Herman E. Daly is senior economist at the Environment Department of the World Bank Co-founder and associate editor of the journal Ecological Economics, Daly has written many articles and several books, induding Steady-State Economics (2nd. ed. 1991), Economics, Ecology, Ethics (1980) and, with co author John Cobb, Jr., For The Common Good: Redirechng the Economy Toward Community, the Environment and a Sustainable Future (1989). As is evident, his remarks represent his own views, and not those of the World Bank

MM: You have proposed the Index of Sustainable Economic Welfare (ISEW) as an alternative to the conventional reliance on gross national product. What does your index do differently than GNP?

Daly: This, I should make very clear, is the product mainly of John Cobb, my co-author [of For the Common Good], and a group that has worked with him at the School of Theology at Claremont, including especially Clifford Cobb. I served as a helper and a critic, but they did most of the work on that. That doesn't mean I am disclaiming it; I support it and am proud of it. But it was largely their work.

What does it do? It plays by the basic economic rules of the game.It is not a far-out measure of welfare.It says welfare is basically a function of personal consumption. So we don't subtract cigarettes and pornography and other things which one might believe would make people worse off; we leave all that in there, just the way the economists do. In that sense, it is very conservative.

[But] we make some adjustments. We subtract a figure for depletion of natural capital: depletion of oil wells, deforestation, depletion of soils and water. We subtract something for regrettable necessities, that is, increased commuting costs, extra medical payments which are due to stress and on-the-job problems. We make a correction, perhaps most controversial, for changes in the distribution of income, on the grounds that an extra $1,000 to a poor person means much more than an extra $1,000 to a rich person in terms of that person's welfare. That is pretty firmly grounded in the law of diminishing marginal utility in economics, so we count income to the lower part more than income to the upper part. That makes a big difference, because over the Reagan years income distnbution became decidedly more unequal. And we make a correction for the increase in foreign debt. Foreign debt has to be repaid at some point by U.S. citizens, so inaeasing indebtedness is not sustainable consumption. Those are the kinds of things we correct for.

With the ISEW, we found that there was actually a slightly inverse correlation in recent times between GNP and welfare.

MM: How does the recent history of the United States measure up on the ISEW scale?

Daly: We found that, up until the early 1970s, GNP and ISEW move along together, they track each other. But then there is a divergence, which becomes greater as the seventies go on and into the eighties. The ISEW becomes flat while the GNP keeps on rising, and then eventually the ISEW declines just a bit. Our findings do not support the hypothesis that GNP and welfare are highly correlated. In fact, they contradict that.

MM: How do you explain the divergence starting in the early seventies?

Daly: I think it is [largely] due to increasing inequality; the debt, with the United States moving from a aeditor to a debtor position; and then the problems of depletion and pollution begin to weigh more heavily.

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