JAMES BOLGER
China Today
May 2019
Just over 50 years ago, Robert F. Kennedy expressed his concerns about the limits of using Gross National Product[1]to guide policy decisions:
Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage...It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl…
Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play...It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.[2]
For years, governments focused on increasing Gross Domestic Product (GDP) as a proxy for the health of the economy and economic progress.[3]By GDP’s measures, their fixation was a success; since 1950, GDP has increased threefold globally.[4]But has this translated into greater societal progress and increased welfare for a nation’s people?
The Genuine Progress Indicator (GPI), one alternative measurement of societal well-being that factors in 26 components,[5]including health of the citizens, environment, inequality, and quality of employment, showed that despite GDP’s constant increase, welfare actually decreased since 1978.[6]Increasing GDP did not account for the costs of global warming, predict the 2008 Great Recession, nor warn about the rise in right-wing extremism that threatens the successes of global co-operation.
As such, Kennedy’s remarks were exactly on point: GDP is a highly inadequate measure of societal well-being. Better and more inclusive metrics help create nuanced policies that consider the genuine welfare of all members of the population. Reforming how decision makers create and implement policies aimed at improving well-being, growth, and progress through changing the benchmarks of progress must occur to best tackle significant global changes that affect national governments and the international community.
Governments have long used measurements as a justification for policies. During the economic crisis of the 1930s and 1940s, governments demanded clearer statistics to measure the health of the economy to identify what policy responses were possible.[7]Economists in the United States and the United Kingdom developed GDP as a measurement of market activity.[8]At the time, the US Bureau of Economic Analysis described GDP in narrow economic terms as an indicator of the speed of economic growth, the pattern of spending on goods and services, the percentage of an increase of production due to inflation, and the amount of income allocated to consumption, investment, and savings.[9]
In 1934, Simon Kuznets, the chief architect of the US national accounting system and GDP, cautioned against using GDP as a proxy for well-being.[10]However, amid the Great Depression and with World War II looming, President Franklin D. Roosevelt needed easily identifiable numbers to help justify his policies and budgets to bring economic recovery in the US.[11]GDP suited his purposes. The GDP estimates of the time showed that the “economy could provide sufficient supplies for fighting WWII while maintaining adequate production of consumer goods and services.”[12]While this made Roosevelt happy, Kuznets argued that GDP’s narrow use to measure economic output might inaccurately be conflated with welfare and progress.[13]In the following years, GDP was adopted by the International Monetary Fund and the World Bank as an indicator of economic progress.[14]
Over the last few decades, decision makers have relied on GDP as a proxy for well-being in society and have sought to maximize their nation’s GDP.[15]Yet focusing on economic output as a metric of progress has overlooked other aspects of societal welfare. The greatest challenges of today, including climate change, right wing populism, and fair and decent work for all, are consequences of the pursuit for growth.
As Kuznets’ protests showed, the debate on the misuse of GDP as an indicator of societal wealth is as old as the invention of GDP itself.[16]Scholars, many governments, and the Organisation for Economic Co-operation and Development (OECD) have largely come to a consensus that it is time to move “beyond GDP” as an indicator for societal welfare to a more inclusive metric.[17]This means taking stock of a larger number of indicators assessed across a number of dimensions, including material living standards, health, education, personal activities, political voice and governance, social connections and relations, environment, and insecurity.[18]Moving beyond GDP requires concerted effort from the national and international community to ensure its success.
There has been significant progress in the last decade. Scholars and policy makers have worked to overcome the conceptual challenges in considering which indicators should be included. The result has been many alternative indicators to measure welfare, with the Genuine Progress Indicator (GPI), Happy Planet Index, Human Development Index (HDI), Gross National Happiness Index, and Index of Social Progress being among the most widely known.[19]
Internationally, the OECD has been the most prominent actor at pushing for a widespread adoption of alternative metrics. In 2011, the OECD established the “Better Life” initiative based on 11 topics it identified as essential, in the areas of material living conditions and quality of life. It provides for a cross-country comparison of the 34 OECD countries and analyzes current government policies that would help or hurt their success in the different indicators. While the progress made by scholars, national governments, and international governments is heartening, there is still substantial room for consolidating this shift and implementing the lessons learned.
In my country of New Zealand, we developed a Living Standards Framework (LSF) based on a wide range of wellness indicators from the OECD. The New Zealand budget, set to be delivered on May 30, 2019, will represent this shift in policy track by delivering “The Wellbeing Budget.” This year, New Zealand ranked 8thout of 156 countries in the World Happiness Report, a survey produced by the United Nations Sustainable Development Solutions Network. It is the fifth consecutive year we have been in the top ten, whereas we are ranked 49thby GDP according to the World Bank’s World Development Indicators.[20]
China is the world’s second largest economy, having experienced unprecedented growth and development over the last few decades. China's GDP has grown from US$360 billion in 1990 to over US$12 trillion in 2017, likely one of the fastest growth spurts in world economic history. During that same period, according to the broader Human Development Index of the United Nations, China's well-being also increased by 49.7 percent, a handsome increase with life expectancy going up 7.1 years and years of expected schooling by 5 years. This shows why it is important to look beyond just the economic growth measurements for a fuller picture of the health of a population so that appropriate policy choices can be made.
The InterAction Council will meet this month for its 36thAnnual Plenary Meeting in Colombia to explore this topic further. When the Council met in Beijing last fall, it recommended that States abandon GDP as a measure of a nation’s productivity. The Final Communiqué rightly noted pursuit of GDP growth has created a vicious cycle that is ruining the planet.[21]Environmental, social, and economic challenges all require changes in how states measure success. Success cannot simply be evaluated on the value of market output; it must take a whole of society approach.
[1]Gross National Product measures all economic output generated by its nationals (including those residing overseas), whereas Gross Domestic Product measures all economic output generated within a country’s geographic boundaries. Both are insufficient measurements of welfare.
[2]Joseph E. Stiglitz, Jean-Paul Fitoussi, and Martine Durand, Beyond GDP: Measuring What Counts for Economic and Social Performance, (Paris: OECD Publishing, 2018), 13.
[3]Daniel C. Kenny, Robert Costanza, Tom Dowsley, Nichelle Jackson, Jairus Josol, Ida Kubiszewski, Harkiran Narulla, Saioa Sese, Anna Sutanto, and Jonathan Thompson, “Australia’s Genuine Progress Indicator Revisited (1962-2013),” Ecological Economics 158 (2019): 1.
[4]Ida Kubiszewski, Robert Costanza, Carol Franco, Philip Lawn, John Talbert, Tim Jackson, and Camille Aylmer, “Beyond GDP: Measuring and achieving global genuine progress,” Ecological Economics 93 (2013): 57.
[5]Kenny et. al., 1.
[6]Ibid.
[7]Coyle, 13.
[8]“The Trouble.”
[9]Robert Costanza, Maureen Hart, Ida Kubiszewski, and John Talberth, “A Short History of GDP: Moving Towards Better Measures of Human Well-being,” Solutions 5, no. 1 (2014).
[10]Ibid.
[11]Coyle, 15.
[12]Costanza et. al.
[13]Coyle, 15.
[14]Costanza et. al.
[15]Barbara Cavalletti and Matteo Corsi, ““Beyond GDP” Effects on National Subjective Well-Being of OECD Countries,” Social Indicators Research 136 (2018): 932.
[16]Giuseppe Munda, “Beyond GDP: An Overview of Measurement Issues in Redefining Wealth,” Journal of Economic Surveys 29, no. 3 (2015): 403.
[17]Cavalletti, 932.
[18]Munda, 405.
[19]Brent Bleys, “Beyond GDP: Classifying Alternative Measures for Progress,” Social Indicators Research 109, no. 3 (December 2012)
[20]https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?year_high_desc=true
[21]“Final Communiqué of the 35thAnnual Plenary Meeting,” InterAction Council, September 30, 2018. https://www.interactioncouncil.org/publications/35th-annual-plenary-meeting