Redefining Progress: Alternative to the GDP

By Lauren DeMates.

Why GDP is insufficient

Gross domestic product (GDP) is the standard measurement for the performance and overall health of a country. However, as a proxy for size of economy, it is a narrow and short-term reflection of progress. GDP is not a comprehensive, long term indicator because it only incorporates financial data and fails to incorporate the dependence of the economy on human capital and natural resources. A nation cannot continue to grow economically without a healthy population and continued access to the resources required to create goods and services. For example, a country with a booming economy who commits extensive human rights violations and recklessly clears its forests cannot continue in this manner in the long term without the effects catching up through a weakening labor force and lack of resources to continue creating wood products.  Recognizing the limit in relying on the GDP to accurately reflect the health of countries is not new, but GDP is still the main indicator used globally and that of which incentives and policies are derived.

Alternative: Social Progress Index

Alternative indicators to the GDP do exist- from the Happy Planet Index to various World Bank, UN, and OECD indicators. However, a new index launched this year and is worth exploring.  The Social Progress Index (SPI)  launched April 2013 by ‘creating shared value‘  and Harvard Business School professor, Michael Porter. Index is aggregate of a large number of non-economic indicators that reflect social outcomes, not just inputs. Methodology and key performance indicators (KPIs) capture the ability of countries to meet basic needs, well-being of the population, and opportunity. Countries are given an equally weighted, overall score on a scale of 100, but can also view breakdown in specific categories such as air, water, and sanitation or personal safety; this facilitates benchmarking and improvement.  Index is the first project from the Social Progress Imperative and accompanied by the Social Progress Network to utilize data for government, civil society, non-profit, and private sector collaboration to move countries forward in addressing these issues.

Top 5 countries on the SPI: Sweden, UK, Switzerland, Canada, Germany, United States, Australia, Japan, France, Spain

Surprises:

• The United States (which spends the most per capita on healthcare globally) ranks just 11th in terms of Health and Wellness.
• Australia (7th on the Index, 6th in terms of GDP) ranks 22nd for Shelter.
• Spain (10th overall, and 11th in terms of GDP) ranks 22nd for Personal Freedom and Choice.

• Rwanda is 46th overall and 48th in terms of GDP but ranks 9th in terms of Primary School Enrollment.
• Mozambique is 47th overall and bottom (50th) in terms of GDP, but ranks 14th in terms of Equality and Inclusion.

More interesting findings here which reflect the complexity of social and environmental issues and the stark contrast that GDP only captures a small (simply economic) part of picture. Keep an eye on this imperative for the data and multi-stkeholder approach to leverage for progress.