Why GDP isn't the right measure of growth and prosperity

Gross domestic product (GDP), dubbed as "one of the great inventions of the 20th century" by the US commerce department in 1999, is the statistic that seems to rule the world. And, as a country, we seem to be manically obsessed about it. But when United Nations secretary-general António Guterres urged that "we must urgently find measures of progress that complement GDP… by 2030" in his 2021 "Our Common Agenda" report, arguments against using GDP as a measure of the wellbeing of citizens grew louder than ever before.How GDP came into beingThe concept of GDP emerged from the devastation of the Great Depression and WWII. Nobel-winning economist Simon Kuznets envisioned capturing all economic production by individuals, companies and the government in a single measure that would rise in prosperous times and sink in difficult ones. In his 1934 report,"National Income, 1929-32" to the US Congress, he presented the original formulation of GDP.Determining how much money countries could afford to spend on war became an essential requirement. Economic well-being was regarded as a peacetime concern. GDP continued to govern the world even after the end of WWII. Mostly because it presented a single headline figure in deceptively simple form. medium102762632In 1959, Stanford economist Moses Abramovitz famously questioned whether GDP captures a society’s entire well-being. GDP’s limitations, however, were acknowledged by Kuznets himself. "The welfare of a nation can scarcely be inferred from a measurement of national income as defined by the GDP," he had written.GDP doesn't cover facets of societyMany experts think the solution to addressing a world in polycrisis is to change the very way progress is measured. In addition to being largely influenced by the contributions of a small number of wealthy individuals, GDP undoubtedly overlooks many significant facets of society and daily life — pollution, crime, traffic congestion, economic inequality, conflicts, health crises, contributions of unpaid workers...In 1968, presidential candidate Robert Kennedy remarked in his presidential campaign how "GNP measures everything in short, except that which makes life worthwhile". The quest to make life "worthwhile" by finding an alternative measure persisted.In 1990, Pakistani economist and finance minister Mahbub ul Haq persuaded Amartya Sen to develop "an index as vulgar as GDP but more relevant to our own lives", thereby devising the Human Development Index (HDI). In the 1970s, the then-young king of Bhutan Jigme Singye Wangchuck did a great favour to the world when he said, "We do not believe in Gross National Product [GDP]. Gross National Happiness is more important." The world began thinking differently in earnest. The fact that Bhutan was ranked 95th in the 2021 World Happiness Report is a whole different matter. As of 2023, Finland has come up tops six times in a row.Looking for a different indexTo create a ‘suitable’ replacement for GDP, the then French president Nicolas Sarközy assembled a prominent 20-person commission in 2008, headed by Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi. The commission demanded an end to "GDP fetishism". They made the point that well-being is multidimensional. It includes material living standards, health, education, personal activities, social, environ mental and political factors, and levels of security.A variety of alternatives to GDP are buzzing around. These include Genuine Progress Indicator (GPI) used in some US states, UN’s HDI and China’s Green GDP.But what is the optimal solution? How can we gauge the welfare of citizens? Should we overlook people’s opinions about their own personal wellbeing and rely only on numerical figures on different important aspects, as specified by different agencies? Or can we rely on respondents’ (subjective) assessments of their own well-being? medium102762344People from various socio-economic backgrounds in comparable circumstances would undoubtedly have different viewpoints. Do we truly understand the state’s basic responsibilities to provide infrastructure? What can — and should — we expect? Would a Mumbaiker, for instance, realise/expect a lifestyle outside the precincts of his or her home to be that of, say, a New Yorker of the same economic class? Does an Indian villager comprehend the amenities that a typical village in, say, France provides for its residents? Does ‘village’ even signify the same kind of setting in First and Third Worlds?So, a variety of viewpoints depicting an incomplete and incomparable portrayal of the economy may emerge. Because of this, to make a meaningful comparison, it’s necessary to standardise people’s opinions in terms of a universally accepted objective framework. Yes, not a simple ask.Making it more inclusiveOpinions can be collected through complete enumeration or representative sampling. But such big data must be properly summarised. You cannot manage what you cannot measure. Even if you strive to escape the tyranny of numbers, you must have an insightful understanding to follow their dance steps. And that demands input from efficient statisticians as well.Guterres called for international collaboration to identify complement(s) to GDP that will measure inclusive and sustainable growth and prosperity. Bhutan once paved the way in its own style. Can India’s social scientists contribute its own glidepath as a kind of decolonisation process? Can they develop a globally acceptable complement —or substitute — for GDP that would value the quality of life in terms of environment, health, education, crime rates, etc, by taking into account economic inequality, contributions of unpaid workers, innovation…? One that would combine the subjective assessments of citizens about their wellbeing with an objective standard?That would certainly be one of the greatest inventions of the 21st century. The writer is professor of statistics, Indian Statistical Institute (ISI), Kolkata