Changing how we measure progress is key
Beyond GDP
The need to define and measure progress in a different way now looks as unarguable as it is urgent. Three experts – Prof Paul Allin, Prof Diane Coyle and Prof Tim Jackson – debate the issue.
It’s an odd quirk of history that, on the first day of his ill-fated presidential campaign in March 1968, Robert F Kennedy chose to talk to his audience about the limitations of gross domestic product (GDP) – the world’s headline indicator of economic progress.
It seems stranger still that, despite the power of that iconic speech, growth in GDP remains to this day the predominant measure of progress across the world. Economic success is measured by it. Government policy is assessed by it. Political survival hangs on it.
Kennedy’s speech inspired a host of critiques. It has been quoted by presidents, prime ministers and Nobel laureates. Yet GDP itself has survived until now, more-or-less unscathed.
But amid ever-louder concerns about the failure of national economies to tackle the multiple threats posed by climate change, spiralling energy costs, insecure employment and widening levels of inequality, the need to define and measure progress in a different way now looks as unarguable as it is urgent.
EVALUATING POLICIES
In simple terms, GDP is a measure of the size of a country’s economy: how much is produced, how much is earned, and how much is spent on goods and services across the nation. The monetary total, whether in dollars or euros, yuan or yen, is then adjusted for any general increase in prices to give a measure of “real” economic growth over time.
When governments adopt policies to pursue economic growth, this is how those policies are evaluated.
Since 1953, GDP has been the headline measure in a complex system of national accounts overseen by the United Nations. Developed during the Second World War, these accounts were motivated in part by the need to determine how much governments could afford to spend on the war effort.
‘THE GOODS, THE BADS, AND THE MISSING’
But in measuring the monetary value of economic activity, GDP can incorporate many of the “bads” that detract from our quality of life. War, pollution, crime, prostitution, traffic congestion, disasters like wildfires and the destruction of nature – all can have a positive impact on GDP. Yet they cannot really be construed as components of economic success.
At the same time, there are numerous aspects of our lives that simply go missing from this conventional account.
The inequality in our societies. The contributions from unpaid work. The labour of those who care for the young and the elderly at home or in the community. The depletion of natural resources or biodiversity. And the value of data and many digital services.
What lies outside the market, including public services funded out of taxation, remains unmeasured in a metric of monetary exchange. Kennedy was blunt: “[GDP] measures everything, in short, except that which makes life worthwhile.”
‘IT’S NOT OURS’
It’s a sentiment that has resonance half a century later.
In a striking encounter during the Brexit debate, a UK academic was trying to convey to a public meeting the dangers of leaving the EU. The impact on GDP would dwarf any savings from the UK’s contributions to the EU budget, he told the audience. “That’s your bloody GDP!” shouted a woman in the crowd. “It’s not ours.”
This sense of an indicator out of touch with reality may be one of the reasons there is momentum for reform. When GDP conceals crucial differences between the richest and the poorest in society, it inevitably says little about the prospects for ordinary people.
TECHNOCRATIC
But there are other reasons too for an emerging change of heart.
The pursuit of GDP growth as a policy goal, and the impact that has on government, business and personal decision-making, has accompanied increasing devastation of the natural world, a loss of forests and habitats, the destabilisation of the climate, and near-meltdowns of the world’s financial markets. At the same time, GDP has become a poor measure of the technological transformation of society.
Its tenacity as a measure of progress, despite these well-known limitations, arises from factors which are on the one hand technocratic, and on the other sociological.
As the headline measure in a sophisticated system of national accounts, GDP has a technocratic convenience and analytical elegance that remains unsurpassed by many alternative measures. Its authority arises from its ability to be simultaneously a measure of production output, consumption expenditure and income in the economy. – The Conversation
* Paul Allin is a visiting professor in statistics at the Imperial College London, Diane Coyle is a professor of public policy at the University of Cambridge, while Tim Jackson is a professor of sustainable development and the director of the Centre for the Understanding of Sustainable Prosperity (CUSP) at the University of Surrey.
It seems stranger still that, despite the power of that iconic speech, growth in GDP remains to this day the predominant measure of progress across the world. Economic success is measured by it. Government policy is assessed by it. Political survival hangs on it.
Kennedy’s speech inspired a host of critiques. It has been quoted by presidents, prime ministers and Nobel laureates. Yet GDP itself has survived until now, more-or-less unscathed.
But amid ever-louder concerns about the failure of national economies to tackle the multiple threats posed by climate change, spiralling energy costs, insecure employment and widening levels of inequality, the need to define and measure progress in a different way now looks as unarguable as it is urgent.
EVALUATING POLICIES
In simple terms, GDP is a measure of the size of a country’s economy: how much is produced, how much is earned, and how much is spent on goods and services across the nation. The monetary total, whether in dollars or euros, yuan or yen, is then adjusted for any general increase in prices to give a measure of “real” economic growth over time.
When governments adopt policies to pursue economic growth, this is how those policies are evaluated.
Since 1953, GDP has been the headline measure in a complex system of national accounts overseen by the United Nations. Developed during the Second World War, these accounts were motivated in part by the need to determine how much governments could afford to spend on the war effort.
‘THE GOODS, THE BADS, AND THE MISSING’
But in measuring the monetary value of economic activity, GDP can incorporate many of the “bads” that detract from our quality of life. War, pollution, crime, prostitution, traffic congestion, disasters like wildfires and the destruction of nature – all can have a positive impact on GDP. Yet they cannot really be construed as components of economic success.
At the same time, there are numerous aspects of our lives that simply go missing from this conventional account.
The inequality in our societies. The contributions from unpaid work. The labour of those who care for the young and the elderly at home or in the community. The depletion of natural resources or biodiversity. And the value of data and many digital services.
What lies outside the market, including public services funded out of taxation, remains unmeasured in a metric of monetary exchange. Kennedy was blunt: “[GDP] measures everything, in short, except that which makes life worthwhile.”
‘IT’S NOT OURS’
It’s a sentiment that has resonance half a century later.
In a striking encounter during the Brexit debate, a UK academic was trying to convey to a public meeting the dangers of leaving the EU. The impact on GDP would dwarf any savings from the UK’s contributions to the EU budget, he told the audience. “That’s your bloody GDP!” shouted a woman in the crowd. “It’s not ours.”
This sense of an indicator out of touch with reality may be one of the reasons there is momentum for reform. When GDP conceals crucial differences between the richest and the poorest in society, it inevitably says little about the prospects for ordinary people.
TECHNOCRATIC
But there are other reasons too for an emerging change of heart.
The pursuit of GDP growth as a policy goal, and the impact that has on government, business and personal decision-making, has accompanied increasing devastation of the natural world, a loss of forests and habitats, the destabilisation of the climate, and near-meltdowns of the world’s financial markets. At the same time, GDP has become a poor measure of the technological transformation of society.
Its tenacity as a measure of progress, despite these well-known limitations, arises from factors which are on the one hand technocratic, and on the other sociological.
As the headline measure in a sophisticated system of national accounts, GDP has a technocratic convenience and analytical elegance that remains unsurpassed by many alternative measures. Its authority arises from its ability to be simultaneously a measure of production output, consumption expenditure and income in the economy. – The Conversation
* Paul Allin is a visiting professor in statistics at the Imperial College London, Diane Coyle is a professor of public policy at the University of Cambridge, while Tim Jackson is a professor of sustainable development and the director of the Centre for the Understanding of Sustainable Prosperity (CUSP) at the University of Surrey.
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