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Measuring progress

The business and economic world is obsessed with measuring things. The most widely recognised global measure is GDP, or Gross Domestic Product. The majority of us will not know exactly what this is, but we do know is that a postive GDP is good and a negative is bad. That is what the politicians tell us. That is what the media tells us. And that is what most of us take for granted.

So what is GDP? Essentially, GDP measures a nations growth by calculating its output. It does this through three calculations:

  • measuring production through market value of goods and services over 1 year
  • measuring income across all individuals over 1 year
  • measuring total expenditure by individuals across nation over 1 year

Theoretically, they should all reach the same figure. However, there are many limitations that skew the results, for example, GDP does not typically take technological advances which improve productivity into account. And only recently has the black market been factored into some GDP forecasts. It is clear that when you are measuring an entire nations output, there will be some degree of inaccuracy.

How relevant is GDP today?  A recognised litmus test of a nation’s health is to look at GDP. But does this measure paint a comprehensive picture of how a nation is performing. There are many important factors that GDP does not consider: social factors, such as healthcare, egalitarianism, the distribution of income, environmental damage, food wastage, and even happiness!

Politicians and business people are constantly talking about growth and what we have to do to stimulate an economy. But if a nations obsession with improving GDP leads to increasing the working age, reducing pensions, raising living costs, are we really making progress?

GDP from space - This cartoon is by Kipper Williams from The Guardian

GDP from space – This cartoon is by Kipper Williams from The Guardian

There have been many alternatives to GDP suggested in the past. The Human Development Index is one of the most widely recognised and measures literacy and life expectancy among others. The Index of Sustainable Economic Welfare,  incorporates pollution and income distribution. Or how about the Happy Planet Index, which combines human well-being and environmental impact. This issue is debated by academics, but we have yet to see much take up from business and the political elite.

How long can we rely on growth to measure progress? Surely we cannot grow forever. In fact, does progress even require growth? These are difficult questions indeed.


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