Going beyond GDP to measure progress

US latest to seek new metric on how well the country & its people are doing
Anna Teo Business Times 14 Sep 10;

(SINGAPORE) Even as most of Asia cheer the return this year of robust growth, the region and the rest of the world, continue to keep their eyes peeled on America - where the economic indicators streaming out each week have been less than sparkling.

The US, meanwhile, is looking beyond GDP (gross domestic product) as the defining yardstick of how well the country and its people are doing. It's not that the world's biggest economy is abandoning the universal indicator of economic prowess anytime soon.

But efforts are underway by a non-profit, non-partisan organisation called The State of the USA (SUSA), under the auspices of the National Academy of Sciences, to launch a 'key national indicator system' that would 'help Americans assess the progress of the United States for themselves'.

The idea is to develop scores of alternative measures - around 300 - on factors such as crime, energy, education, health, housing, infrastructure, the environment, and the economy, that collectively would be a comprehensive report card on how the country has fared over time.

Globally, SUSA is hardly a new initiative, of course. It's but the latest in a wave of ventures over the last couple of decades to go beyond the GDP statistic as the measure of a country's well-being. Implicit in these initiatives - ranging from the genuine progress indicator (GPI) to, at the national level, Bhutan's gross national happiness index and France's Sarkozy Commission - is a sideswipe at the GDP metric.

Even as national policies just about everywhere live or die by the GDP statistic, it has also long been known that many of the activities that boost GDP - thus adding 'positively' to a country's performance - actually do nothing for the people's welfare. Pouring resources into flood allevation or fighting a war; cleaning up after a typhoon or tsunami; building more highways and adding to urban congestion and pollution, for instance.

In 2007, the European Commission and European Parliament, along with the Organisation for Economic Cooperation and Development, the World Wildlife Fund and the Club of Rome, started a 'Beyond GDP' campaign to look into new ways to calculate economic output and track progress.

Their September 2009 report suggested, among other things, the creation of quality-of-life and well-being indices, as well as indicators on environmental sustainability to measure the full effects of pollution, and an inequality metric that takes into account various social disparities in everyday living. All in the name of an 'international initiative' to measure the 'true wealth and well-being' of nations.

French president Nicolas Sarkozy, on his part, seemed to be on a one-man mission to get the world to shift focus on measuring economic production to measuring people's quality of life. Critics said that it was because GDP figures made France look bad.

The bluechip task force of big-name economists that Mr Sarkozy assembled - his Commission on the Measurement of Economic Performance and Social Progress - produced, after 18 months, a veritable treatise on the subject. But they thought that the problem lies not so much with the GDP indicator itself as with the way it is used.

Still, the bottom line is - value 'quality of life' rather than mere production, by taking into account income, consumption and the intangibles generally termed social capital.

America is now also on the bandwagon to try to track, via indicators that 'truly capture our essence as a nation', what 'really matters'. And one consensus is - what really matters is not GDP, even if it's the universal measure of economic performance and hence, as it were, national success.

As the late US senator Robert F Kennedy said, most lyrically in a speech shortly after announcing his presidential candidacy in 1968: 'The gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile. And it can tell us everything about America, except why we are proud that we are Americans.'

Moved or not, economists (perhaps apart from those on the Sarkozy Commission, notably Joseph Stiglitz and Amartya Sen) aren't about to ditch or dismantle the GDP measure.

Asked for his views, labour economist Edward Lazear said he wasn't 'optimistic' that a better measure of economic output will emerge anytime soon. 'Anything we can do to get better measures is fine,' he told BT during a visit to Singapore in August. 'There are always refinements that we'll have to make.

'One of the big problems that we've had with GDP is that if you move from a manufacturing economy to a services economy, issues of measuring quality, issues of measuring how much of a particular service is being provided, are much more difficult than when you're talking about goods. So those are the kinds of technical issues that I think we need to focus on.'

But 'thinking about some sort of lofty theory or notion of what should enter GDP' - economists do and have been thinking about such things, he said.

'We know how to deal with those things, we know how to value them. Usually, we convert them into a monetary equivalent. And my mentor, Sherwin Rosen, who unfortunately passed away a few years ago, he's the guru on how to take non-monetary aspects of production and translating them into money. So anything that we can do to move in that direction, I think would be helpful. I doubt that President Sarkozy is the person to do it. But I'm happy to see anybody who can make progress on that.'