By Eden Haycock
GDP is the current, primary measure of economic growth and is seen as a measure of success to other nations and features in many recognised ranking tables.
It is defined as the total monetary value of all the finished goods and services produced within an economy. GDP was a metric first proposed in 1937 by Simon Kunznets, as a result of the Great Depression and World War II, with the aim to capture the economic activity of individuals, businesses and governments in one measure.
However, this Nobel Prize winning metric, may have had its day. Is measuring economic activity what is required in 2021?
It has been suggested that the neglect of social and environmental factors, make using GDP alone unsuitable to measure growth in todays world. As we can see from the recent negotiations at COP26, politicians and policymakers tried to reach an agreement based on factors beyond economic activity – even the celebrity heavies were drafted in to help us all think beyond economic growth!
A new metric for a new age?
A more holistic approach would be to integrate multiple indexes such as the Environmental Performance Index, curated by Yale. This is a weighted index which ranks countries on their dedication to environmental protection, over 32 performance categories, aligning with the UN 17 SDGs.
The EPI indicator aims to reach targets set by the UN through using data to identify the best policies being implemented globally and correspond with government officials to create refined policy agendas with the aim to progress in sustainable development.
Arguably, it is important to recognise welfare metrics such as the SPI (Social Progress Imperative), which also supports the SDGs. There are three main components that are measured: Human Needs, Foundations of Wellbeing and Opportunity. These are further divided into subsections. A data driven approach is used when calculating the index, and a score out of 100 is calculated enabling comparison between countries. This is a social metric that could work in combination with other indicators to refine policies and target areas that require prioritisation.
Bigger doesn’t always mean better
Growth does not necessarily mean more money; growth can mean social, economic or environmental improvements.
By incorporating the metrics discussed and using a more complete measure – one that is able to encompass priorities of consumers and businesses but also wider society and their governing bodies – would be far more valuable and insightful than relying solely on the metric of GDP.
This is a dilemma explored thoroughly by Mark Carney’s Podcasts on BBC Sounds – the dichotomy of economic value and societal values.
We, as consumers and businesses, must realign our values to become congruent with reversing the effects of the climate crisis.
We must become more individually responsible and begin to reflect on our individual impact on the environment – consumerism, throw-away culture, carbon footprints and supply chain impacts.
Growth will always occur based upon what we measure and what we value. If we begin to value sustainability, the market forces will become redirected towards green, sustainable practices.
A change of mindset is required
In a modern society with complex values and struggles, a single metric devised over a century ago, when the world felt immutable, is no longer able to represent real, valuable growth.
COP26 has shown that there some agreement in the requisite for change, however the rate of change by some countries is questionable.
This is perpetuated by the necessity for a financial incentive for countries such as India to move towards sustainable practices. The absence of China and Russia for example, reflects the unwillingness to commit to global efforts in halting and reversing the effects of climate change.
It looks like GDP may be here to stay for a while longer…unfortunately.