Should We Abandon The GDP?

In economics, a simple equation taught to students has been used to determine a country’s success since 1953: GDP = C + I + G + (X-M); C is consumer spending, I is business investment, G is government spending, and (X-M) is net exports.

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The GDP was originally invented by Simon Kuznets in 1934 as a wartime metric to determine how a country could pay for military equipment. Now, it measures the size of a country’s economy: how much is produced, earned, and spent on goods and services. 

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Pushing The Ecological & Social Limit

The GDP has limitations; it fails to consider factors that increase inequality and damage the environment, such as war, pollution, crime, wildfires, factory farms, and more. In fact, these factors can create a false positive impact on the GDP: goods and services are exchanged in the production and shipping of arms, firefighters, prisoners, and animals are all considered “growth.”

In light of this, is it time to abandon it as an indicator of a country’s well-being? More countries are already beginning to use alternative metrics that better reflect the well-being of citizens. New Zealand has embraced a “Living Standards Framework,” while Bhutan utilizes a National Happiness Index. What are other metrics can we adopt to encourage and promote the growth of our happiness, social progress, and environmental stewardship? 

Human Development Index (HDI): Created by the United Nations Development Programme (UNDP), the HDI emphasizes people and their health, education, and income as the metric of measuring well-being. It examines life expectancy, years of education, and gross national income (GNI) per capita. If two countries with similar GNI rank differently on the HDI, then the HDI can be used to challenge countries to reprioritize and pass improved national policy. However, factors such as inequalities, poverty, human security, and empowerment are not measured under this Index. 

‍Genuine Progress Indicator (GPI): Invented by the United States in 1995, the GPI incorporates social and environmental factors into measuring economic growth. It supplements the GDP by adding points for positive factors such as volunteer work, higher education, and services of highways and streets, while subtracting points for negative factors such as ozone depletion, net loss of farmland/wetland/forests, crime, and commute times. 

Happy Planet Index: Developed by Nic Marks in collaboration with the Well-Being Economy Alliance, the HPI multiples Life Expectancy score by Self-Reported Wellbeing, then divides that score by Carbon Footprint. The resulting rankings look vastly different from those normally seen in other Indexes with Global North countries dominating the top spots. The HPI has ranked Costa Rica as the Happiest Country four times, followed by countries like Vanuatu, Jamaica, Switzerland, Panama, and Colombia. In comparison, the US ranks #122, showing it’s possible to enjoy a long life without the large ecological footprint left by some of the highest consuming countries. 

Better Life Index (BLI): To determine the quality of a good life, the BLI measures 11 topics that overall center economic development while including social factors, like housing, jobs, safety, environmental footprint, and education. Developed in 2011 by the Organisation for Economic Co-operation and Development, the BLI is still in development and has been used to measure the wellbeing of 40 countries. However, citizens from every nation can enter data on what matters to their personal wellbeing in an interactive index.

Gross National Happiness (GNH): Enshrined in the 2008 constitution of the Kingdom of Bhutan, GNH values collective happiness as the guiding philosophy of its government. Under its four pillars, sustainable and equitable socio-economic development; environmental conservation; preservation and promotion of culture; and good governance, the GNH has distinctly Buddhist roots. 

It examines 9 domains of happiness: psychological well-being, health, time use, education, cultural diversity and resilience, good governance, community vitality, ecological diversity and resilience, and living standards to create the system. From Thailand to Seattle, WA, other countries and cities have been inspired to create their own GNH index to measure citizen wellbeing. 

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It’s Time To Revise The Priorities Of The Near Future

These creative indexes fill in the gaps missed by the GDP to prioritize the health of both society and the planet itself. In the end, it’s difficult to truly measure social factors, especially when international companies operate across borders, impacting another region’s environment and economy. There remains an index that keeps international companies accountable for their impact, especially in cases of Green Colonialism, but these other indices are an excellent way to begin motivating governments to pass policies that can result in a better planet for all. 

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Check out this article on bringing doughnut economics to your city, and learn more about other frameworks beyond the GDP.