Is GDP obsolete? Alternative measures of economic and social progress
Concept Note
Gross National Product (GDP) started to be calculated by the statistical offices in the US and Europe only after the Second World War[1], and it is criticized virtually since the moment of its inception into the statistical practice. In the often cited speech of Robert Kennedy in the University of Kansas on March 18, 1968, heclaimed that GDP “measures everything, except that which makes life worthwhile”[2].
In 1990 the UNDP started the publication of Human Development Report, where the Human Development Index (HDI) was calculated. It was a simple non-weighted average of three normalized indicators – life expectancy, educational level and PPP GDP per capita. In recent years HDI is adjusted for inequality. In the list of countries with the highest HDI (table) we find the usual suspects (Scandinavian countries, Germany, the Netherlands, Austria, Switzerland, Australia, France, Luxembourg, Belgium, Canada, UK, US), but also Ireland, Slovenia, Czech Republic, Slovakia, which are nowhere near the top in the per capita GDP list of countries.
Table. 2015 Inequality-adjusted HDI (IHDI) (2016 report, top countries)
Rank / Country / IHDI1 / Norway / 0.898
2 / Iceland / 0.868
3 / Australia / 0.861
3 / Netherlands / 0.861
5 / Switzerland / 0.859
6 / Germany / 0.859
7 / Denmark / 0.858
8 / Sweden / 0.851
9 / Ireland / 0.850
10 / Finland / 0.843
11 / Canada / 0.839
12 / Slovenia / 0.838
13 / United Kingdom / 0.836
14 / Czech Republic / 0.830
15 / Luxembourg / 0.827
16 / Belgium / 0.821
17 / Austria / 0.815
18 / France / 0.813
19 / United States / 0.796
20 / Slovakia / 0.793
Source: Wikipedia.
As the jubilee (50 years’ anniversary) report of the Club of Rome stated, “measuring our success on GDP growth has proven inadequate to the task and it also masks a growth in inequality between rich and poor. New indicators such as a Genuine Progress Indicator could more accurately measure economic welfare[3].
This Genuine Progress Indicator is supposed to take into account the damage done by the depletion of resources and pollution of the environment, as well as social achievements[4].
Bhutan started to conduct nationwide Gross National Happiness (GNH) surveys in 2008. In 2012, Bhutan and United Nations convened theHigh Level Meeting: Well-being and Happiness: Defining a New Economic Paradigmto encourage the spread of Bhutan's GNH philosophy.At the High Level meeting, the firstWorld Happiness Reportwas issued.
The commission that included five Nobel laureates in economics concluded in 2009 that “the time is ripe for our measurement system to shift emphasis from measuring economic production to measuring people’s well-being”.[5] It recommended to consider several dimensions of wellbeing: i. Material living standards (income, consumption and wealth); ii. Health; iii. Education; iv. Personal activities including work v. Political voice and governance; vi. Social connections and relationships; vii. Environment (present and future conditions); viii. Insecurity, of an economic as well as a physical nature.
Today there is a large literature on shortcomings of GDP and a lot of proposals for alternative indicators of economic and social progress[6], but the issue is far from settled.
Discussion points:
- There may be one justification for GDP computation: higher GDP percapita may not bring more happiness or justice, but leads to a greater economic competitiveness. Countries with higher GDP per capita are more competitive in the short run and can drive other countries out of business (make them economically bankrupt). The result is that countries with greater justice and happiness (and higherlife expectancy, literacy, better ecology and environment,lower crime, and better use ofresources, etc.) will disappear in the economic competition with the irresponsible countries that care only about GDP.
- What are the alternative general indicators of performance and progress? How to best take into account the sustainable development concept? How (with what weights) to aggregate different goals of development to construct a general indicator?
- Happiness indices. If we find the empirical relationship between happiness and per capita income, life expectancy, educational attainment, crime, pollution, inequality and other indicators, should we replace GDP with the happiness indicator constructed out of these and other variables?
Confirmed speakers:
Vladimir Yakunin, chairman of DOC-RI Board of Directors,
David Pilling, Africa Editor, Financial Times ( Author ofThe Growth Delusionpublished in the UK by Bloomsbury January 25, 2018. In the USThe Growth Delusionpublished by Tim Duggan Books January 30, 2018
Fred Harrison, Director, Land Research Trust, London,
Vladimir Popov, Professor, DOC-RI Research Director, Economics and Politics,
Prof. Dr. Philipp Schepelmann , Senior Research Fellow Energy, Transport and Climate Policy, Wuppertal Institute
Prof. Dr. BeateJochimsen, Department of Business and Economics, Professor for Public Finance, Berlin School of Economics and Law
Prof. Dr. Christian Haerpfer,Research Professor of Political Science, University of Vienna, since 2013 president of the World Values Survey Association (WVSA)
Pablo Ava, Head of Policy and Research, Argentina Council of Foreign Relations.
Dr. Judith Shapiro, Undergraduate Tutor, Department of Economics ,“Taking GDP beyond the production boundary and its impact on gender bias in measurement”
Dr. Richard Werner, Professor of International Banking at the University of Southampton
[1] USSR was the first country to introduce a system of the national accounts in the 1920s and computed national income indicator. It differed from GDP (it did not include depreciation of the fixed capital stock and value added in service industries), but national accounts contained all the necessary information for the computation of GDP.
[2]“Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product - if we judge the United States of America by that - that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage.
It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl.
It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children.
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 does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.
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.
And it can tell us everything about America except why we are proud that we are Americans.
If this is true here at home, so it is true elsewhere in world”.
[3]Come On!: Capitalism, Short-termism, Population and the Destruction of the Planet. 2017.
[4]Genuine progress indicator(GPI) is ametricthat has been suggested to replace, or supplement,gross domestic product(GDP). The GPI is designed to take fuller account of thewell-beingof a nation, only a part of which pertains to the size of the nation's economy, by incorporating environmental and social factors which are not measured by GDP. For instance, some models of GPI decrease in value when thepovertyrate increases.[The GPI separates the concept of societal progress fromeconomic growth (Wikipedia).
[5]Stiglitz, Joseph E., Amartya K. Sen, and Jean-Paul Fitoussi (2009): Report by the Commission on the Measurement of Economic Performance and Social Progress.
[6]See, for example: Sean McDaniel and Craig berry. Measuring and understanding the economy literature-review. Prepared by the IPPR Commission for Economic Justice. September 2017 (