green GDP is based on the deduction of natural resource loss.

Welfare GDP is based on the welfare economy thought proposed by the Western economist A.C. Pigou. In Pigou's view, there are two kinds of welfare: general and narrow, also called social welfare and economic welfare. As the main part of social welfare, economic welfare refers to the part that directly or indirectly relates to monetary measure in social welfare, so it is equal to national income. In social welfare, there is also non-economic welfare except economic welfare, which is the welfare that formed without going through the marketing system. The emergence of non-economic welfare is closely related to the external influence; as a result, under the external influence, the cost of an enterprise is not the real reflection of social cost, so there is difference between the two kinds of welfare. Based on Pigou's theory of welfare economics, scholars think that economic development should not only enforce economic welfare, but also reflect social welfare. Thus, the total of GDP should be social welfare GDP, and its formula is: welfare GDP=current GDP+external influence=current GDP+external economic factor-external non-economic factor. Without the external influence, welfare GDP equals current GDP, and it reflects a country's social welfare, but with the influence, current GDP only represents nominal welfare. The growth of current GDP does not mean the growth of social welfare. When welfare GDP is greater than current GDP, it shows that external economic activity is greater than non-economic activity, and vice versa.

Although these computational methods are easy to understand and accept, as a single green index, green GDP only counts in the measure of resource environment and social welfare, without showing the relationship between different economic activities and environment factor, so these methods are still criticized by the a cademic circle.

2.2.2 Set up Satellite Accounting Method

Some scholars think that before the public accept the theory of environmental economy accounting, we don't need to abolish the current GDP accounting system, but we should do further research on environmental economy accounting, and provide more accounting data to cover the shortage in the current system. The United Nations Statistical Commission accepted this view when they revised the GDP accounting system in 1993, which is to count the environmental factor in the SNA system, and they proposed a mandatory index based on environmental factor.

Recently, SNAL is more representative, and its basic frame is: setting up four parallel, independent and complementary accounting systems including national economic accounting, population accounting, environmental resource accounting and scientific education accounting; the original index of SNA and GDP remain unchanged, and supply the index of population, science, education and resource; after the supplement, build SNAL through the accounting system of economy-environment integration (SEEA), economy-population integration, economy-science and technology integration, and this system is also called “four satellite, two links, and one core”.

The construction of SNAL cannot only expand the range of accounting, but also reflect the influence of population, science, education and resource, supply the defects of SNA. Except SEEA, SSEA and STEA are still researching, but at least, SNAL points a direction for the research of green GDP accounting.

3 The Necessity of Implementing Green GDP Accounting

Developing green GDP accounting will bring a positive influence on economic development.

3.1 Reflect the Real Development Situation and Provide Reference for the Government

Statistics from the World Bank show that in the past 20 years, China's average economic growth rate reached 10.3%, but due to pollution and waste of resources, the reliability of domestic saving rate sharply decreased. The World Bank thinks that China's loss of pollution and waste of resources could reach 5.4 billion dollars, which accounts for 5%-7% of GDP. When we develop a green GDP accounting system, that would be a decline of economic development rate, but the data will be closer to the real situation. As a result, governments could work out a development plan according to the data.

3.2 Enhance the Ability of Macroeconomic Control

The ability of a country's macro-economic control rests with correct policy decision, and the premise is a complete system and accurate data. Green GDP could provide accurate data, and effectively control the development of polluting enterprises so as to improve economic development. The macro-economic control ability of the government will be enhanced if green GDP accounting system is adopted.

3.3 Use Resources Effectively, Protect the Environment and Stick to Sustainable Development

China has a large amount of resources, but low quantity per capita. As for the quantity per capita, China's agricultural acreage only accounts for 40% of the world's average quantity; water resource, one fourth of the world's;area of woods, one fifth of the world's; forest saving rate, one eighth of the world's, the same as many other important minerals. However, the developing way of China still has the problem of high consumption and low efficiency. According to the exchange rate calculation method, in 2003 China's GDP only accounts for 3.8% of the world's GDP, but the use of steels, coal and cement were 36%, 30% and 55% respectively of the world's total output. Some areas pursued economic development, but failed to protect the environment, such as overusing the farmland, reducing farmland area;over grazing, causing meadow desertification and reducing grassland; over deforestation, reducing forest and causing soil and water loss; over exploit water resources, causing land subsidence and river cutoff; over discharge of pollutants, causing rivers and air pollution. In order to fix those problems, China uses a lot of manpower and material resources. If governments get the data of green GDP, they will not set up those high polluting enterprises, and there is no need to spend money on controlling pollution; enterprises will not face the problem of being shut down and money loss; farmers will not plant low-producing crops, and China's agriculture, forestry, animal husbandry will form a virtuous cycle.

In conclusion, implementing the green GDP accounting system is good for protecting resources and the environment, promoting sustainable development, accelerating the change of economic growth style, and promoting economic benefits.