GDP is currently the headline indicator of progress for the UK and all industrial nations. GDP is a measure of all economic activity, and GDP growth is the standard measure of the growth of the economy.
Government and industry still believe that GDP growth is very important.
During the 1997 election campaign John Major pledged to “double our living standards in the next 25 years”, and Tony Blair said that GDP growth would be the “judge and jury” of Labour's success.
However, if we continue to use this indicator as a measure of progress we will not achieve sustainable development.
GDP, rather than leading us down the right path, points us in a completely random direction. It is no measure of progress. It increases with polluting activities and then again with their clean-up.
It takes no account of income distribution, or the depletion or degradation of natural resources, and treats crime, divorce and other elements of social breakdown as economic gains.
GDP is merely a gross tally of products and services bought and sold, with no distinctions between transactions that add to well-being, and those that diminish it.
It is as if a business tried to assess its financial condition by simply adding up all 'business activity', lumping together income and expenses, assets and liabilities.
In fact GDP was never intended to be an indicator of progress or welfare. Simon Kuznets - GDP's creator - said in 1934 that “The welfare of a nation can scarcely be inferred from a measurement of national income”.
The Office of National Statistics says that “GDP should not be interpreted as a measure of human welfare”, and the Labour Party says in its environmental manifesto, that “For too long, economic and political success has been measured solely in terms of the rate of growth of economic activity”.
At an international level, the United Nations Human Development Programme argues that all countries should pay much more attention to the quality rather than the quantity of growth.
It identifies “five damaging forms of growth” :
They call these types of growth which are “neither sustainable nor worth sustaining.”
Yet despite all this GDP is still used in the UK and more widely as the main indicator of economic success. This is not a minor issue - for GDP figures dictate and shape policies which affect us all.
We need to develop new indicators which can better reflect a healthy economy - any alternative should not just assume that all economic activity is good, but focus much more on the quality of that activity.
Our national accounting systems should identify much more clearly what kind of growth we are experiencing.
Without this we will not be able to judge progress towards, or set aims for, sustainable economic activity, which meets peoples needs and improves quality of life.
Besides inertia, continued reliance on GDP is often justified by the lack of a concrete alternative and the belief that there is no valid way to approximate the value of social and environmental factors in economic terms.
The work on the Index of Sustainable Economic Welfare and the Genuine Progress Indicator demonstrates that both of these obstacles can be overcome.
“To use the GDP as a measure of progress is to assume that families and communities and the natural habitat add nothing to economic well-being, so that the nation can safely ignore their contributions, and, in fact, their destruction can be regarded as economic gain”
Clifford Cobb, Ted Halstead and Jonathan Rowe,
authors of the Genuine Progress Indicator, 1995.
“Unfortunately GDP figures are generally used without the caveat that they represent an income that cannot be sustained.
Current calculations ignore the degradation of the natural resource base and view the sale of non-renewable resources entirely as income.
A better way must be found to measure the prosperity and progress of mankind”
Barber Conable,
former President of the World Bank, 1989
“The welfare of a nation can scarcely be inferred from a measurement of national income as defined by the GDP... goals for 'more' growth should specify of what and for what”
Simon Kuznets,
creator of GDP, 1962
“If a truckload of toxic chemicals spills somewhere, the money spent cleaning it up is added to the GDP.
If nearby residents can no longer use their wells for water, their expenditures on bottled water is added to GDP.
If they become sick from exposure to the substance, their medical costs are also added to the official measure of well-being”
Mike Nickerson,
the Sustainability Project, Ontario, 1997
“The Gross National Product includes air pollution and advertising for cigarettes, and ambulance to clear our highways of carnage.
It counts special locks for our doors, and jails for the people who break them. GNP includes the destruction of the redwoods and the death of Lake Superior.
It grows with the production of napalm and missiles and nuclear warheads... And if GNP includes all this, there is much that it does not comprehend.
It does not allow for the health of our families, the quality of their education, or the joy of their play. It is indifferent to the decency of our factories and the safety of our streets alike.
It does not include the beauty of our poetry or the strength of our marriages, or the intelligence of our public debate or the integrity of our public officials...
GNP measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country.
It measures everything, in short, except that which makes life worthwhile; and it can tell us everything about America - except whether we are proud to be Americans”
Robert Kennedy,
US Senator
“Progress measured by a single measuring rod, the GNP, has contributed significantly to exacerbate the inequalities of income distribution”
Robert McNamara,
President of the World bank, 1973
“The Government needs to bring its economic statistics up to date. For 50 years this effort has been geared largely to the needs of the GDP and related measures.
As a result, the country knows distressingly little about how the economy actually affects the health and wellbeing of individuals, families and communities...
Better accounting might not guarantee better policy; but it's doubtful we'll have better policy without it”.
Clifford Cobb, Ted Halstead and Jonathan Rowe,
authors of the Genuine Progress Indicator, 1995
“...trying to run a complex society on a single indicator like Gross National Product is literally like trying to fly a 747 with only one gauge on the instrument panel... imagine if your doctor, when giving you a check-up, did no more than check your blood pressure”
Hazel Henderson,
economist
“In previous centuries nations measured their success by military power. For most of this century they measured it by their economic power and their ranking in GDP tables.
By 2020... our obsession with growth and GDP will seems as odd as the 19th century fetishisation of armies does to us now.
Increasingly, societies will be judged by very different criteria: by quality not quantity, well-being not income, balance not growth”.
Geoff Mulgan,
now with the UK Social Exclusion Unit, 1995
“The indicators a society chooses to report to itself about itself are surprisingly powerful. They reflect collective values and inform collective decisions.
A nation that keeps a watchful eye on its salmon runs or the safety of its streets makes different decisions than does a nation that is only paying attention to its GNP”
Professor Donella Meadows,
Dartmouth College USA
“The new Government is committed to a new indicator of wellbeing and ending the blind faith associated with GDP.
Measurement of progress against such an index would help to enhance quality of life and might even help the Government keep the electorate on side”.
Alex MacGillivray,
New Economics Foundation, 1997
“To satisfy economists affecting the low kowtow before GDP and other economic shibboleths, we squander the Earth's resources heedless of the consequences, as surely as the Gadarene swine rushed to oblivion in the Sea of Galilee”.
Brian Sewell,
Evening Standard columnist, 1997
“If a forest is cut down, or farmland is turned into a car-park, GDP tells us that more money flows around the economy and we mistakenly think this is progress”
Michael Carley and Philippe Spapens,
Friends of the Earth, 1997
Introduction | Replacing GDP | ISEW explained | Make your own ISEW | View the results | International examples | How ISEW terms are calculated
