Moving Beyond GDP: A Pathway to Wellbeing and Sustainability
“Gross Domestic Product does not account for the health of our children, the quality of their education, or the joy of their play, in short, it measures everything except that which makes life worthwhile.” (Robert F Kesnnedy, 1968). This thought-provoking quote sets the stage, prompting us to question whether GDP truly captures the essence of a nation’s well-being. Does it reflect poverty levels, health outcomes, life expectancy, and more? The primary purpose of Gross Domestic Product (GDP) as a proxy was to measure the monetary value of a country’s economy. Since there is no simple way of representing every aspect of well-being in a single number in the way GDP describes market economic output, GDP is used as a proxy for both economic welfare, and general welfare.
However, developing a framework to value what counts beyond GDP gives a better picture of the economy. This requires careful consideration of values and principles that align with the well-being of both people and the planet, emphasizing sustainability, inclusivity, well-being, cultural values, and global cooperation, which could reshape decision-making priorities and foster a resilient, equitable, and sustainable future. This essay begins by discussing the Gross Domestic Product (GDP) as a measure of the economic output of a country. It then explores the various values and principles that go beyond GDP to measure wealth creation, well-being, and development. Subsequently, it describes the wide-ranging challenges to be addressed as a priority.
Over the years the growth rate of real GDP is often used as an indicator of the general health of the economy. In broad terms, an increase in real GDP is interpreted as a sign that the economy is doing well.[i] While this is statistically true, GDP might not portray the standard of living, wellness, or development of an economy. On its own, Gross Domestic Product (GDP) is a poor measure of human prosperity or social progress. It does not account for negative social or environmental impacts of economic growth, or for inequalities. It includes the growth of harmful sectors such as fossil fuels, incarceration, arms or weapons, but excludes unpaid work such as care work, which has important benefits for communities and society.[ii] For instance, during the COVID-19 pandemic, women spent an estimated 512 billion hours globally doing additional unpaid childcare work that contributed to sustaining our economies during this global health crisis.
Another example is the country Nigeria, a report recently released by the PwC projected Nigeria’s gross domestic product (GDP) to rise by 3.1 percent and poverty level to likewise increase to 38.8 percent in 2024.[iii] How do we explain this? GDP rises, and so does poverty. If GDP solely describes the wealth creation, well-being, and development of a nation, then an increase in GDP should lead to a fall in poverty. However, some underlying economic factors, that are not captured in GDP, could be responsible. These are income inequality, structural issues, population growth, unemployment, policy failure, and most importantly, inflation. According to the National Bureau of Statistics (NBS), Nigeria’s inflation rate as of January 2023 stood at 29.90 percent, the highest recorded since August 2005. This persistent upward trend in inflation has been a key driver in the rising costs of various goods and services, increasing the growth rate of GDP as well as poverty.[iv] How then can we better capture economic output and welfare?
To capture the intricacies that make for economic output and welfare, several values and principles must be looked into to ensure better decision-making in the best interest of people and the planet. We need to move “Beyond GDP” when assessing a country’s health and complement GDP with a broader dashboard of indicators that would reflect the distribution of well-being in society and its sustainability across its social, economic, and environmental dimensions. The challenge is to make the dashboard small enough to be easily comprehensible, but large enough to summarise what we care about the most.[v] To ensure this, the European Union supports the development and use of indicators that are as clear and appealing as GDP, but more inclusive of environmental and social aspects of progress.[vi] Some of these indicators include but are not limited to; environmental indicators, social indicators, well-being indicators, enlarged GDP indicators, etc.[vii]
Looking at environmental indicators, for example, one of the key values that must be considered is sustainability. Research has it that environmental sustainability is under threat, with accelerating growth in global greenhouse gas emissions and biodiversity loss.[viii] According to the Global Resources Outlook 2019, “the extraction and processing of materials, fuels, and food make up about half of the total global greenhouse gas (GHG) emissions and more than 90 percent of biodiversity loss and water stress,”[ix] which of course make up the component of GDP. Environmental degradation and GDP growth are tightly and negatively correlated (van Zanden et al., 2014), and climate change is expected to reduce economic growth in most regions. The Intergovernmental Panel on Climate Change (IPCC) estimates that the global mean temperature will increase by 0.5–1.2 degrees Celsius between 2015 and 2035 (IPCC, 2014).[x] Hence, the emphasis on the use of metrics that are built on values such as sustainability[1], inclusivity[2], well-being[3], and culture[4].[xi] However, challenges like data quality and availability could deter the importance of these metrics. I would therefore recommend comprehensive data collection, where robust data collection mechanisms are established to gather information on a wide range of well-being indicators.
The limitations of GDP as a singular measure of a nation’s prosperity are evident. However, advocating for a comprehensive framework that incorporates indicators of sustainability, inclusivity, well-being, and cultural values is crucial for informed decision-making, fostering a resilient and equitable future. Despite challenges like data quality and cultural sensitivity, the importance lies in establishing robust data collection mechanisms and standardized methodologies, tailored to diverse contexts. Moving beyond GDP towards a holistic approach is vital for accurately assessing a country’s health and promoting a more sustainable and inclusive global future.
[1] prioritize long-term sustainability over short-term gains
[2] ensure that economic progress benefits all segments of society, reducing inequality and addressing social disparities
[3] emphasize indicators related to health, education, happiness, and overall quality of life
[4] acknowledge and incorporate the diverse cultural and community values that contribute to societal well-being
[i] Tim Callen, ‘Gross Domestic Product: An Economy’s All’ International Monetary Fund
[ii] Vancouver Economic Commission (VEC), Beyond GDP: A Proposed New Economic Framework for measuring Vancouver’s economy (July 2022)Vancouver Economic Commission (VEC)
[iii] Victor Ejechi, ‘‘Increased poverty, inflation decline’ — PwC’s outlook for Nigeria’s economy in 2024’ The Cable (26 January 2024)
[iv] Victor Ejechi, ‘‘Increased poverty, inflation decline’ — PwC’s outlook for Nigeria’s economy in 2024’ The Cable (26 January 2024)
[v] Tim Callen, ‘Gross Domestic Product: An Economy’s All’ International Monetary Fund
[vi] European Commission, ‘Alternative measures of progress beyond GDP’
[vii] European Commission, ‘Alternative measures of progress beyond GDP’
[viii] https://www.prysmian.com/en/insight/sustainability/what-are-the-biggest-sustainability-threats
[ix] Global Outlook Highlights Resource Extraction as Main Cause of Climate Change, Biodiversity Loss
[x] IPPC, Chapter 4
[xi] Vancouver Economic Commission (VEC), Beyond GDP: A Proposed New Economic Framework for measuring Vancouver’s economy (July 2022)