Yesterday’s release of the Report by the Commission on the Measurement of Economic Performance and Social Progress should provoke some interesting discussions on the question of progress. The committee, chaired by Stiglitz, Amartya Sen, and Jean-Paul Fitoussi, was commissioned by the French government in 2008 to explore the adequacy of current measures of economic performance, particularly Gross Domestic Product, [glossary] to assess societal well-being.
In its final report, the committee acknowledges the limitations usually attributed to the use of GDP as a measure of progress. The committee argues, in short, that GDP does not value the right things; that it mistakes the means (economic growth) for the ends (social progress); that it may actually hide more than it illuminates; that it discounts the importance of future generations; that it does not include the health and sustainability of the environment; that it excludes unpaid labor, particularly in the home; and so on. (Many of the critiques are outlined in the report’s 18 page executive summary, which is well worth the read).
Writing in Tuesday’s Financial Times, Joseph Stiglitz argued that the use of GDP as a proxy for social wellbeing was not just a problem of what is or is not included, but that its use as proxy leads to problematic and misguided policy conclusions. According to Stiglitz,
What we measure affects what we do. If we have the wrong metrics, we will strive for the wrong things. In the quest to increase GDP, we may end up with a society in which most citizens have become worse off. We care, moreover, not just for how well off we are today but how well off we will be in the future. If we are borrowing unsustainably from this future, we should want to know.
Flawed statistics may also lead us to make incorrect inferences. In the years preceding the crisis, many in Europe, focusing on America’s higher rates of GDP growth, were drawn to the US model. Had they focused on metrics such as median income – providing a better picture of what is happening to most Americans – or made corrections for the increased indebtedness of households and the country as a whole, their enthusiasm might have been more muted.
No good accountant would ignore the depreciation of a company’s capital, but the standard GDP measure not only does that but also takes no account of resource depletion and environmental degradation. Our increased awareness of the scarcity value of environmental resources makes this lacuna especially troubling….
Too often, we confuse ends with means. One of the criticisms of our economies in the years prior to the crisis is that they did exactly that – a financial sector is a means to a more productive economy, not an end in itself. Even worse is to confuse an improvement in a measurement of well-being with an improvement in well-being itself. Our economy is supposed to increase our well-being. It, too, is not an end in itself. Hopefully, the work of our commission will have increased the impetus to align the metrics of well-being with what really contributes to quality of life – and, in so doing, help us direct our efforts at those things that really matter.
What is particularly interesting about the report is not so much its content—indeed, many of the criticisms it levels have been acknowledged for years—but its reception. The government of Bhutan has long called for a new measure of social progress based on happiness, a concept it labels Gross National Happiness. But most governments have so far refused to make any real changes. On Monday, French President Nicolas Sarkozy ordered the French statistics agency to begin incorporating the new measures of social wellbeing into accounts of the country’s overall performance. The acceptance of the new figures by other governments could make provide a framework to rethink the relationship between economic growth and social wellbeing, ensuring that we no longer confuse the means with the ends.