CityReads│Why GDP Is Not Enough to Measure Development

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Why GDP Is Not Enough to Measure Development

Countries can experience similar levels of social progress at vastly different levels of GDP per capita. Countries can also experience vastly different levels of social progress even if they have similar levels of GDP per capita.

Michael E. Porter and Scott Stern With Michael Green, Social progress report 2017, Social Progress Imperative.

Source: https://www.socialprogressindex.com/resources

Picture source: http://china.usc.edu/happy-year-dog-our-lunar-new-year-stamps-collection

GDP (gross domestic product) has become a take-for-granted way to measure the level of development of a country and its status in the world and to compare the gaps among countries. Do you know when and how GDP came into being the dominant criterion?   

On January 4, 1934, a young economist, Simon Kuznets, delivered a report, titled “National Income, 1929-1932”, to the United States Congress. His idea was to capture all economic production by individuals, companies, and the government in a single measure, which should rise in good times and fall in bad. GDP is born.

More than 80 years on, it still shapes the lives of everyone on this planet. And because Kuznets' invention was found to be so useful, it spread around the world. And now today, every country produces GDP statistics. GDP is still the most important criterion to assess the success of a country.

But it is rarely known that in that first report, Kuznets himself delivered a warning in the introductory chapter. On page seven he says,"The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above." His message was clear: GDP is a tool to help us measure economic performance. It's not a measure of our well-being. And it shouldn't be a guide to all decision making.

Kuznets' warning has been ignored. We live in a world where GDP is the benchmark of success in a global economy. Markets move and trillions of dollars of capital move around the world based on which countries are going up and which countries are going down, all measured in GDP. Our societies have become engines to create more GDP.

But we know that GDP is flawed. It ignores the environment. It counts bombs and prisons as progress. It can't count happiness or community. And it has nothing to say about fairness or justice. Is it any surprise that our world, marching to the drumbeat of GDP, is teetering on the brink of environmental disaster and filled with anger and conflict?

We need a better way to measure our societies, a measure based on the real things that matter to real people. Do I have enough to eat? Can I read and write? Am I safe? Do I have rights? Do I live in a society where I'm not discriminated against? Is my future and the future of my children prevented from environmental destruction? These are questions that GDP does not and cannot answer.

There have, of course, been efforts in the past to move beyond GDP. United Nations have created a new index, the Human Development Index (HDI) to emphasize that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone. HDI is a summary measure of average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and have a decent standard of living.

Surely, there are still things that the HDI cannot measure, such as environmental quality, personal freedom, etc.

Conceptual framework and dimensions of the Social Progress Index

Michael Green and his team propose another alternative, The Social Progress Index (SPI). They define social progress in a comprehensive and inclusive way.  Social progress is the capacity of a society to meet the basic human needs of its citizens, establish the building blocks that allow citizens and communities to enhance and sustain the quality of their lives, and create the conditions for all individuals to reach their full potential.

The Social Progress Index framework focuses on three distinct (though related) questions:

Does a country provide for its people’s most essential needs?

Are the building blocks in place for individuals and communities to enhance and sustain wellbeing?

Is there opportunity for all individuals to reach their full potential?

The Social Progress Index is an aggregate index of social and environmental indicators that capture three dimensions of social progress: Basic Human Needs, Foundations of Wellbeing, and Opportunity.

Basic human needs assesses how well a country provides for its people’s essential needs by measuring access to nutrition and basic medical care, if they have access to safe drinking water, if they have access to adequate housing with basic utilities, and if society is safe and secure.

Foundations of wellbeing measures whether citizens have access to basic education, can access information and knowledge from both inside and outside their country, and if there are the conditions for living healthy lives. Foundations of Wellbeing also measures a country’s protection of its natural environment: air, water, and land, which are critical for current and future wellbeing.

Opportunity measures the degree to which a country’s citizens have personal rights and freedoms and are able to make their own personal decisions as well as whether prejudices or hostilities within a society prohibit individuals from reaching their potential. Opportunity also includes the degree to which advanced forms of education are accessible to those in a country who wish to further their knowledge and skills, creating the potential for wide-ranging personal opportunity.

Results of The Social Progress Index 2017

The 2017 Social Progress Index includes data from 128 countries on 50 indicators.

If the world were a country, it would score 64.85 (out of a possible 100) on the Social Progress Index, ranking between Indonesia and Botswana. Breaking this average down across dimensions and components of social progress, there is a wide variation in how countries are performing. The world scores 73.80 in Basic Human Needs and 68.69 on the Foundations of Wellbeing dimensions, but just 51.85 on Opportunity. Creating a society with opportunity for all citizens remains an elusive goal that many nations have failed to achieve.

According to the scores of the social progress index, 128 countries are classified into 6 groups: very high, high, upper middle, lower middle, low, and very low.

There is a positive and strong relationship between the 2017 Social Progress Index and GDP per capita. But the relationship between economic development and social progress is not linear. At lower income levels, small differences in GDP per capita are associated with large improvements in social progress. As countries reach high levels of income, however, the rate of change slows.

Countries can experience similar levels of social progress at vastly different levels of GDP per capita, such as New Zealand and Norway. Countries can also experience vastly different levels of social progress even if they have similar levels of GDP per capita, such as Nigeria and Ghana.

In 2017, China scored 63.72, ranking at the 83^rd out of 128 countries. China was classified as a member of lower middle group. Comparing with its economic performance, China underachieved in terms of the social progress. 

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