Since the start of the modern economy, the most commonly used tool to figure out a country’s economic growth has been the Gross Domestic Product (GDP). The GDP simply sums up all the goods and services produced in a country. If your country is making tons of stuff and providing lots of services, you’re GDP is high and your economy is considered to be ‘strong.’ And if that GDP gets bigger every year then your economy is ‘growing’ and everything is supposedly wonderful and grand and happy.
The big problem here is, GDP makes no distinction between economic activity that contributes to society’s well-being and those that cause harm. In other words, you could have an extremely high GDP and very unhappy, unhealthy citizens.
Here’s some examples of where GDP as a measure of a country’s success falls short:
- The child-care industry is growing at rapid rate, but that means parents are spending less time with their kids than ever before.
- Working longer hours makes the economy grow
- Two of the fastest growing sectors in the U.S. are imprisonment and gambling with a total contribution of over $100 billion to the economy
- The Exxon Valdez oil spill, from the perspective of GDP growth, is considered a huge economic success.
- Car crashes directly and indirectly contribute $57 billion per year
- Prozac sales quadrupled since 1990 to more than $4 billion
Does any of this sound like progress to you?
-John F. Kennedy
Because of GDP’s inability to measure the overall happiness, safety and environmental health, the invention of other metrics to measure a country’s genuine progress have been created.
1. GPI – Genuine Progress Indicator
The Genuine Progress Indicator (GPI) takes into account a variety of non-monetary factors to evaluate true prosperity. For example:
What lowers GPI: increased poverty rates, resource depletion and pollution
What raises GPI: increased volunteer hours and leisure time, wetlands rehabilitation
Here is a comparison of the GDP vs. GPI for Alberta, Canada from 1960 -1990. You can see that even though the GDP grew quite a bit, the GPI remained flat, even dropping. This means that although the economy grew, the destruction of natural habitat and increased asthma rates, among other things, prevented the GPI from increasing.
2. GNH – Gross National Happiness
This idea was coined in the 1970’s by the King of Bhutan. His idea was to base his country’s well being and prosperity on Buddha’s spiritual values rather than western materialistic development and GDP. The four pillars of GNH philosophy are the promotion of:
- sustainable development
- preservation and promotion of cultural values
- conservation of the natural environment, and
- establishment of good governance
Since the development of the GNH, many other variations have been created: in 2011 the United Nations released the World Happiness Report, and several other cities and countries have began using their own happiness index to track genuine progress. I for one certainly hope the trend continues to grow.