Looking beyond GDP as a measure of success
by Benedict Gardner
In the satirical TV series Yes Minister, the highly-strung bureaucrat Sir Humphrey Appleby explains to his subordinate, Bernard, how the civil service measures its success: ‘By definition Bernard, a big department is more successful than a small one.’ In this statement lies a notion underpinning nearly every political manifesto in the world – the idea that size and growth rate act as proxies for success. We see this in the Chinese government’s explicit target of 6.5 percent annual growth; to satisfy this goal, they are willing to open a coal-fired power station every week and maintain a dismal human rights record. In the frenzy to secure a growing economy, governments disregard considerations of human prosperity and environmental sustainability. This is in no small part due to the emphasis placed on the metric of Gross Domestic Product (GDP).
GDP is a measure of all goods and services produced within a country’s borders in a given year. Conceived by Simon Kuznets in the 1930s, GDP was a simple, effective measure which steered the US policy agenda towards escape from the severe economic depression. But once production had been restored post-World War II, the steep growth curve became the new benchmark for a successful state. This is still the norm today, whereby the growth rates of 1.7 percent currently seen in the Eurozone are described as ‘slow’.
Labelling GDP growth as slow helps special interests justify damaging environmental practices. Take the recent decision by the UK government to build a third runway at Heathrow. Those saying ‘no’ to Heathrow cited the environmental destruction, noise pollution, and lack of local benefit. The pro-third runway lobby countered with reports of a £178bn GDP boost to the UK. GDP often serves as a tool to justify any path necessary to secure its expansion, regardless of local wellbeing or environmental health.
It is in this growth-addicted culture that I propose the replacement of GDP. This does not, however, mean an end to tracking a nation’s progress. Metrics serve an important purpose in democratic systems, producing easily digestible figures for citizens to challenge and hold their government to account. Consequently, we need a new metric to take GDP’s place. But what should this metric measure?
Metrics serve an important purpose in democratic systems, producing easily digestible figures for citizens.
This question is much bigger than it may at first seem. Philosophical questions arise when choosing the values we should count and those we should omit. These questions are inevitably politically and culturally charged. For example, replacing GDP with the Human Freedom Index would be biased in favour of countries with liberal values. The move would not sit well with governments which value freedom less highly, and would struggle to ever reach global recognition.
Measurement itself is an acute challenge, particularly when trying to measure non-material factors. We can ask people to quantify their wellbeing, but research design and cultural bias often distort results. People struggle to distil their entire life value into a number between 1 and 10. Even once they do, it is difficult to discern what the result means. Finland for example has a score of 7.537 out of 10 in the Gallup’s World Poll of Life Satisfaction, but visualising a 7.537 lifestyle is conceptually difficult. The physical environment presents difficulties too. Putting a value to each tree, blade of grass, and bird is a difficult task, and finding international consensus on these natural resources harder still.
While these difficulties might support the use of convenient production-based metrics, even GDP struggles to measure production in the 21st century economy. Take Wikipedia, which has largely replaced the sale of encyclopaedias. Is this a loss of production? If considered new production, assigning a value becomes immensely difficult using GDP. GDP relies on the paradigm in which every good has a price equal to its value. Wikipedia is an unpriced good, and would be unlikely to retain its users if a paywall were to be installed. Yet the service still clearly has value – this is evident to any student with an impending essay deadline. As the internet promotes the creation of products without prices, metrics that rely on costing goods as a measure of worth face a profound threat.
Despite all these barriers, there has been an explosion in new metric design in the 21st century. One broad shift in thinking is from an economic to a wellbeing focus, creating what I will refer to as ‘prosperity metrics’. The Legatum Prosperity Index is one example, which adds eight ‘pillars’ to economic prosperity – including Social Capital (measuring life opportunities), Environmental Health (measuring commitment to conservation and air quality), and Security (measuring the lack of exposure to crime). By aggregating many pillars, prosperity metrics measure success based on a policy’s holistic effect, which dilutes the importance of economic factors. A significant increase in GDP would no longer be reason enough to pursue a project; governments instead would have to run cost-benefit analyses across a range of environmental and social issues.
Using the example of Heathrow, we can see that it becomes much harder to justify the expansion if a prosperity metric is the main metric for success. Claims of GDP growth cannot drown out opposing claims of noise pollution and minimal local benefit, because this will negatively impact mental health, environmental quality, and civic participation, all of which are parts of a prosperity measure. The economic case may be overwhelming in some cases. But in a line-up of proposals, all of which deliver similar economic returns, the project that scores highest will be the one ensuring the maximum wellbeing.
Prosperity metrics are not without their faults. In the Legatum Index, the Netherlands achieves a prestigious position of 6th overall, while being ranked 46th for Environmental Quality. Using this, a country could justify a lack of environmental sustainability if it had a higher level of wellbeing. While the justification would be more virtuous, it still would be fundamentally unsustainable. Some metrics therefore place a stronger weight on environmental impact.
Ecological Footprint, designed by the Global Footprint Network, is one such metric. It weighs each country’s natural resource endowment against their resource usage. A carbon endowment is also allocated per person, from which actual carbon output is subtracted. This creates a figure representing the number of Earths used. If a country uses 1 Earth or below, they use fewer resources than they can reasonably regenerate; more than one means a country is borrowing resources either from their future, or other countries via imports. The UK’s use stood at 2.85 Earths per year, the US at 4.97 and the world (in total) at 1.4 Earths as of 2014. It takes only a simple understanding of the figures to see that current consumption rates are not sustainable. This metric therefore promotes what one could call ‘One Earth Living’. This bears the important consequence of allowing developing nations such as India (0.67 Earths) and Somalia (0.72 Earths) to continue to develop, placing impetus for change on developed, Earth-intensive nations.
But the Ecological Footprint has failings of its own, principally its lack of environmental justice. The inequity of natural resource distribution favours China with its coal reserves over small, resource-poor nations making positive strides towards renewables. Free trade proponents point out that it is natural that some countries have larger environmental deficits than others, as they have specialized their economies for the output of specific resources in which they have a comparative advantage. These valid criticisms, stemming from the left and right of the political spectrum respectively, make Ecological Footprint an unlikely successor to GDP.
Both environmental and prosperity metrics make the vital step of departing from a growth-centric model. However, no metric yet has adequately combined and quantified prosperity and environmental considerations. Fulfilling this idea is the basis of my own metric, Net Domestic Value (NDV). NDV is calculated by taking GDP as its base, modifying it using existing social metrics to reflect prosperity, and then subtracting the Earth Use in GDP terms (i.e. an Earth Use of 1.4 means subtracting GDP * 1.4). Countries who manage to produce the maximum social value (the biggest ‘plus’) with the smallest environmental impact (the smallest ‘minus’) will have the healthiest score.
Both environmental and prosperity metrics make the vital step of departing from a growth-centric model.
NDV promotes ‘green growth’, the idea that economic growth can continue providing it is decoupled from heavy environmental impact. Developing economies with minimal Earth Use perform well in a NDV model, as only a small quantity is subtracted. However, if their chosen path to development leads them to coal-fired power stations and wide deforestation, environmental outgoing will sharply increase and any overall gain will be lost. This encourages nations to seek low-carbon, low-impact alternatives to prosperity gains. Similarly, developed nations will be incentivised towards investment into low-carbon and recycling technology which appears as ‘free’ value on the balance sheet.
Net Domestic Value is not a perfect solution. The quantification of social capital is always a thorny issue, and many left-wing and Marxist theorists bemoan the creep of the economics into social and environmental spheres. Perhaps most damningly, a change in metric would not necessarily lead to a change in late capitalism. Even assuming all governments of the world accepted the idea of NDV, it is difficult to imagine that corporations would abandon principles of profit maximisation in the name of public good.
While it may not fundamentally change economics, a new metric would tackle at least one part of our unsustainable trajectory – the goal of growth for growth’s sake. In every aspect of life, from education to work appraisals to sport, success means achieving the highest possible score. If we define metric success as unfettered economic growth, then unfettered economic growth is what we will pursue. New metrics must be developed that incentivise only prosperous development that respects environmental bounds. NDV is my attempt, but the challenge remains for policymakers everywhere to find a metric that can surpass GDP in both appropriateness and popularity.
Illustrations by Megan Rose Jones and Isabel Galwey
Benedict Gardner reads for a BA in geography at St. John's College, University of Oxford. He is interested in innovative public policy.