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(Accepted 26 April, 1998)
INTRODUCTION
Over the last couple of years some "ecological economists", as they call themselves, have proposed an "Index of Sustainable Economic Welfare" (ISEW) as an alternative to a country's Gross National Product (GNP) or Gross Domestic Product (GDP).1 ISEWs have been developed out of the concern that GNP is not an adequate indicator for either current welfare or the achievement of sustainability, which is usually defined as the capacity to provide non-declining future welfare. The main critiques have been that GNP is flawed because (a) it does not take the value of household labour, (b) the welfare effects of income inequality, and (c) the welfare loss due to environmental degradation into account and (d) considers "defensive expenditures" wrongly as contributions to welfare.
The ISEWis supposed to provide a remedy for these and a couple of other shortcomings in order to provide a more reliable monetary indicator of welfare and sustainability. It attempts to improve earlier measures of welfare such as Nordhaus and Tobin (1972) and Zolotas (1981).2 ISEW-studies have become increasingly popular recently and have prompted widespread attention.3 Studies have been undertaken for the U.S. (Daly and Cobb, 1989; Cobb and Cobb, 1994), the United Kingdom (Jackson and Marks, 1994; Jackson et al., 1997), Germany (Diefenbacher, 1994), Italy (Guenno and Tiezzi, 1996, preliminary study only), Sweden (Jackson and Stymne, 1996) and Austria (Stockhammer et al., 1997). What these studies show is that the ISEW of a country has been growing much slower since 1945 than her GNP or GDP and indeed has been fallen since the early 1980s.
Computation of an ISEW usually starts from the value of personal consumption expenditures which is a sub-component of GDP since GDP = Personal consumption + Public consumption + Investment + (Exports - Imports). Consumption expenditures are weighted with an index of "distributional inequality" of income (usually a modified Gini Coefficient). Then, certain welfare relevant contributions are added and certain welfare relevant losses are subtracted. As an example take the U.S.-study of Cobb and Cobb (1994): After having weighted personal consumption expenditures by a modified Gini Coefficient of pre-tax income distribution data, they add the estimates of the value of the services from household labour, consumer durables and streets and highways. They also...