Beyond GDP: Alternative Measures of Progress

The main alternatives and supplements to GDP, from the Human Development Index to wellbeing dashboards, and the trade-offs between a single number and many indicators.

Gross domestic product, or GDP, measures the total value of goods and services an economy produces. It is extremely useful, but it was never designed to measure how well people’s lives are going. The beyond GDP movement is a broad effort by economists, statisticians and governments to track progress using measures that capture health, education, the environment, inequality and wellbeing alongside output.

Why look beyond GDP

GDP counts spending on repairing damage after a flood the same way it counts spending on a new school. It ignores unpaid care work at home, leisure time, and the running down of forests or fisheries. It says nothing about how income is shared. None of this makes GDP wrong; it simply answers a narrower question than “is life getting better?”

In 2008, the French government asked a commission led by the economists Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi to study these limits. Its 2009 report recommended paying more attention to household income rather than national production, to the distribution of income, to non-market activities, to sustainability for future generations, and to subjective wellbeing measured through surveys. The report gave the beyond GDP movement a major push.

The main alternatives

A composite index combines several indicators into a single number. The best known is the United Nations’ Human Development Index, first published in 1990, which combines income with life expectancy and years of schooling. Another is the Genuine Progress Indicator, which starts from consumer spending and then adds the value of things like volunteering and housework while subtracting costs such as crime, pollution, and the loss of natural resources. Some studies using it suggest that in several rich countries, genuine progress has grown much more slowly than GDP since the 1970s, though the results depend heavily on how each item is valued.

A wellbeing dashboard takes a different approach: instead of combining everything into one number, it reports a set of separate indicators side by side. The OECD’s Better Life Index, launched in 2011, is a well-known example, covering eleven areas including housing, jobs, community, environment, health, safety, work-life balance and life satisfaction. Many national statistics offices, such as those of the United Kingdom, Italy and New Zealand, now publish their own dashboards.

Same GDP, different stories

Imagine two countries that each grew by 3 percent last year. In the first, the growth came alongside falling air pollution, rising life expectancy and shorter working hours. In the second, it came from cutting down forests, while average working hours rose and life satisfaction slipped. GDP alone would describe both years as equally good. A dashboard or a Genuine Progress Indicator would reveal that the first country's progress was far healthier and more sustainable.

One number or many?

Each approach has trade-offs. A single number is easy to report in the news and to compare over time, which is a big part of why GDP is so powerful. But combining very different things into one figure requires choosing weights - deciding, for instance, how many years of life expectancy equal a certain amount of income - and those choices involve value judgments. Dashboards avoid that problem and show more detail, but a list of eleven or more numbers is harder to communicate and easier to ignore.

In practice, most experts argue for using GDP alongside other measures, not replacing it entirely.

Thinking beyond GDP means abolishing GDP

Supporters of beyond GDP measures are rarely calling for GDP to be scrapped. GDP remains the best tool for tracking the size of an economy, recessions and tax revenue. The goal is to stop treating it as the single scorecard of national success and to put other measures of wellbeing next to it.

Key takeaways

GDP measures output well but misses unpaid work, sustainability, distribution and wellbeing.
The 2009 Stiglitz, Sen and Fitoussi report gave the beyond GDP movement a major push.
Composite indexes like the Human Development Index and Genuine Progress Indicator combine indicators into one number.
Dashboards like the OECD Better Life Index report many indicators side by side.
Most experts favour using GDP together with other measures rather than replacing it.