Harvard Test National Economic

9-703-026
DECEMBER 4, 2002

DAVID MOSS
SARAH BRENNAN

National Economic Accounting:
Past, Present, and Future
During the 1990s, the United States departed sharply from the global trend in national economic
accounting. A long list of nations, from Australia to Zimbabwe, had begun to supplement traditional
measures of economic output with estimates of environmental impacts, such asnatural resource
depletion.1 But the United States refused to go along. Having once played a central role in setting
world standards for national accounting, the U.S. appeared to have lost its leadership position. As
one Commerce Department official complained, “They let us go to the meetings, but no one listens to
what we have to say.”2
In fact, the Commerce Department had begun publishing data onthe value of the nation’s mineral
resources in 1994, and it had planned to broaden its environmental accounting initiative over
subsequent years. But the project came to a sudden halt when Congress intervened, prohibiting the
publication of mineral resource values and effectively banning all further environmental datacollection projects related to Gross Domestic Product (GDP).3 RepresentativeAlan Mollohan of West
Virginia, who sponsored the Congressional ban, argued that after measuring mineral depletion and
air pollution, “somebody is going to say ... that the coal industry isn’t contributing anything to the
country.”4
Facing what appeared to be an immovable barrier, the Commerce Department asked a prestigious
advisory body, the National Research Council (NRC), to study thesubject and suggest a course of
action. Composed of leading scientists and economists and chaired by William D. Nordhaus, a
professor of economics at Yale University, the NRC recommended new methods for calculating the
economic impact of environmental pollution and natural resource use. Although it did not advocate
the abandonment of GDP, the standard measure of economic activity, its final reportdid suggest that
environmentally-adjusted GDP would constitute a superior measure of overall social welfare.
No nation had yet adopted as comprehensive a system of environmental accounting as the NRC
recommended. But many had taken substantial steps in this direction, often following the new
environmental valuation guidelines of the United Nations.* The big question for the United States –and the world – was whether this emerging global trend represented a fundamental improvement in

* The international standards for calculating GDP are laid out in the System of National Accounts (SNA), which is published by
the United Nations, the Commission of the European Communities, the International Monetary Fund (IMF), the Organization
for Economic Cooperation and Development (OECD), andthe World Bank. These organizations have also published
guidelines on environmental accounting.
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Professor David Moss and Research Associate Sarah Brennan prepared this case. This case was developed from published sources and
interviews with officials of government agencies andnon-governmental organizations. HBS cases are developed solely as the basis for class
discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
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