Since the 1970s, when the gap between economic
growth and quality of life began to widen, criticism
against GDP as the most important economic indicator
has been growing. This critique has reached a
new climax in the latest report of the Club of Rome
(Dieren, 1995) which presents new measures of economic
welfare and the quality of environment, and
calls for a redirection of economy. The critique
against GDP as a measure of welfare is as old as
GDP itself, ranging from Boulding in the 1950s up
to Daly in the 1970's. Statistical offices are responding
slowly, but with the latest revision of the system
of national accounts (SNA), the UN is aiming at a
system of integrated environmental and economic
accounting (SEEA). Important writings on the critique
of GDP and proposals for the revision of the
SNA include those of Boulding, Daly and E1 Serafy. 2
In this article we present the index of sustainable
economic welfare (ISEW), which tries to describe
the change of sustainable economic welfare over
time. It is our aim to show that GDP is definitely an
unsatisfactory indicator for economic welfare and, by
applying the ISEW to Austria for the period from
1955 to 1992, to provide an empirical basis for this
critique. The ISEW is designed to grasp those aspects
of economic welfare neglected by the SNA.
The first part of this article discusses the concept
of the ISEW, starting with some general questions
about the measurement of economic welfare and the
development of the ISEW. After the concept itself,
consisting of three steps, the problem of monetization
of environmental damage and the concept of
potential defensive cost are discussed. The main
differences between the revised ISEW and the original
one will then be pointed out. Finally, the different
approaches of the SEEA and the ISEW are
contrasted. The second part of this article presents