Time has come for new indicators besides GDP

Economy June 24, 2013 00:00


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"Gross domestic product" - a term invented nearly 80 years ago - has become the most widely used indicator of economic well-being and benchmark tool for countries around the world. But the financial crisis engulfing the world at present raises a questio

“There’s no one indicator that can indicate everything. We should have other indicators aside from GDP,” Professor Anantha Duraiappah, executive director of the International Human Dimensions Programme on Global Environmental Change, said at Deutsche Welle Global Media Forum 2013’s session on “Beyond GDP”. To him, GDP is not a measure of well-being of society, as public benefits do not grow in line with growth in GDP.

As Simon Kuznets said when he prepared GDP for a US Congress report in 1934, the indicator can?not simplify a complex situation. For one thing, GDP cannot address how national wealth is distributed. If it is too focused on national wealth, a country could see a widening income gap that could destabilise the nation’s economic health.

Professor Tony Addison, chief economist and deputy director of the United Nations University World Institute for Development Economics Research, lamented that while African women spend a lot of time tending their farmland, their activities are not captured in the countries’ GDP, unlike output from factories that hurt the environment.

“We need an indicator that maximises good growth and minimises bad growth,” he said. “It’s not the measurement of income, but also the concentration of income of people in society.”

The Inclusive Wealth Index (IWI) and Inclusive Growth Project were unveiled at the global event last week, where other indicators were mentioned such as the Gross National Happiness (GNH) Index, the Human Development Index and the Better Life Index of the Organisation for Economic Cooperation and Development (OECD).

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Produced by the UN University International Human Dimensions Programme on Global Environmental Change and UN Environment Programme and launched in 2012, the IWI gives an overview on the evolution of some relevant categories of natural capital, such as forests, for 20 countries over a 19-year period from 1990 to 2008. It compares their decline or increase against two other areas: produced capital, such as roads and factories, and human capital, including levels of education, knowledge and creativity. It is the first to focus on natural capital and highlights the need for the inclusion of this critical capital in calculating the productive base of an economy – a task that has been ignored by most planning strategies and tools.

The IWI focuses on three pillars – natural capital, human capital and manufactured capital (manufacturing sector). All countries experienced growth in GDP per capita over the 19-year period assessed. South Africa, though seeing an average growth rate of 1.3 per cent of GDP per capita, witnessed a negative growth rate in the IWI, suggesting that it must focus more in all three fronts.

The 2014 version will cover 150 countries worldwide.

Meanwhile, the Inclusive Growth Project works towards achieving material progress for all in a society. For example, it means to answer why African countries benefit only slightly from the growth of global wealth despite their abundant resources.

For a good chance at a happy life, head to Australia, which once again topped the OECD’s Better Life Index. It looks at the quality of life in 34 member countries in 11 categories including income, housing, jobs, community, education, environment, civic engagement, health, life satisfaction, safety, and work-life balance. In the 2013 index, Australia won the highest scores. Bhutan was also famous for the GNH, which measures prosperity by gauging its citizens’ happiness levels, not the GDP.

Addison said societies could design their own matrix, as each society has its own preferences. African women would be happy if they had enough to eat and could send their children to school, while he would be happy if he had a Porsche.

“It’s up to what we want to measure. Globalisation creates stressful societies, as people must be mobile and change jobs. In a cockpit, we need the right combination of instruments to make passengers confident. There’s so much we [must] learn.”