Rethinking GDP: Why We Must Broaden Our Measures of Economic Success
An absurdity has conquered the globe: gross domestic product has morphed into the world’s key benchmark, defining not only economic success but human welfare itself. Relying so heavily on a simple measure of the amount of stuff bought and sold is like removing all of the gauges on a car’s dashboard except the speedometer. We have a dashboard precisely so we can measure different components of the vehicle—so we know when the engine is overheating or the gas tank is nearly empty.
True economic recovery will require creative solutions to deeply rooted problems. Our first great task is to change the way we talk about what's possible.
To measure success merely by volume, rather than quality, is a historically new concept. Yet today, GDP arguably shapes people’s thinking and actions more than any other ideology. Scholars and pundits compare national performance based on it—we envy China for its “above-average” growth rates, and when our meter hits negative territory we call it a recession. Businesses shape their investment decisions around GDP, and countries look to it when determining whether to lower tariffs or make their currencies convertible, just as the IMF does when deciding which nations are credit-worthy.
How did this happen? GDP was invented by American economists in the early 1930s as a tool to help Congress determine the depth and breadth of the Great Depression. Within a generation, propelled by war and the US-dominated internationalization of finance and trade, capitalist nations around the world embraced it.
Today, practically everyone is aboard, including communist dictators and religious clerics. From right to left, experts maintain that progress requires growth in GDP. But few inside or outside the corridors of power ask, “What is it that we are growing?” Much less: “Can we survive endless growth?”
GDP attained global domination precisely because it avoids value judgments about purpose, direction and consequences of economic activities. The measure hides the costs of pollution, depletion and sickness, and counts the bad as much as the good. More waste, more pollution, more accidents, more illness: all of these appear on the plus side. It puts zero value on justice, health or happiness. Nature’s vast services are not counted unless they are exploited and sold—which is why an early critic, Herman Daly, noted that GDP “treats the earth as a business in liquidation.”
A growing chorus of dissident scholars and activists have comprehensively documented how GDP distorts reality. Initiatives to design a full “dashboard” of measurements of fairness and sustainability, like the Human Development Index and the Genuine Progress Indicator, tell us much more about who we are, and how well we are doing [see Eyal Press, “Beyond GDP,” May 2]. One fact is lost in these important efforts: in terms of economic decision-making, the speedometer remains our focus. Most initiatives avoid policy implications. GDP still reigns supreme.
That’s why our companies, governments and international bodies must be forced by law to count “profit” and “loss” to include things like waters polluted, oil reserves depleted and communities destroyed. Vital ecosystem services and labor that are currently pushed “outside” market ledgers must be included. Otherwise, we will continue to drive the globe to the edge in blind pursuit of indiscriminate growth.
The first step is to abandon GDP, for it does more harm than good. The more difficult task is to agree on a basic set of alternative global indicators. Sustainability must be the guiding principle. Once better common metrics are established, the world market could actually begin to function as a valuable enforcement mechanism.
The stakes could not be higher. Policy aims must move from “growth” to responsible development, from “volume” to well-being. The question before us: who will finally step up to dethrone GDP.