Go Beyond GDP, But Not Too Far Beyond

(Bloomberg Opinion) -- Gross domestic product's shortcomings as a measure of well-being have been obvious for decades. Robert F. Kennedy observed in 1968 that it “measures everything except that which makes life worthwhile.” But well-meaning attempts to create a better way to measure progress threaten to make policymaking more subjective and more controversial.

Last week, the Organization for Economic Cooperation and Development published a report based on the work of a commission headed by Nobel prizewinning economist Joseph Stiglitz, his French colleague Jean-Paul Fitoussi and OECD Chief Statistician Martine Durand.

The group was meant to create a dashboard of indicators that go beyond GDP and provide a more multifaceted picture of a nation’s quality of life. The work was started after the global financial crisis, based on the idea that better data could have helped to prevent the turmoil or mitigate its consequences.

For example, as Stiglitz has long argued, less emphasis should be placed on public debt as long as government spending produced assets, such as human or physical capital, that could be placed on a balance sheet against the increased liability.

And if policymakers had paid more attention to household statistics rather than GDP, they would see why many people stopped trusting their governments following the crisis. As countries reported a resumption of economic growth, domestic incomes kept falling. In the euro area, GDP increased by a cumulative 0.7 percent from 2009 to 2012; household disposable income fell by 0.7 percent per head.

The discussion stimulated by the commission’s work helped to prompt the United Nations to agree on 17 sustainable development goals and 232 indicators to measure them against. That’s far too many for policymakers to track regularly for the purposes of, say, budgeting.

So a number of countries have adopted their own, smaller sets of metrics. The list includes countries as diverse as New Zealand and the United Arab Emirates, Ecuador and Italy. Most of these countries, however, have only moved in this direction very recently – Sweden’s New Measures of Well-Being, for example, were first incorporated into the budget in 2017 – and it’s been impossible for Stiglitz and his colleagues to evaluate results. 

So far, all the economists can do is to warn about the dangers they see: such as the fact that the well-being dashboard doesn’t always survive the leader who introduced it. Ecuador, for example, adopted its Buen Vivir program under President Rafael Correa; his successor Lenin Moreno has since abolished the ministry that oversaw it.

Another possibility is that governments may be tempted to use the well-being indicators to justify low economic growth. “This criticism needs to be addressed head on,” Stiglitz and his fellow commission leaders wrote. “GDP growth may be necessary to provide the resources needed for strengthening well-being, but it is not sufficient; growth that does not benefit most of the population and that is not sustainable is not ‘good growth.’”

It’s hard to argue with the general logic of this statement – the problems with implementing it are of a practical nature.

The commission recommends gathering far more data than is available to most governments, as well as a degree of sophistication of which not many national statistics agencies are capable. Today's data on economic inequality are incomplete (being produced by surveys, the figures don’t capture the richest and the poorest) and it's hard to see how economic security, or the risk that a particular household will lose a big part of its income in a given year, can be measured.

An accurate picture of a nation’s well-being requires lots of subjective data – on people’s reported happiness and trust in each other and national institutions. These are difficult to interpret, and under some political systems, people just won’t tell government researchers the truth.

The Stiglitz commission wants countries to work on improving data collection, with wealthier nations helping poorer ones. In the real world, however, the complexity of both collection and analysis will likely produce chaos. International comparisons – relatively easy with GDP and other traditional measures like unemployment – will become devilishly challenging.

Even the existing implementations of the dashboard show how differently policymakers understand well-being priorities – and how blocs and international organizations to which a country belongs may take exception to this understanding. Italy has a set of well-being goals reflected in the country’s budget for next year. But the European Union's priority is different: To prevent the country's dangerously high debt from rising.

Stiglitz, Fitoussi and Durand wrote that going beyond GDP is will help to bridge “a growing gulf between the statements, assertions and beliefs of the experts and elites, on one side, and the lived experiences of significant numbers of citizens on the other.”

Looking at how differently countries have set up their measurement systems, I think the gulf between elites and citizens may get even wider. Take French President Emmanuel Macron: his priority is to raise carbon taxes for the sake of a cleaner environment. Yet France has thousands of car owners willing to take to the streets to protest his vision because they prioritize mobility and purchasing power.

The commission has been inventive and thorough about working out what data to collect and what indicators to track for a more precise understanding of national well-being. But it would be better to focus on a smaller set of readily available indicators that are internationally comparable and hard to game or misinterpret: Per capita GDP, employment and unemployment, government and household debt, air and water quality, and educational achievement.

Going further will be difficult. Making policy on the basis of ephemeral or subjective data runs the risk of undermining voter trust rather than boosting it.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Leonid Bershidsky is a Bloomberg Opinion columnist covering European politics and business. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.

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