Beyond GDP: quantity and quality of growth

Rome
14 January 2010

Proceedings at this roundtable discussion got underway with the acknowledgement that, in recent years, consideration of the question of how to measure economic performance and social progress has gone far beyond the concept of Gross Domestic Product. This is true of the efforts of national statistical institutes, major international organizations, as well as the academic and research sphere. Today, there is a vast array of knowledge and statistical data available, enabling a much more comprehensive grasp of economic activities and their actual value. In essence, it is a question of redefining and measuring prosperity, understood as a set of factors that go beyond GDP and the concept of wealth (however the latter might be defined).

This, it was noted, is the backdrop for the work carried out by the “Stiglitz Commission”, which has formulated specific proposals in this regard.

However, the starting point remains the fundamental role played by statistics in the political decision-making process. Clearly, the better statistical data and trends are understood, the more likely public debate and policy decisions are to produce the desired results.

Indeed, there is a close relationship between political legitimacy and public confidence in statistics, but this in turn depends on the ability of indicators to represent and reflect people’s experience adequately. If too great a discrepancy is perceived, the effectiveness of any public initiative will be undermined.

GDP is without question the main indicator of wealth, capable of quite accurately measuring both the potential of an economy and the likely impact of a rise or fall in production. Thus, while this indicator retains its analytical and practical utility, it is now also essential to develop other means of measuring the wealth and prosperity of individuals, households and large communities.

However, the participants noted that despite its importance, GDP clearly presents some significant limitations. Firstly, it focuses on flows of produced goods and services but not on existing stocks, thereby undervaluing the starting position of an economy and, hence, certain consequences of a given use of resources. It was noted that, in this regard, much work is being done on integrating environmental and natural factors into measurements of wealth transferable to future generations, with reference to the concept of sustainability.

Then there are the questions of unpaid or “non-market” work – which in terms of household management and raising children concern women especially (though not exclusively) – and recreational activities. These issues carry significant implications for disposable income, consumption and social relations.

In other words, the approach to the issue of measurement is inevitably moving towards a concept of progress, and hence, quality-of-life considerations.

In particular, a broader perspective must, among other things, take into account: distribution (of income, consumption, and wealth) in addition to measurements of average wealth; intergenerational relationships; health and education; real opportunities to actively participate in public life; and subjective as well as objective factors.

In conclusion, the participants observed that any discussion of measurements of economic performance and social progress that go “beyond GDP” should also take into account certain cultural and ethical considerations. Given the cultural paradigm shift that is currently underway, at least in countries with more advanced economies, economic growth clearly becomes just one of the preconditions for progress. This in part constitutes a return to a traditional approach but certainly represents a significant change to the methodology of recent years. Whilst the role played by statistical indicators in this new approach will be crucial, it will also be necessary to keep in mind that the cultural motivations of more advanced countries will not be automatically or entirely shared by countries that are still experiencing very rapid growth rates. For this reason, there is also a need to strengthen international networks involved in developing new indicators and methodologies, not simply because of an operational need to maximize information flows, but in order to ensure a more balanced cultural input.

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Gianfranco Fini and Giulio Tremonti
Beyond GDP: quantity and quality of growth, Rome, January 14, 2010
Enrico Giovannini and Jean-Paul Fitoussi
Nancy Folbre

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