Gross Domestic Product is the crack-cocaine of economic indicators. It’s a simple concept, it’s easy for politicians and the media to recite, and it fits in perfectly with society’s single-minded obsession with growth — no matter what the consequences.
It’s time to stop that addiction, say world leaders.
“GDP has always had its limitations. Progress needs to be defined in a way which accounts for the broader picture of human development,” said Helen Clark, administrator of the UN Development Program, speaking at a side event at the Rio+20 summit today.
She was joined by a group of heavy hitters, including Denmark’s Prime Minister Helle Thorning-Schmidt, Zambia’s President Michael Chilufya Sata, former OECD Chief Statistician Enrico Giovannini, and World Bank Environment Program Head Mary Barton-Dock — all of whom called for an end to our overreliance on GDP.
GDP simply measures the volume of economic activity in a given economy. The higher the GDP, supposedly the higher the quality of life. But because it equally values all economic activity — good, bad, and disastrous — it’s a woefully inadequate tool for gauging human and environmental progress.
In 1968, Robert Kennedy made one of the most famous and oft-quoted statements on the limitations of the metric:
“The Gross National Product includes air pollution, and ambulances to clear our highways from carnage. It counts special locks for our doors and jails for the people who break them. The Gross National Product includes the destruction of the redwoods and the death of Lake Superior. It grows with the production of napalm and missiles and nuclear warheads.”
The chart below, one of many put together by Demos, is a stark illustration of why GDP is such a poor measurement tool. As economic output has increased in the U.S., our biocapacity — the availability of natural resources — has fallen in tandem. If looking at the brown line in a narrow context, all is well. When considering the environmental impact of that growth, clearly we have a problem:
For decades, those concerned about sustainability have struggled to make innovative methods of measuring human and environmental well-being stick in the international zeitgeist. But they’ve only had limited success.
It’s not like there aren’t any options. Economists and statisticians have developed plenty of alternatives to measuring social and environmental health over the years. In 1992, the United Nations adopted the Human Development Index developed by Pakastani economist Mahbub ul Haq. It’s the most well-known alternative. However, while it’s been widely used by the UN and has been somewhat effective in challenging traditional ways of thinking, it still hasn’t sparked a major shift away from countries’ addiction to GDP.
So leaders are using this year’s Earth Summit to try to change the dialogue. Today they announced plans to craft a new index through the UN’s Human Development Report Office that would track the cost of human development on future generations, rather than just use the current Human Development Index to track current well-being. It’s the UN’s version 2.0.
But fleshing out that new model is complicated. The UNDP’s Helen Clark expressed the difficulties in establishing a new set of metrics: “What should be measured? And what indicators could be used? What are overriding principles? What do policymakers need to know?”
Answering those questions becomes more difficult the deeper you want to go. The World Bank’s Mary Barton Dock provided a fantastic example of how complicated it can be valuing natural capital.