The shortcomings of Gross Domestic Product as a measure of success are fairly well known – it’s a measure of the quantity of economic activity, not its quality. It ignores all non-monetary activity, and can’t distinguish between spending on things we want, and spending on things we don’t want. Politicians and the media insist on treating the quarterly growth figures as the last word on our health as a nation, but GDP tells us nothing about real progress and the wellbeing of our society. Even the inventor of GDP thought so, and cautioned governments about the limits of GDP’s usefulness. It was designed in 1934 to track recovery from the depression, and Simon Kuznets warned that “the welfare of a nation can scarcely be inferred from a measure of national income.”
So what should we be measuring instead? There have been plenty of alternatives suggested, measures that deliver a single number that sums up how we’re doing, but reflects what matters most. At the risk of acronym overload, here are five:
- GPI – GDP counts all activity as good, but we all know that if the increase came from car accidents and divorce lawyers, it wouldn’t be anything to celebrate. The Genuine Progress Indicator aims to correct GDP by adding up economic activity, and then subtracting negative spending. The costs of war, air pollution, and loss of farmland are among the subtractions, giving us a much better picture of the quality of our economic activity.
- HDI – the Human Development Index was developed by the UN Development Programme and combines education, life expectancy and GDP per capita. It is based on Amartya Sen’s philosophy of development, which suggests that governments should measure what their citizens can do, not just what they own.
- HPI – the Happy Planet Index takes a slightly different approach, and combines environmental footprint information with wellbeing reporting and life expectancy. A country’s HPI score reflects how good that country is at delivering good lives to its citizens sustainably. Countries can score badly by failing to provide for people, or by using too many resources.
As well as these three, there’s also the Measure of Domestic Progress and the Index of Sustainable Economic Welfare. What all of them show is that raw size is an inadequate measure of progress. GDP can rise while the Genuine Progress Indicator flatlines, showing what some might call uneconomic growth. Other countries have seen improvements in quality of life without actually getting richer. The picture is more mixed that GDP alone can show.
All of these various measures have their own advantages and disadvantages, and none of them are without bias. Ultimately, however, I think the idea of trying to capture everything in one single figure is doomed to failure. We need a whole range of measures to give us a full picture. That is, I’m pleased to say, what the Office of National Statistics produced when asked to develop a broader measure of the nation’s wellbeing.