Measuring True Progress
Growth in gross domestic product (GDP) or Gross State Product (GSP) is not synonymous with genuine prosperity, yet decision makers continue to rely on GDP and GSP as a barometer of overall economic performance.
GDP simply measures the number of dollars flowing through the economy, not whether those dollars are improving the quality of our lives. Under GDP the money spent to keep a child in juvenile jail is equal to the money spent to give a child a good education. The GDP registered the clean up costs of the BP Deepwater Horizon oil spill catastrophe as a net gain, completely ignoring the environmental and social impacts to Gulf Coast communities.
The primary problem with using the GDP metric is that we are managing for constant economic growth, without measuring the true costs of that growth in the face of several decades of escalating poverty and inequality rates and environmental damage.
In 1962 Simon Kuznets, the man who created the GDP, warned, “Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.”
The current GDP metric and consumption-based economic model was only put in place on a wide-scale in 1944 with the Bretton Woods Act. There was rationale for this system then, but scientists and economists did not realize the scale of consumption that would result or the ecological limits that we would encounter within just a few decades. They also could not have envisioned the massive expansion of poverty, income inequality and associated social challenges. But now we do know. It is time to go beyond GDP.
The Great Recession has revealed that the status quo economic model has some structural flaws. It is increasingly understood that our conventional way of measuring progress, based on Gross Domestic Product and other measures of market growth, has seriously distorted policy development and decision-making in favor of unsustainable forms of economic activity and at the expense of current and future societal well-being.
In response, a world-wide movement to reform official measurement systems has taken hold, as leaders from civil society, governments, and academia move ahead to develop and apply new economic indicators that go beyond GDP by taking inequality, non-market goods and services, essential capital, externalities, vulnerability, debt and sustainability into account.
This movement is now gaining traction in the United States. Perhaps the most productive arena for advancing alternative metrics in the United States is at the state level, where the mix of high-stakes policy and resources, more flexible politics, and practical urgency is conducive for concrete experimentation and advances on this issue.
The Genuine Progress Indicator (GPI) – already applied in Maryland and Vermont and under-development in Oregon and Utah – is one of the leading candidates for this role. Work over the past two years has shown that there is tremendous interest in developing state-level GPI initiatives.
3EStrategies is proud to have worked with the national organization Demos to support state-level efforts to develop and implement Genuine Progress Indicators.
3EStrategies has been participating in a Global Well-Being Lab led by the Presencing Institute.