Measuring Wellbeing: Exploring Alternatives to GDP

The Gross Domestic Product, or GDP measures economic growth on the national level, but it doesn’t actually measure the wellbeing that nation’s citizens. Fruitful discussions on better measures have been increasing,  not just on the fringes of public discourse but in initiatives sponsored by world leaders in government and premier global organizations like the United Nations (UN) and the Organization for Economic Cooperation and Development (OECD). With this movement gaining momentum, the time is ripe for us all to join the conversation about what we value most in terms of wellbeing and how to best measure it.

A Harvard Business Review article from a few years ago, titled “The Economics of Wellbeing,” lends credibility to this movement. Here’s a synopsis of the piece taken from the article itself:

Since World War II, gross national product, and its replacement, gross domestic product, have been the chief measures of national success. Now, though, governments and nonprofit groups are working to devise alternative metrics for evaluating progress.

GDP is under siege for three main reasons. One is that, even on its own terms, it is flawed: it misses lots f economic activity (unpaid household work, for example) and, as a single-number representation of vast, complex systems, it is inevitable skewed. Another I that if fails to factor in economic and environmental sustainability. Finally, existing, readily available measures—educational achievement, life expectancy, and so on—may reflect wellbeing far better than economic output ones.

This article mentions a few promising alternatives, which deserve at least a mention here, to be followed by lengthier expositions. The first is a 2009 report by the Commission on the Measurement of Economic Performance and Social Progress, chaired by Joseph Stiglitz, Amartya Sen, and Jean-Paul Fitoussi, and commissioned by then French President Nicolas Sarkozy. I am not a statistician, but this report makes me want to be one so I can contribute to this work.

The commission broke down into three subgroups to articulate 12 recommendations in three areas: Classical GDP issues (e.g., how to revise the GDP itself), Quality of Life (i.e., current wellbeing), and Sustainable Development and Environment (i.e., future wellbeing). While there’s not space to detail these recommendations here, an important point to highlight is the idea of a “dashboard” of several indicators, in which sustainability issues should be treated separately from current wellbeing.

Regarding “quality of life,” this is something the UN’s Human Development Index (HDI) has been measuring for years now. The HDI combines life expectancy, educational attainment, and income into a single statistic to serve as a reference for economic and social development.  The purpose of the HDI is to compare experiences of wellbeing among countries for which data exists and for examining more deeply country-specific HDIs. These statistics, compiled into a ranking of countries and accompanied by a discussion of the year’s most pressing development issue, are published each year in the Human Development Report.

A more recent “Better Life” initiative by the Organization for Economic Cooperation and Development, which aims “to promote policies that will improve the economic and social well-being of people around the world,” looks at wellbeing in OECD member countries and other major economies. The second edition of “How’s Life?” presents and discusses data from 2013 on 11 indicators: income, jobs, housing, health, work-life balance, education, social connections, civic engagement and governance, environment, personal security and subjective well-being. What’s most innovative about OECD’s Better Life Index is that it’s interactive: website visitors can rank wellbeing indicators according their priorities, and then see how their own country stacks up.

Another promising GDP alternative was launched in 2013 by the Social Progress Imperative.  This group defines social progress as “the capacity of a society to meet the basic human needs of its citizens, establish the building blocks that allow citizens and communities to enhance and sustain the quality of their lives, and create the conditions for all individuals to reach their full potential.” Their Social Progress Index looks at indicators in three areas: Basic Human Needs, Foundations of Wellbeing (which includes factors such as sustainability and access to knowledge), and Opportunity, the last of which is pivotal in our efforts to achieve a good life for all. The first annual report of the Social Progress Index demands a closer reading.

In terms of national initiatives, Bhutan’s Gross National Happiness is an oft cited alternative, which King Jigme Singye Wangchuck instituted in 1972 to promote equal distribution of economic prosperity while maintaining cultural traditions, a healthy environment, and a responsive government. In a previous post I began some exploration of this case, which warrants deeper research given the tendency to celebrate it despite its potential shortcomings. In the meantime, the fact that GNH exists offers inspiration to other nations to develop new metrics of their own.

Even the US government might extend beyond tinkering with the GDP. Returning to the Harvard Business Review piece, I was intrigued the mention of “national time accounts” being developed by Alan Krueger, head of Obama’s Council of Economic Advisors, in collaboration with psychologist Daniel Kanheman (winner of the 2002 Nobel Prize in Economics).  Again, this calls for more research as well as discussion on the merits of such an alternative.

So many possibilities now exist that our challenge is now becoming a matter of how best to choose!

You can add to this debate: what’s your favorite wellbeing index and why?

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