Happy Birthday, GDP

Eighty years ago today (4th January) the economist Simon Kuznets presented a report to the US Congress on a new measure of economic activity to help policy-makers to find a way out of the Great Depression. That measure, Gross Domestic Product (GDP), has today become the standard yardstick of how a country is doing. Today it is standard practice to compare nations in terms of which has the higher or lower GDP per capita (Qatar has the highest, Democratic Republic of the Congo the lowest, by the way). Our political leaders point to rising GDP (economic growth) to claim success for their policies. 

GDP’s creator, Dr Kuznets, would be horrified. From the outset he warned that “the welfare of a nation can scarcely be inferred from a measurement of national income as defined by the GDP”. He went on to become a constant critic of how GDP was measured and used.

What we measure matters. It has a huge influence on how we use resources, which is why it is crucial our measures are aligned with our goals. As we wrote in ‘The Road From Ruin’, our follow up to Philanthrocapitalism, how financial institutions and countries were (mis)measuring their success – using profit and GDP, respectively – was one of the causes of the financial crisis of 2008. Better measurement is an urgent priority to build a global economic system that is socially and environmentally sustainable.

It was with this in mind that, in 2009, we floated the idea of a ‘Social Competitiveness Index’. That idea has won support from philanthropy (including the Avina, Skoll and Rockefeller foundations) and from business (Cisco, Compartamos and Deloitte) and, in April 2013, the first Social Progress Index was launched. (Michael is Executive Director of the Social Progress Imperative and Matthew is a member of the Advisory Board.)

GDP was not handed down on tablets of stone. It is a measurement tool that was designed to do a job eighty years ago. It still is a useful tool to measure economic activity. But we need new and better tools to help us frame and guide our choices about the world we want to live in. The Social Progress Index can be an important yardstick as we try to build a better world for all. To watch an animated history of GDP and be part of creating an index we can wholeheartedly celebrate when it turns eighty, click here.

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