Crime is good. So are accidents, lawsuits, illness and divorce. And don’t forget about deforestation and draining aquifers for bottled water.
Welcome to the Gross Domestic Product (GDP)
The GDP is the total market value of goods and services produced and consumed. The GDP rises every time money is spent, regardless of the social or environmental impacts. The GDP is revered as a supreme indicator of progress. Economic growth means things are getting better . . . right?
Not quite. That’s because of two fatal flaws:
First, the GDP counts any transaction that involves money, regardless of its social or environmental impacts. That makes crime good for the economy. For example, in 2014, prostitution added about £4.3 billion to the United Kingdom’s economy, while illegal drugs added £6.7 billion.
Second, the GDP also ignores the value of non-monetized activities such as volunteering or parenting, or value of the vital ecosystem services (services provided by the environment) such as pollination by bees or the production of oxygen by plants.
Granted, Simon Kuznets, the the Nobel Prize-winning architect of the GDP, did not design the metric to measure overall well-being—and even alerted policymakers. In a 1934 report to Congress, he writes, "The welfare of a nation can scarcely be inferred from a measurement of national income. Goals for 'more' growth should specify of what and for what." Robert Kennedy drove the point home in a 1968 speech. He states,
[The GDP] counts “air pollution and cigarette advertising . . . . the loss of our natural wonder . . . . [and] nuclear warheads” while ignoring “the health of our children, the quality of their education or the joy of their play.” [It] “measures neither our wit nor our courage, neither our wisdom nor our learning . . . . It measures everything in short, except that which makes life worthwhile.”
Measuring what matters
The distorted view of well-being the GDP provides means that we need to stop blindly worshiping economic growth in any form. Instead, we need to prioritize more holistic indicators that consider society and the environment. The Genuine Progress Indicator (GPI) is one promising metric. Here’s how it’s different:
Like the GDP, the GPI includes all expenditures. However, unlike the GDP, the GPI adds the value of “positives” such as volunteer work, and subtracts the costs of “negatives” such as pollution. For example, the health impacts from pollution cost society $3,714.65 per capita per year; this figure would be subtracted from the GDP. In this way, the GPI provides clearer picture of what matters and the full costs of growth.
Redefining price and Cost
The Genuine Progress Indicator also changes the definition of “cheap.” Consider two bags of coffee; coffee A is grown in ways that contribute to deforestation, while coffee B is grown with methods that preserve biodiversity. The price tag of coffee A is lower than coffee B’s, but only because the costs associated with habitat destruction and soil erosion are not factored in. Conversely, coffee B now appears quite “economical” when we consider the free services provided by biodiversity, such as natural pest control. This comparison of price and full cost can also be applied to labor practices, transportation, and other factors in the coffees’ back stories.
The methodologies used to calculate the GPI are evolving and often debated. Nonetheless, leaders around the world are making significant steps. Consider the European Union’s Beyond GDP initiative, or the Gross National Happiness Index. These measures give a clearer picture of ‘progress’ and challenge the assumption that economic growth is unequivocally beneficial.
When we send the message that increasing GDP is the priority, we’re saying that anything involving money is valuable—even if it’s not. Instead, we need to focus on measuring what we value: strong families, thriving communities, a healthy environment, and shared economic prosperity. This takes leaders who are willing to shift the narrative.