Economists and politicians across the globe use Gross Domestic Product (GDP) as the ultimate yardstick for measuring and ranking countries’ wealth. But as more and more economists begin to question GDP’s true worth, there are growing calls to find GDP alternatives to measure countries’ wealth and welfare.
What is GDP?
Introduced on the floor of the U.S. Congress in 1937, GDP is a metric economists use to analyse the objective wealth of a country. It looks at all the goods and services exchanged within a country’s borders in a given year. To avoid counting things twice and skewing numbers, only a final product is measured, not the materials that go into producing it. When economists talk about GDP, they’re often talking about “real GDP” which is adjusted for inflation.
And when you measure a country’s wealth using this method, you get a ranking that looks like this:
1st place: United States
2nd place: China
Last place: Tuvalu
What’s the problem with it?
Photo by Nikolas Noonan
As economists like Joseph Stiglitz have pointed out, GDP can’t accurately represent the wealth of a country when it ignores how money is divvied up. Considering GDP alone, a rich country where 10% of the population controls 75% of the wealth (looking at you, United States) may rank higher than a poorer country with a more even distribution of wealth.
That’s only part of the problem, though.
One of GDP’s biggest flaws is that it counts tragedies as economic bonuses. If a hurricane or tornado hits and a country spends millions of dollars rebuilding, those expenses boost GDP, even though people lost their homes, jobs, and lives.
And that’s not all. GDP ignores many crucial ways to measure the wealth of a country: clean air, health, life span, gender equality, opportunity, education, and more. This is understandable – GDP wasn’t developed to rank countries’ welfare, but simply to measure money as the world recovered from the Great Depression.
But once you realise how many flaws GDP has as a measure, it’s a wonder it’s become the ultimate yardstick of a country’s wealth – especially when there are so many alternatives. And those alternatives paint a radically different portrait of global wellbeing.
What are the GDP alternatives?
Photo by Edu Carvalho
In 1972, King Jigme Singye Wangchuck of the Buddhist kingdom of Bhutan publicly declared he would no longer seek to grow GDP. Instead, he said, his country would pour its energy into growing their Gross National Happiness (GNH).
What is it?
Guided by Buddhism and mindfulness principles, the king decided that a more spiritual and holistic approach reflected his country’s needs. Instead of only looking at the money put towards products and services, GNH takes 9 variables into account:
- living standards
- good governance
- ecological diversity
- time use
- psychological wellbeing
- cultural diversity and resilience
- community vitality
To measure these factors, government officials interview a random selection of 8,000 households, who are compensated a day’s wage for answering an in-depth questionnaire.
GNH is one of the most notable alternatives to GDP, because it was the first that to be broadly publicised.
It’s also remarkably thorough – containing 148 questions (with lengthy sub-questions), the survey examines how residents are doing on every level – from the number of televisions in a home to whether wild animals have impacted their lives.
The thoroughness of the survey is also a drawback – answering these questions takes about three hours, and Bhutan has to pay both the workers interviewing residents, and the residents themselves for their time.
Moreover, some people may feel that Bhutan’s GNH is too focused on spirituality: some questions in the interview include “Do you meditate?” or “How frequently do you pray?”
And since Bhutan so far is the only country to have developed such a process for interviewing residents, there are currently no curated systems in place for assessing other countries. Unlike GDP, you can’t just plug some data points into an equation and get a country’s GNH results.
What is it?
UK charity Happy City developed the Thriving Places Index (TPI) to give local organisers and politicians a better view of the welfare of their people. Since its first run in 2016 assessing 9 cities, it’s grown significantly – as of 2019, TPI generated scores for 351 English and 22 Welsh councils.
TPI’s primary focuses are sustainability, equality, and local conditions. These three categories are then broken down into 60 indicators. Emphasising local welfare, TPI doesn’t do country-wide rankings – instead, it seeks to answer 3 questions about a given area:
- Is it a fair and equal place to live?
- Is it sustainable enough so that future generations can flourish?
- Are the conditions present for everyone to do well?
Happy City has a second project, called the Happiness Pulse, which is a micro index for communities, teams, and organisations – kind of like TPI for your workplace.
By having a local focus, TPI hopes to show exactly how changing economies impact local communities – and help governments make more informed decisions about how to care for them.
And unlike GNH, this index could easily be expanded to other parts of the world. Another positive similarity to GNH is the blend of subjective and objective data gathered; the TPI humanises the subjects of the research, as well as providing hard data on their wellbeing.
The blend of objective and subjective data could have its drawbacks. In convincing countries to let go of GDP (a totally numbers-driven index), there could be resistance to the inclusion of subjective input.
Photo by Porapak Apichodilok
What is it?
Founded by the New Economics Foundation, the Happy Planet Index seeks to measure wellbeing in a new way. By factoring in the ecological footprint, inequality, wellbeing, and life expectancy of a country, the HPI provides a simple but rounded glance at the wealth of a country.
They compile their information from a Gallup World Poll, the U.N.’s data on life expectancy, and the Global Footprint Network. And unlike GDP, this index measures equality by investigating how evenly distributed life expectancy and wellbeing are across a country.
To get each country’s score, they use this equation:
(life expectancy x experienced wellbeing) x inequality of outcomes
By pulling data from across different sources, the Happy Planet Index is easily measurable, flexible, and applicable to many countries. In addition, dividing people’s health and happiness by the size of the carbon footprint puts a country’s environmental impact into perspective and dramatically shifts the ranking results.
The Happy Planet Index has a limited scope. By only assessing 4 factors, the data misses some of the nuance of GNH from Bhutan or the Thriving Places Index explore.
How do countries stack up?
1st place: Costa Rica
Last place: Chad
What is it?
A United Nations Development Programme, the Human Development Index (HDI) was made with a focus on opportunity and capability, rather than just economic growth or environmental sustainability. Interestingly, the U.N. encourages nations to use it alongside their gross national income data. They say that it can help governments assess national policy by “asking how two countries with the same level of GNI per capita can end up with different human development outcomes.”
Looking at both education and income per capita is a powerful combination, to see if money and opportunities are actually being funneled to the people. HDI also has the influence of the U.N. on its side, which helps more countries access the data and decide to incorporate it into their decisions.
They also compare the expected years of schooling and the actual mean years of schooling, so that nations can see where communities fall short of expectations – and brainstorm what can be done about it. Combined with life expectancy, these factors give HDI the potential to showcase what opportunity (or lack thereof) looks like in each country.
While HDI factors in some fundamental metrics, it’s missing a few key ones like environmental damage, inequality, safety, and empowerment, to name a few – essential aspects of human wellbeing.
How do countries stack up?
First place: Norway
Last place: Niger
Photo by Elena Zhuravleva
A spin on traditional GDP, the Green GDP adjusts the measurements by monetising environmental damage factors to help countries better understand exactly where they stand environmentally. It was developed by the Chinese government in an attempt to understand the consequences of their carbon emissions and account for the losses they experience from climate change.
The Green GDP is a noble effort to factor in the cost of climate change in a way that people whose focus is money can appreciate. While subjective data can immediately turn some financially conservative parties off, putting a number on the impact of environmental negligence could potentially hit home.
The biggest criticism of a Green GDP is that putting a price on things like loss of biodiversity is difficult and its accuracy debatable. Environmental impacts like CO2 emissions are easier to measure – and easier to assign a price to.
And as of now, news on the Green GDP is minimal, making it hard to assess and leaving this experiment to China for the time being.
What is it?
Created in the U.S. as an alternative to GDP, the Genuine Progress Indicator (GPI) takes into consideration all the same factors as the GDP, while also accounting for things like the cost of crime, ozone depletion, and lost leisure time, to paint a more rounded picture of the success of a country.
One of the main criticisms of GDP is how environmental destruction and natural disasters can boost it. Similarly, GDP is positively affected by perpetuating systems of mass incarceration.
By factoring in environmental, social, and economic indicators together, GPI can give a more rounded assessment of a country’s welfare.
Like many of these other indexes, GPI hasn’t been calculated internationally – it’s only been adopted by a handful of U.S. states. This is one where we’ll have to wait to see how it pans out.
The Better Life Index was developed by the Organization for Economic Cooperation and Development (OECD), a group founded in 1961 with one goal: to help governments design better policies to improve lives.
They’ve identified 11 facets that they feel are essential to wellbeing – housing, income, jobs, community, education, environment, civic engagement, health, life satisfaction, safety, and work-life balance – to create the Better Life Index.
First launched in June 2014, the Better Life Index (also known as Regional Well Being) has been gathering data since its inception and has plans to compare current conditions to conditions over time once enough data has been gathered.
One thing that sets the Better Life Index apart is its lack of cut-and-dry assessment or ranking. Instead, the site lets users navigate based on which factors they value most, giving space to create their own opinions based on the data for each facet. It’s a cool way to see which regions around the world align with your own values without a value system pre-imposed.
Check out this chart here, where you can click on the measurement you care about the most, and watch the countries rearrange accordingly.
On the other side of that same coin, when a measurement can’t be broken down into easily digestible raw data, it often fails to gain traction.
Aside from that, the Better Life Index is a thoughtful, comprehensive, and promising alternative to GDP.
How do countries stack up?
Although there’s no overall ranking, when sorted according to residents’ overall satisfaction, countries measure up this way:
1st place: Norway, Finland, Denmark
Last place: South Africa
China: no data
What can we do in the meantime?
These are all thought-provoking alternative ways that countries can measure the wealth and wellbeing of their citizens – but what’s an individual to do?
The simplest thing you can do is educate others. Tell people there are other ways to measure a country’s wealth. If you’re a writer, do what I did – write about it. Most importantly, when someone talks about GDP, especially if it’s to boast about their own country (fellow U.S. readers, I’m looking at you!), fill them in on its flaws – and suggest an alternative way to measure success.
Featured image by Sharon McCutcheon