Three alternative measures of progress

The shortcomings of Gross Domestic Product as a measure of success are fairly well known – it’s a measure of the quantity of economic activity, not its quality. It ignores all non-monetary activity, and can’t distinguish between spending on things we want, and spending on things we don’t want. Politicians and the media insist on treating the quarterly growth figures as the last word on our health as a nation, but GDP tells us nothing about real progress and the wellbeing of our society. Even the inventor of GDP thought so, and cautioned governments about the limits of GDP’s usefulness. It was designed in 1934 to track recovery from the depression, and Simon Kuznets warned that “the welfare of a nation can scarcely be inferred from a measure of national income.”

So what should we be measuring instead? There have been plenty of alternatives suggested, measures that deliver a single number that sums up how we’re doing, but reflects what matters most. At the risk of acronym overload, here are five:

  • GPI – GDP counts all activity as good, but we all know that if the increase came from car accidents and divorce lawyers, it wouldn’t be anything to celebrate. The Genuine Progress Indicator aims to correct GDP by adding up economic activity, and then subtracting negative spending. The costs of war, air pollution, and loss of farmland are among the subtractions, giving us a much better picture of the quality of our economic activity.
  • HDI – the Human Development Index was developed by the UN Development Programme and combines education, life expectancy and GDP per capita. It is based on Amartya Sen’s philosophy of development, which suggests that governments should measure what their citizens can do, not just what they own.
  • HPI – the Happy Planet Index takes a slightly different approach, and combines environmental footprint information with wellbeing reporting and life expectancy. A country’s HPI score reflects how good that country is at delivering good lives to its citizens sustainably. Countries can score badly by failing to provide for people, or by using too many resources.

As well as these three, there’s also the Measure of Domestic Progress and the Index of Sustainable Economic Welfare. What all of them show is that raw size is an inadequate measure of progress. GDP can rise while the Genuine Progress Indicator flatlines, showing what some might call uneconomic growth. Other countries have seen improvements in quality of life without actually getting richer. The picture is more mixed that GDP alone can show.

All of these various measures have their own advantages and disadvantages, and none of them are without bias. Ultimately, however, I think the idea of trying to capture everything in one single figure is doomed to failure. We need a whole range of measures to give us a full picture. That is, I’m pleased to say, what the Office of National Statistics produced when asked to develop a broader measure of the nation’s wellbeing.

5 Comments on “Three alternative measures of progress”

  1. Warren Hatter February 19, 2013 at 11:32 am #

    I’m interested that you didn’t mention a (five) capitals model. My view is that the idea of measuring our ‘wealth’ and then tracking it to see if we are getting better or worse off, is quite a simple one. Much of the content would be similar to, say, the ONS measure, but it would be framed in a way that makes it more accessible to the public, and replaces GDP as the topline measure. For example, wouldn’t we be in a position to say that, due chiefly to digging into our social and environmental capital, we’ve been in recession for 2-3 decades? A political debate with that framing would have developed very different policies. The framing of other approaches looks to me like: “here are some things we should also have an eye on; it’s not only about GDP, you know …”

    • Jeremy February 19, 2013 at 12:13 pm #

      Yes, when you compare GDP with other measures, particularly the GPI, you realise that many developing countries have indeed been flatlining for a matter of decades. I was going to add a graph, but I thought I’d save it for another post.

      I haven’t used the five capitals model because I’m not aware of an index based on that, but there may be one. It’s been a while since I checked in on Forum for the Future, who have been pioneering that approach.

      Ultimately it’s going to need a range of measures, as I say at the bottom. The five capitals could be used in that context, definitely, although it has so far proved rather tricky pricing up natural capital.

  2. nicoleroughton February 19, 2013 at 2:28 pm #

    I had heard of HDI and GPI, but the others were completely new to me- very interesting.
    I know it is not a global index, but the Ibrahim Index of African Governance is a good one to consider as well, because it incorporates many of the measures you have mentioned above: http://www.moibrahimfoundation.org/interact/

Trackbacks/Pingbacks

  1. What drives development? | Make Wealth History - March 19, 2013

    [...] of good news in the report is that there isn’t a single country in the world that has seen its Human Development Index score fall between 2000 and 2012. There have been short term dips in places, but the overall trend [...]

  2. Genuine Progress vs GDP | Make Wealth History - September 3, 2013

    […] summer they ran a story on one of the alternatives to Gross Domestic Product, the more holistic Genuine Progress Indicator. Where GDP just measures […]

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