Forty years ago Dudley Seers, one of the great development economists, published the “Meaning of Development” in which he called for GDP to be “dethroned”. As we end the first decade of the third millennium, GDP is still regal. Changes in GDP define whether we are in a recession, depression or boom. Goldman Sachs signal China and India’s emergence as global players on the basis of their GDP. International aid is targeted using GDP. The list goes on.
But the pursuit of GDP as a measure of progress is under attack. First, there is the work that seems to indicate a disconnect between GDP and people’s sense of wellbeing--the economist Richard Layard suggests that this delinking occurs around $20,000 GDP per capita. Second, there is the work that suggests current measures of GDP do not pay enough attention to the tradeoffs with future GDP (see Stern review). Finally, current measures of GDP don’t say anything about justice—who wins, who loses, and who makes the decisions.
Nicholas Sarkozy has set up the Commission on the Measurement of Economic Performance and Social Progress to look into the production of more relevant indicators of social progress. The Commission is chaired by Joseph Stiglitz and advised by Amartya Sen.
I have only read the long summary of the long report. But as far as I can tell there are no surprises.
The headlines are:
• focus on income and consumption (and wealth) rather than production
• focus on the household perspective
• give more prominence to distribution of income and well being
• well being is multidimensional with potential tradeoffs between different dimensions
• combine different measures of well being to generate different composite indices
• both objective and subjective indices should be collected
• sustainability is harder to measure than current wellbeing, aggregation between current and future wellbeing is often not meaningful and some natural environment indicators defy monetary equivalents due to irreversibilities.
This is all sensible and there are thorny technical challenges of measurement, comparability, and aggregation to be sorted out, but not that much that is new.
I am more interested in the political economy of indicators.
• How much of this is relevant for the poorest countries? Just because there is a statistical association between GDP/capita and wellbeing indicators at the lower end of the global income distribution does not mean GDP/capita is still regal. But in reality, many of the new indices are going to mean massive investments in the capacity of National Statistical Offices to collect them—will we set up a “progress partition” and does it matter? Are there cheaper ways to get human indices of human development? Indicators of infant nutrition may be one such set: valid across countries and combining concepts of current consumption and future potential.
• Many have long been pushing for greater use of the Human Development Index (which combines GDP, life expectancy and education attainments and enrolment), for a separate MDG on inequality, and for better measures of hunger....all to no avail. Why have these calls not landed on more fertile ground? There are many vested interests clinging to their indicators. What is the trigger to change the systems?
• Finally, note that the report is addressed, first of all, to political leaders. What capacity, incentives and willingness do they have to grapple with complex dashboard indicators in a context where decisions often have to be made quickly and where large minorities of their citizens do not believe in official statistics?
The Commission regards the report as opening the discussion rather than closing it. I hope that some of the dialogue will focus the political and institutional dimensions rather than solely on the technical. We are good at increasing the supply of credible indicators, but not at stimulating the demand for their credible use. Dudley Seers may have called for the dethroning of GDP in 1969 but it will not be easily dragged out of the palace.