Gone Are the Glory Days of GDP

I felt deeply encouraged when I heard these words by Michael Green, the CEO of the international Social Progress Imperative, which offers a new tool for measuring a society’s wellbeing, progress and success in the 21st century, called the Social Progress Index.

This Index includes social and environmental measures as key components in the holistic evaluation of each country in the world. GDP does none of this; at its most basic it is a measure of the value of all the goods and services produced in a country over time.

The Social Progress Index, like GDP, is a tool conceived to best reflect the goals of the time. Yet GDP has long overstayed its time. It has also managed to shed its origins as a mere tool to measure economic progress in the United States in 1934, and risen to achieve near immortal universal status as the benchmark of all economies.

Green explains this legacy extremely well. He says “on the 4th January 1934 a young man named Simon Kuznets delivered a report titled ‘National Income: 1929 to 1932’ to the United State Congress. This young man wasn’t a politician, he wasn’t a businessman, civil rights activist or a faith leader; he was that most unlikely of heroes, an economist during the era of the Great Depression”.

Green goes on to say that Kuznets himself clearly warned that GDP is simply a measure of economic performance and that it should not be a guide to all decision-making. But everyone ignored his warning and his report entrenched itself as the Gross Domestic Product (GDP) measure of economies that has defined and shaped our lives for over 80 years.

I have always regarded GDP as a flawed measure of wealth and progress because not only is this a one-dimensional evaluation, its growth is often at the expense of the overall income, equality or environment of that country.

If we look at South Africa, for example, we might think that 5% or 7% GDP growth is going to boost our economy, but economic growth alone does not by any means equate to an increase in the quality of all of our citizen’s lives.

As Green says: “Our societies have become engines to create more GDP, but it is flawed because it ignores the environment, it counts bombs and prisons as progress and has nothing to say about fairness or justice. Is it any surprise that our world, marching to the drum of GDP, is teetering on the brink of environmental disaster and filled with anger and conflict.”

In the 21st century we need new tools of measuring growth, wealth and progress because of the fact that GDP overlooks basic human wellbeing factors. These include access to healthy food, a healthy environment, decent employment, electricity, healthcare, education and property.

The Kingdom of Bhutan in the Himalayas, takes these factors a step further in its Gross National Happiness Index, introduced by the King. It represents a commitment to build an economy based on the Buddhist values of contentment rather than on western materialism.

Whether it is possible to measure something as subjective as happiness is a separate debate. What this discussion sets out to assert is that relying only on a country’s GDP is inadequate in this era of integrated reporting and sustainability.

As an alternative, the Social Progress Index invites a whole new way of looking at the world. It begins by defining what it means to be a good, valuable society based on these sorts of questions that determine the quality of people’s lives:

  • Does everyone have the basic needs for survival: healthy food, clean air and water, shelter and safety?
  • Does everyone have access to the building blocks to improve their lives: education, health and a sustainable natural environment?
  • Does everyone have access to a chance to purse their goals, dreams and ambitions, free from obstacles and discrimination, and with the necessary rights and freedoms of choice?
  • Does every individual have access to the world’s most advanced knowledge?

Of 132 countries in the world measured according to the Social Progress Index, the country with the highest social progress is New Zealand, and the lowest is Chad. The highest ranked G7 country is Canada and top of the BRICS is Brazil.

Interesting comparative information emerged from this measurement, such as the fact that according to its GDP score, the United States is economically considerably richer than New Zealand, but it has a lower level of social progress. Kuwait has an extremely high GDP score but very little social progress.

It makes absolute sense to introduce a new measure for new times and new ways of defining and valuing success. This would also help to hold politicians accountable for really improving people’s lives.

As Green puts it: “We are living in a moment when we are ready for a measurement revolution, we have seen from the financial crisis of 2008 how our fetish for economic growth led us so far astray.”

Today we have the technology available to gather and analyse so much more information in ways that were not available in Kuznets’ time. GDP’s glory days are gone; it is time for change.

This article appeared in Leadership, Edition 368, March, 2016. It is reproduced with their permission.