GDP ‘outdated’ as indicator of wellbeing

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The Commission is working on a new tool to measure the wealth and wellbeing of countries beyond the traditional GDP. The new tool will aim to measure 'true' progress, taking environmental and social indicators into consideration.

“The Commission is working to present a comprehensive strategy to move beyond GDP,” said Environment Commissioner Stavros Dimas, presenting, on 19 November 2007, a Commission initiative to measure the progress, wealth and wellbeing of nations. 

“Next year we will present a communication with a concrete roadmap for action. The Commission has also started to work on an index that would measure progress on environmental issues. Indicators planned for the environment include air pollution in big cities of Europe, the quality of the air that we breathe and the quality of water,” added Dimas. However, he admitted that if finding indicators for environmental issues was relatively simple, it could be more complicated for social issues.

According to the Commission, the EU is committed to taking the lead in the move to integrate non-economic factors into policy-making by 2010. “The special importance of this system is that it would include stock-taking of natural resources and human and social capital, rather than just the use of these resources. The system would also focus on the role of eco-systems in providing welfare,” highlights a press statement. 

These topics were discussed at a high-level conference ‘Beyond GDP – measuring progress, true wealth and the wellbeing of nations’, which gathered, on the same day, experts and policy makers from the economic, social and environmental fields to consider the limits of GDP in measuring world economic performance.

The aim of the conference was to highlight that moving towards a low-carbon economy, preserving biodiversity, promoting resource efficiency and achieving social cohesion are today as important as economic growth.  

"We can't measure the challenges of the future with the tools from the past," said Commission President José Manuel Barroso

"GDP is a tool of the 1930s, which does not take into account sustainable consumption matters," said Economic and Monetary Affairs Commissioner Joaquín Almunia

"GDP measures the final market values of goods and services. While it is widely believed that people's wellbeing and quality of life improves as they get wealthier, economic wealth is not everything. Quality of life depends to a degree on the type of goods consumed, good access to healthcare, quality of education, family relations, the integrity of our public officials and the state of our environment. So, we should be able to measure these important objectives. GDP is not an indicator that measures wellbeing or welfare," said Environment Commissioner Stavros Dimas.

"The EU framework for going beyond GDP is the renewed Lisbon strategy in which progress stands for economic performance, social cohesion and environmental sustainability," said Rui Baleiras, State Secretary for Regional Development, Portugal.

"GDP is meaningless if it is based on non-sustainable resources, because it is not a measure of wellbeing but a measure of using wealth, of consuming wealth that you had as opposed to earning income from your capital assets," said David Vardy from the Leslie Harris Centre for Regional Policy and Development.

"A society where only a few people get very rich and the rest are very poor is not very sustainable in the long run," said Enrico Giovannini, chief statistician at the OECD.

Bruno S. Frey, Professor of Economic Policy and Non-Market Economics at University of Zurich underlined that well-being can't be measured by happiness, and that it would be an error if politicians tried to maximise happiness. "Life satisfaction indicators are important but let's let people decide on and find their own happiness."

"Happiness should not be the only thing for policy-making - as justice, solidarity and responsibility need to be taken into account as well - just as good environment and education, economic conditions and increased citizens' participation need to be taken into account. More educated people have more opportunities so they are happier and more satisfied with their life. Unemployment is the worst thing for happiness, as a person loses contact with his role in society. Increased citizens' participation is very important, not only for the democratic deficit but also increasingly for citizens' wellbeing," added Professor Frey.

HE Chief Emeka Anyaoku, President of WWF said: "12 years ago, we hosted a similar conference entitled 'Taking nature into account'. The call is the same as it was 12 years ago – only more urgent. We need to move beyond conventional economic accounting. We need new ways to record progress to set more wise development paths. Societies cannot continue to operate as if the planet were business in liquidation. We cannot call [something] income that in reality is resource depletion."

"We are using more resources and emitting more waste than our planet can handle. Human demand on planet has grown rapidly. It is now 1.3 planet earths. Europeans use 2.6 more than Europe's ecosystems can provide. If others used as much, we'd need three planet earths. If everybody lived like Americans – we'd need five planets. WWF's target is to diminish, by 2050, the human footprint to the size of one planet," added Anyaoku.  

GDP - Gross Domestic Product - is widely used by economists to measure individual countries' economic performance. However, its value as an indicator for the standard of living is considered to be limited. GDP also does not show how a country's wealth is distributed. 

The indicator was created in the wake of the great depression in the 1930s and experts agree that it alone cannot reflect the economic performance of modern society.

An alternative measurement is the United Nations' Human Development Index, which is the measure of life expectancy, literacy, education, and standard of living for countries worldwide and in which GDP is a contributing factor in the calculation. Yet another indicator is the World Wildlife Fund for Nature's (WWF) Ecological Footprint, measuring human demands on nature.

A world statistics forum bringing together major international organisations, ranging from the UN and EU to the Islamic Conference, decided in June 2007 to launch a global project to measure societal progress beyond conventional economic measures in individual countries (see EURACTIV 17/07/2007). The participants agreed that national statistical offices, academics and public and private bodies would work with civil society on new approaches, going beyond conventional economic indicators such as GDP. 

  • Early 2008: Commission to present an action plan for sustainable production and consumption.
  • By 2009: A preliminary version of the EU indicator that would measure environmental progress and also use integrated accounting and other sub-indicators to improve policy-making is due to become operational. 
  • By 2010: A preliminary version of an integrated environmental economic accounting system is due to become operational.

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