From GDP to wellbeing: a new development paradigm for the 21st century
from: Prof. Lorenzo Fioramonti
The way in which we measure economic success is becoming increasingly obsolete. We need an alliance of governments and companies committed to rethinking prosperity.
In a 2014 issue of Nature, our group called for ditching the gross domestic product (GDP) as the key indicator in economic policy making. As our research shows, GDP encourages policies that increase industrial output, disregards the importance of healthy ecosystems and pays no attention to social dynamics and inequalities. Moreover, it attributes no value to forms of economic activity that are informal, community-based and driven by collaboration and sharing. In this new article, we argue that a post-GDP economy focusing on wellbeing rather than material output is not only feasible but within reach. This is due to the convergence of recent policy reforms and economic shifts. At the policy level, the Sustainable Development Goals (SDGs) require governments to protect ecosystems, promote greater equality and focus on long-term equitable development. At the economy level, services have outpaced industrial production as drivers of prosperity, with new technologies optimizing the match between supply and demand and giving rise to a burgeoning digital economy, which produces value while reducing output and costs, as recently documented in a dedicated issue of The Economist and by an official review of the UK government.[i] We argue that a different approach to measuring prosperity is the ‘missing link’ we need to connect recent evolutions in policy and the economy with a view to activating a new development paradigm for the 21st century.
GDP has not been simply used an economic metric, but also as a performance assessment tool for society.[ii] Countries are ranked in terms of GDP, international organizations and investors vet governments’ policies through GDP, politicians and businesses are rated on their success at promoting GDP growth. This statistic has acquired a profound institutional power, providing the econometric backing for an economic model driven by industrial production, large corporations and mass consumption, which is now increasingly questioned.
The supremacy of GDP is being eroded, not only in the scientific community, but also in policy circles and public debate. The ‘beyond GDP’ debate is high on the global agenda. Many international agencies, including the UN, the Organization for Economic Cooperation and Development, the World Bank and the European Commission, are actively engaged, as are a number of national governments, which have launched commissions and review panels.Moreover, the climate change negotiations and, in particular, the UN 2030 Agenda and the SDGs, although at times contradictory in their objectives, provide a ‘roadmap’ for development which relies on the interconnectedness of social, environmental and economic dynamics and points towards the indivisibility of human and ecosystem wellbeing.
The economy is changing too. Not only have services long outpaced industrial production in value creation, but the digital revolution has now reduced marginal costs in a variety of areas, thus generating value while reducing output. Many services, from telecommunication to entertainment, are now provided almost for free, through dedicated platforms, apps and online portals. Google has become a champion of free services, from maps to books and many other applications. A new digital economy, from for-profit ventures like AirBnb, Uber and Whatsapp, to non-profits like Wikipedia, has also significantly reduced the prices that people have to pay to access hospitality, temporary accommodation, mobility, communication and knowledge. This has generated a ‘productivity paradox’: our economies increase value, utility and consumer surplus but GDP is unable to capture this new form of prosperity, giving wrong signals to policy makers. GDP is also unfit to measure the contribution of new business models based on self-production and co-production, because it only registers transactions occurring between clearly separated producers and consumers. With the growth of additive technology, including open hardware and 3D printers, GDP is becoming increasingly obsolete to account for the value created in the collaborative economy not only in the field of services but also in manufacturing.[iv] This confusion is behind the misleading debate over productivity statistics in the US and around the world: a false problem that the digital industry must help dispel.
Just as GDP provided the econometric scaffolding for the industrial development of the 20th century, new measurements can help connect the recent policy and economic evolutions with a view to promoting structural transformation to the benefit of a new economy. A new system of accounting based on wellbeing rather than output can level the playing field between old corporations and the new online economy.
The list of beneficiaries of a shift to wellbeing includes families, communities, cooperatives, fair trade networks and many similar groups. Even high-tech companies, especially those providing on-line services, have much to gain in terms of reputation and social status, given that their positive contributions largely exceed their material output. As more social actors become aware of how a as shift from GDP to wellbeing indicators can assist their causes, it is to be expected that grassroots social mobilization will also grow, connecting bottom-up pressures for change with top-down policies (as suggested in figure 2).
Figure 2 – How wellbeing indicators connect policy with the new economy
We propose the creation of an alliance of countries, regions and companies (possibly supported by other social groups) committed to fostering a development model
focusing on the quality of growth and wellbeing, rather than narrowly defined economic output.
[i] See ‘The Trouble with GDP’ The Economist, 30 April 2016 and Bean, C. Independent Review of UK Economic Statistics: Final Report , March 2016.
[ii] Fioramonti, L. How Numbers Rule the World (London, 2014).
[iii] See Fioramonti, L et al. ‘Say Goodbye to Capitalism: Welcome to the Republic of Wellbeing’, The Guardian, 2 September 2015. See also OECD How’s Life? Measuring Well-being (OECD, 2015) and ‘Beyond GDP: Measuring progress, true wealth, and the well-being of nations’, Conference proceedings, 19-20 November 2007.
[iv] Rifkin, J. The Zero Marginal Cost Society (New York, 2014).