GDP Is a Bad Measure of Our Economy—Here’s a Better One

Are we in the midst of a great paradigm shift?

That was the question raised this morning at the Skoll World Forum by Michael Green, the Executive Director of the Social Progress Imperative and the force behind the Social Progress Index (SPI), a new trove of data which offer a holistic snapshot of the health of societies across the world. Using 52 social and environmental indicators across 160 countries, the SPI offers a rigorous, granular and more meaningful alternative to the gospel that is Gross Domestic Product (GDP); what has become the official, if flawed, measure of a nation’s standing in the global economy.

The United States, the world’s wealthiest country in GDP terms, ranks 16th in “social progress.” Compared to our economic peers, we underperform on a number of dimensions, particularly those related to health: life expectancy, premature deaths from diseases like diabetes and cardiovascular and respiratory failure, fatal car accidents, and even maternal and infant mortality rates.

The gap in these standings underscores the limitations of GDP. By focusing exclusively on economic growth, GDP misses – or worse still, externalizes – the costs and value of a number of critical elements of well-being: basic human needs like nutrition, medical care, and shelter; access to education and information; and environmental sustainability – not to mention things harder to measure like rights and freedoms, tolerance, and inclusion.

The SPI is hardly the first challenge to GDP. This year marks the 25th anniversary of the first UN Human Development Report, created by Mahbub ul Haq and Nobel Laureate Amartya Sen and informed by Sen’s work on human capabilities and positive freedom. Accordingly, the UN Development Programme re-conceived of development as a function of human potential, rather than economic growth alone, and its Human Development Index (HDI) measures life expectancy and educational attainment alongside standard of living (GNP per capita). More recently, the UNDP has published HDIs adjusted for inequality and gender inequality along with a multidimensional poverty index. The HDI has also laid the groundwork for a number of different approaches to measuring quality of life, among them, the OECD Better Life Index, gauges of happiness, and important assessments sustainability, among them the Sustainable Society Index.

What distinguishes the SPI is that it is the only comprehensive measure that excludes economic variables.

Instead of replacing GDP, the SPI data complement it by allowing for an assessment of a country’s performance relative to GDP. On this scale, Norway is #1, followed, in a tight band, by Sweden, Switzerland, Iceland, and New Zealand. Canada is the highest performing of the G7 countries and Brazil leads the BRICs (Brazil, Russia, India and China), followed by South Africa, Russia, China and India. Russia may have a much higher GDP per capita than Brazil or South Africa, but ranks much lower on social progress, coming in at 71.

GDP surely matters. Economic growth and development around the world have raised billions of people out of poverty. The SPI data bear this out; we have made great strides towards the Millennium Development Goals of providing nutrition, basic medical care and access to education for many who lacked such.

But it is important to note that “social progress” does not always correlate with higher GDP—sometimes even when we get richer, things can get worse. Striking examples and areas of concern include environmental sustainability (measured in the SPI by greenhouse gas emissions, water usage and biodiversity). Countries like the U.S., but also rapidly developing countries like China, India, or Brazil consume more as they grow.

The U.S. is also not alone among wealthier countries grappling with diabetes and other issues of morbidity. And of course human rights, and political rights and freedoms, do not always improve with economic growth. Countries like Costa Rica “overperform” on social progress relative to GDP, rich countries like Kuwait, fall significantly short on a number of “progress” measures.

The good news: “GDP isn’t destiny,” says Green. In other words, policy matters, too, and we can choose to invest our surplus GDP in human or environmental capital. Should we choose to. The SPI leaves political economy, and politics, for another day.

In some ways, measures like SPI tell us things we already know: countries that have made substantial and historical investments in their social safety nets score well. The same is true for nations that are relatively homogenous, and—in the case places like New Zealand—somewhat isolated and immune to immigration pressures. It turns out that inclusion counts for a lot. For example, even with impressively high access to advanced education, the U.S. scores much less well on equality in educational attainment. On “access to communications” we rank lower on Internet and mobile phone use than our wealthy peers – despite being home to Silicon Valley.

In other ways, the SPI also allows for counter-intuitive findings, particularly when it comes to inequality.

With detailed information about access to basic services and opportunities, from healthcare, education, and housing to decent policing, freedom of movement and religion, and freedom from discrimination, the SPI is a measure of inclusivity and distribution; as with other alternative indices, a country cannot improve its progress score by simply boosting GDP. However, there is little or no correlation between Social Progress Index scores and the standard measure of income inequality, the GINI Coefficient. One implication: pro-poor measures and investments may matter more than redistribution per se.

All this suggests that measures like SPI offer more than a snapshot; they can be harnessed as a policy tool. Interest in applying the Social Progress Index, an idea hatched at the World Economic Forum two years ago and put into motion as the Social Progress Imperative with support by Harvard Business School’s Michael Porter, has grown dramatically; initiatives using it are under way in 40 countries and the European Commission is creating a customized SPI for the EU. In the U.S., Michigan will announce that it is using an adaptation of the SPI to guide a development agenda for Detroit and other cities. Somerville, Massachusetts is also on board. Expect to see more.

The SPI is also part of a larger revolution – across business, civil society, and government – to measure what matters. Asking the right questions is a critical step towards getting us to better answers and social outcomes, which would be progress indeed.

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