GDP is a misguided measure of national prosperity

The wellbeing of the population must be taken into account when measuring economic success



The growth of GDP has become the key marker of success in British politics. George Osborne was quick to hail a 0.8 per cent rise in GDP in the first quarter of 2014 as evidence that ‘Britain is coming back’. A year later, Ed Balls declared that the slowdown in the first quarter of 2015 was evidence that ‘working families’ were suffering under the Conservatives.

So central is GDP to the political debate that it has become an end in itself, a proxy for what is ‘good for the nation.’

However, while historically growth and national welfare have increased together, the point where growth drives shared prosperity has long passed. We need to challenge the rhetoric that unquestioningly conflates growth and prosperity in politics: first by understanding why growth cannot be used as a proxy for national welfare; and secondly why uncoupling the two would make for more reflective policy.

The mainstream equation of growth and national prosperity ignores the fact that growth generates losers as well as winners. We see this in London’s housing market where rising prices have pushed up GDP figures when the rest of the economy is still dragging.

Who wins from this? The government can claim to be supporting growth and homeowners see their assets appreciating, while everyone else is spending increasingly unsustainable portions of income on rent or struggling to buy. GDP doesn’t tell us how benefits of growth are distributed – who wins within a population and who loses.

It also ignores the long-term damage that growth can do to our chances of future prosperity. This is clear in several high growth sectors. Coal, gas and oil have increasingly supported growth since the industrial revolution but they are simultaneously being depleted and damaging the planet. Most of us gain in the short-term (albeit to different degrees), but in the long-term this growth is unsustainable and hugely damaging to our chances of future prosperity.

Failing to reflect evenly distributed or sustainable national benefit, growth should be untangled from the idea of prosperity. The insistence that they are two sides of the same coin has been so strong that GDP marks the arena of what is considered ‘valuable’ by politicians: things that are accounted for by GDP are valuable, and things outside it necessarily become secondary.

Primary concerns are those that support growth, and other things come later on the list of priorities. This can perhaps be seen most clearly in the underfunding of care.

Much care is still given freely in the home. Unpaid childcare, for instance, was valued at £343 billion in 2010 – equivalent to 23 per cent of GDP.  Carers of ill and disabled relatives saved the NHS around £87 billion per year in 2006/07, more than the spend of the entire health service. Both economically and in terms of national welfare, care is vital.

Yet public infrastructure and spending does not reflect this – public care is under-resourced, and family carers are undervalued and under-supported. Unpaid care is unaccounted for by GDP, falling outside the realm of ‘the valuable’. As a result, the importance of care as a whole is undermined.

The ONS plans to start measuring unpaid labour with Unpaid Gross Domestic Product – the first figures were promised for mid-2015 – but it will likely be seen as secondary, not enough to rebalance the attention of national press, or the priorities of policymakers. This failure to balance attention is seen with the ONS’s measure of national well-being which has not yet made a political impact.

In 2008, Nicolas Sarkozy established the Commission on the Measurement of Economic Performance and Social Progress, to look into a new measure of national success for France. Headed by Nobel Prize-winning economists Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi, the Commission identified the need for ‘our measurement system to shift emphasis from measuring economic production to measuring people’s well-being.’

The Commission argued that such a system must be plural, capturing as many relevant dimensions as possible. Education, mental and physical health, income (both overall and distribution), quality of the natural environment, sense of social security, could all be part of a composite measure.

If we could measure prosperity differently it could lead to much more productive politics and public policy. The realm of what is considered valuable in political rhetoric would expand as the multi-faceted nature of any composite measure would prevent the single-minded pursuit of production, and ensure that considerations of people and place also get a hearing.

The way in which these different metrics are weighted and combined would no doubt be contentious. But a serious public debate about what it is we value as a society would be another benefit of moving away from GDP.

Brell Wilson is a researcher at Centre for London 

5 Responses to “GDP is a misguided measure of national prosperity”

  1. damon

    I agree with this. Inequality has gotten out of hand and we see a real division in many areas of life.
    I drive around London for my job and the sight off all these ”luxury flats” going up makes me feel quite alienated as I can’t even afford to buy the tiniest shoe box of a place.
    Mass immigration has also contributed to this inequality I think, with areas of high diversity being some of the poorest and most deprived in the country.
    Think about it – if we let thousands of those African boat migrants into the country, how well will most of them be fairing in ten years time and what kinds of neighbourhoods will they have moved into?
    What will the profile of their children’s school look like?

  2. stevep

    We could start the discussion by asking the question:
    What is prosperity? If it is defined as material wealth then we need to ask the questions:
    Who is prosperous?
    How and why did they become Prosperous?
    If the answer to these questions are that they inherited their prosperity from land taken from the peoples of this country and given to their forebears centuries earlier, then we must ask if this is fair and just today.
    If the answer to these questions are that they earned their material wealth by trading unfairly with, enslaving and or exploiting people for their labour, artificially manipulating currencies, land prices and whole economies, then we must ask if this is fair and just today.
    If however, prosperity is defined as having enough for ones needs, living in a fair society, living without fear of hunger, disease or war then we have a lot of work to do.
    We must ask these awkward questions so that the answers we receive inform us about real history and by extension, the sort of world we want to create in the future.

  3. Patrick Nelson

    “GDP doesn’t tell us how benefits of growth are distributed – who wins within a population and who loses.” nor is everything that is reflected in the GDP good for the country. If drug dealing and prostitution suddenly disappeared from our society, so would around £10 billion pounds from the economy, this would negatively affect the figures, but would actually improve things. It is just one of many examples of how measures like GDP, GNP, growing economy, shrinking economy etc and well being are not closely tied in a simple way, they are different things that should be confused.

    The problem is philosophical: we don’t talk about production sufficiency and production being fit for needs, which are the actually important factors, we talk about whether the economy is growing, stable or contracting etc, when actually if we all took up a more agrarian attitude to life, lived more simply, started to practice mend and make do, bought fewer things and practiced barter more than purchase etc it would be absolutely terrible for our economic figures, but there is no evidence that people would be less happy or that their well being would decline (in fact such things as obesity and stress and mental illness due to social isolation would probably rapidly decrease).

    Although all the evidence exists to demonstrate these things to us, accepting them within the national discourse would require such a huge paradigm shift that it doesn’t happen (there are of course also many powerful vested interests who have long been determined that it shouldn’t happen). So here we are stuck in the madness of a society that worships GDP and runs along with this madness like a train full of inebriates who think that they are heading towards a space age paradise, but in fact they are heading towards an environmental and social cliff.

  4. GhostofJimMorisson

    But a serious public debate about what it is we value as a society would be another benefit of moving away from GDP.

    Tell that to Mr Bloodworth and the other immigrationists. They reach for GDP figures to ‘prove’ that MASS immigration has been an unqualified success for this country, and all other arguments to the contrary, such as the effect on community cohesion and shared identity, are irrelevant.

  5. GhostofJimMorisson

    And, as most studies have concluded, immigration over the last 10-15 years has had, at best, a neutral effect on GDP but has a slightly negative impact on the wages of the lowest paid.

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