What People Want: The value of GDP as an Indicator of Social Success

 

Can one judge a country’s success by the value of all goods and services it produces? The heated debate around this question was clearly demonstrated at a lively “Oxford-style” debate, in which two speakers argue opposite sides of a motion and attempt to win majority support from the audience.

The motion up for debate at the Brussels Economic Forum was “For a sustainable post-COVID recovery, this forum believes we should replace GDP with an alternative well-being indicator.”

At the start of the 30-minute debate the statement won clear majority support from the online audience, with 77% agreeing and 23% disagreeing.

Half an hour later the motion still managed to convince the largest number of voters – but only just, with 51% in favour and 49% against.

Katherine Trebeck, Advocacy & Influencing Lead at the Wellbeing Economy Alliance put the arguments for replacing GDP as an indicator.

Ranking countries according to GDP is like “driving to a holiday destination but staying in your car and obsessing about how to get the speedometer going again,” Trebeck said.

Many countries today have “arrived” in terms of wealth and resources, she explained, but are still too fixated on GDP to enjoy what they have.

When GDP was first developed as an indicator to rank countries, she said, there was for instance no concern about the state of the environment, and the value of women’s role was ignored. “GDP is a metric long past its sell by date,” Trebeck said. “A metric that doesn’t care what resources are produced, or how, or what quality they are.”

The European Environment Agency, she added, has said EU values cannot be reduced to or substituted by an increase in GDP.

“Societies need to rethink what is meant by growth and progress,” she argued.

Trebeck said GDP encouraged “perverse indicators,” for instance by calculating the economic value of investments in weapons, which bring nothing to the quality of people’s daily lives.

“If societies are not spending on antidepressants and obesity, because our health is good, GDP won’t go up,” she added. “GDP doesn’t smile when people get things right the first time around.”

“We need to change the conversation about post-COVID recovery away from quarterly increases in GDP,” Trebeck said. People want their societies to be judged using other metrics because “GDP doesn’t count the real goals of people’s lives.”

But Charles Wyplosz, Professor of International Economics at the Graduate Institute Geneva, disagreed. “To me it’s so straightforward,” he said. “GDP is a measure of commercial activity. It measures all the incomes earned and all the spending done.”

Complaining that GDP doesn’t measure the quality of people’s lives “is like saying centimetres are useless when you want to measure your weight.”

“GDP is a very useful concept,” Wyplosz said. “It tells us about a lot about what’s going on in an economy.”
“What has COVID got to do with GDP?” asked the professor. Rather than replacing GDP, as the motion suggests, he said it should be possible sometimes to consider other indicators as well.

He said there was some valid criticism to be made of GDP because it misses out a lot of economic activity. For instance if a person stays at home, caring for others, cooking and gardening, they are carrying out activities which do have an economic value but are not counted. GDP also misses activities which are illegal.

But he cautioned against assuming that people would prefer to use other indicators.

Plenty of other measures to grade societies have been developed, he said, for instance to measure inequality, or CO2 emissions. “But governments choose to look at other things. Partly because people care about their income.”

It is dangerous to say, “people want” or “opinion polls show,” the professor warned. A recent move to introduce a carbon tax in Switzerland was expected to win substantial support, he said, because voters were generally very aware of climate change, as well as being relatively wealthy.

But in the end the idea was opposed in a referendum, because people believed it would reduce their personal income.

“Yes, all these nice people who care about climate change turned out to care more about income,” Wyplosz said.

“I urge you to be careful when you make arguments about what people want.”