The gross domestic product (GDP) remains the go-to measure of economic progress worldwide despite its widely recognized shortcomings, yet it still retains its powerful allure as an indicator. It offers both technocratic convenience and analytical elegance when serving as the centrepiece measure in complex systems of national accounts.
Many individuals and organisations increasingly call for alternatives to GDP for measurement and policy-making purposes. This article presents several of these new approaches to measurement.
Economic Growth
Robert F Kennedy made a stunning observation on the opening day of his presidential campaign in 1968. When he attacked the “unscrupulous pursuit of growth” that threatened democracy, few could have anticipated how far we have come since then. GDP remains the key metric used to measure economic success and drive most domestic policy in industrialized nations.
GDP alone cannot accurately measure economic progress; it fails to account for environmental and health damage wrought by pollutant production and other activities that increase GDP temporarily but later threaten the environment and human health. Nor does GDP factor in depleted or lost natural resources or the costs associated with rebuilding from disasters.
An increasing number of economists and other experts are proposing alternatives to GDP as an indicator of economic well-being, including indicators encompassing subjective well-being (measured by happiness or life satisfaction), environmental sustainability, social cohesion and inclusiveness. Dozens of initiatives have been initiated locally, nationally and internationally aimed at measuring broader measures of well-being, such as these indicators;
Attempts at creating an alternative to GDP have had mixed success. From creating complex dashboards of indicators to more narrowly defining concepts of well-being and overall happiness, all have struggled to balance technical robustness with social resonance. Their complexity can make communication and comparison challenging while lacking one GDP statistic’s simplicity.
Although it is encouraging that so many agree with the need to go beyond GDP, broad consensus must first exist before meaningful progress can be achieved. Statistical measurements serve as technical standards; just as electricity consumption or road rules must be universally agreed upon before they can be enforced properly, so too must new measures. Five approaches chosen for further discussion in this paper offer potential solutions. Yet, their approach differs in terms of how they depart from business-as-usual models that perpetuate inequalities and worsen environmental degradation.
Social Development
Governments, businesses and citizens increasingly demand an expanded statistical measurement framework beyond GDP. This may involve measures focused on people, nature, and sustainable economic development. While traditional economic performance metrics will always have their place, developing new metrics requires combining economic, environmental and social approaches that make nature’s contribution to human well-being explicit.
These approaches hold immense potential to revolutionize the management of our socio-eco-environmental system. However, it is equally transformative to consider that designing indicators and processes of their creation could have just as great an effect.
Co-creating values-based indicators can provide insight into people’s behaviour, such as motivations, concerns, and values that drive particular choices and actions. This process provides additional depth beyond what economists provide when designing economic indicators.
Another crucial challenge lies in accurately accounting for income distribution in any new measure of progress. For instance, GDP could rise while a significant proportion of citizens’ income stagnated or declined – this phenomenon is known as inequality, as highlighted by Thomas Piketty and others.
Alternative measures of GDP that have recently been created attempt to address this problem by including some type of inequality adjustment into their measures, such as the Purchasing Power Parity approach to wealth measurement, Genuine Progress Indicator or Better Life Index. Unfortunately, many of these approaches still struggle to find an acceptable balance between coverage and communication that would be provided by an easily understood metric like GDP.
No matter the challenges involved, it is evident that there is an increase in efforts to look beyond GDP. This trend can be seen through the increasing number of companies and organizations with dedicated Corporate Social Responsibility departments or Global Report Initiatives and through increasing investor and funder interest in using sustainability/social progress indicators as a measure of progress.
Environmental Sustainability
Many nations strive to meet ambitious sustainability goals as our global economy transitions towards sustainability. Achieving these will require unprecedented changes across every industry sector and profound transformation in culture and habits; only broad all-of-society engagement supported by long-term government commitment will make this possible.
Environmental sustainability is a central challenge that will have far-reaching ramifications on people’s lives and quality of life. Achieving it requires major shifts across all sectors – energy, agriculture, transport, buildings, etc – with profound repercussions for global oceans, forests and land use systems. But despite being such an immense task for humanity to undertake, there are signs that global society is willing to meet it head-on.
Recent statistics demonstrate a growing trend of nations adopting carbon taxes or cap-and-trade systems to combat climate change. Furthermore, the UN recently pledged its commitment to sustainable development by 2050, yet progress remains impeded by political inertia to combat it.
To address this, governments need to establish an atmosphere of urgency by setting clear goals and providing the financial and regulatory infrastructure to meet them. They also must strengthen international legal frameworks while assuring global institutions can address issues effectively and credibly.
Various emerging approaches seek to replace, augment or supplement GDP. Some attempt to account more directly for subjective well-being through measuring self-reported happiness or life satisfaction; others attempt to accurately reflect natural and social capital levels by monetising ecosystem services or devising adjusted measures of inclusive wealth.
Additionally, some are exploring broader social changes and their effect on business, recognizing that environmental concerns are no longer peripheral; they’ve become essential to success. Many companies are taking notice, increasingly including sustainability-related solutions in their core business models.
Attaining sustainability beyond GDP requires enormous efforts to identify and prioritise the most pressing environmental concerns and devise effective responses. While certain issues, like water and air pollution and biodiversity loss, are universal concerns, others might only apply within certain regions or jurisdictions. All stakeholders must work collaboratively, supported by strong leadership from governments and multilateral agencies, towards creating lasting solutions.
Human Wellbeing
GDP may be one of the best-known indicators, but it doesn’t provide an unambiguous reflection of economic progress and human well-being. Therefore, many governments have started using alternative measurements such as the Human Development Index, Better Life Index or Genuine Progress Indicator as measures of progress and well-being, respectively. Constructing such alternative measurements is no easy feat due to both measuring “well-being” accurately and finding ways to communicate the results clearly.
Human well-being is a complex concept with multiple dimensions that may or may not have strong correlations between themselves, making its measurement and analysis difficult to interpret over time. An additional difficulty comes from taking account of trade-offs between dimensions or measuring and interpreting changes over time.
At the same time, there is a need to increase consistency in measuring human well-being – not only regarding what dimensions are included but also in scoring and whether they change over time. This can be accomplished with more stringent survey instrument design practices and reliable methodologies like factor scores (for more details, see Supplement).
Furthermore, it is critical to determine how these new measures relate to GDP and other indicators commonly used to guide policy decisions. The ESS Round 4 has taken an innovative approach by linking its well-being module with other societal indicators like social inequality and education – this allows a more in-depth exploration of how different dimensions of well-being interact and which ones may be hidden by others and also allows more targeted policy interventions in areas likely to have the greatest effect on an individual’s well-being.
The ESS is a leader in developing novel approaches to measuring well-being and creating an alternative measure of success besides GDP. This event builds upon their work by emphasizing the need for a broader definition of success and well-being and exploring how using an array of indicators can inform policy decisions that benefit both people and the planet alike.
Measuring Success in the 21st Century
Recently, well-being has come into the limelight as those focused on creating an equitable and sustainable society have grown increasingly discontent with purely financial measures of progress.
Engagement in employee wellbeing can effectively build employee trust and performance, as it can reduce absenteeism while increasing productivity.
1. Well-Driven Outcomes
Employee well-being is a cornerstone of organizational success. Studies show that happier workers tend to be more productive. Less sophisticated approaches focusing only on output and profit margins often fail to deliver sustainable productivity gains.
Measuring happiness can be an intricate and laborious task. Individuals’ well-being depends on various aspects such as their material living standards, health status, education level, work activities, including employment or political representation and governance, interpersonal connections with others and the overall environment in which they exist.
As with the GDP, ESS aims to integrate all ten dimensions into one composite measure. A factor scoring method was employed instead of simply summing raw scores; this allows for the different response scales across items in ESS, yielding standardised scores that allow for easy comparison across items and studies. A hierarchical model comprising one higher-order factor and two first-order factors best approximates MPWB as it allows all aspects of well-being to be represented in one score.
2. Well-Driven People
An ambitious desire for success can be an admirable motivation; however, when this drive exceeds one’s ability to thrive, it can lead to stress, burnout and self-harm. Driven people often set lofty goals that they focus on relentlessly. They may feel they cannot afford failure, which adds another layer of pressure.
Modern leaders understand that living a healthy, balanced life with balanced growth is the foundation of sustainable success in business and beyond. This involves maintaining an intact mind, healthy body, strong sense of community and purpose, spiritual core and emotional expression in an emotional balance that keeps all components running optimally.
To harness this potential, schools should broaden their definition of student learning to include additional measures of well-being. This would enable students to understand their holistic needs as young adults and citizens of the world and challenge any assumptions that literacy and numeracy alone are adequate preparation for future endeavours.
3. Well-Driven Culture
Many companies already provide many programs and resources designed to promote employee health, yet these may often appear disjointed or at odds with one another. Tracking behaviours effectively pinpoints where and how best to make changes that reflect organizational and individual values.
Establishing an environment that prioritizes employee well-being can play an instrumental role in driving both individual and company success. Furthermore, such an initiative forces business owners and upper-level leadership to view employees not as tools to produce labour but as real individuals who require understanding before being exploited as tools by production lines – this humanization helps enhance employee well-being by giving leadership more insight into employee needs, challenges and strengths.
From a long-term perspective, cultivating a culture based on well-being principles can create a virtuous cycle in which healthy employees become more productive, engaged, and energized to support the company vision, leading them on to financial and environmental success simultaneously – making everyone’s job easier while benefitting the planet too!
4. Well-Driven Leadership
Success in an ever-evolving business environment depends upon a leader’s ability to quickly refocus and adapt. To meet this challenge, leaders require skills such as communication, negotiation and initiating change; transparency, internal collaboration and performance management systems designed to foster health and growth are also vitally important tools for leadership success.
Even amid this new and daunting environment, true leaders have proven themselves capable of meeting its challenges head-on. True leaders have proven themselves adept at adapting by using both their lives and businesses to promote an overall healthy, sustainability-minded consciousness – where health and sustainability are pursued for their own intrinsic worth.
Personal wellness empowers leaders to lead with internal authority rather than vacillation, discernment rather than thoughtlessness, and resilience rather than burnout. It is their most potent change tool yet cannot be bought or sold, creating an entirely new paradigm of living and leading that upends the old success-at-any-cost model.
