Redefining prosperity
GDP: Past and present
How did GDP become the main tool for measuring economic growth around the world? Following the Great Depression, economist Simon Kuznets came up with the concept of GDP to measure the US’ economic progress and account for goods produced by the US economy.
However, in 1934, he reported to the US Congress that “the welfare of a nation can scarcely be inferred from a measurement of national income as defined by the GDP”, warning that the GDP was an inadequate tool for policy making (World Economic Forum, 2021). Today, GDP growth has become an all-consuming metric, with nations prioritising economic growth despite it being ineffective in solving some of the world’s largest problems today, like inequality and environmental degradation.
Inequality & individual well-being
According to Oxford economist Diane Coyle, GDP was “a war-time metric”. The World Economic Forum notes that GDP tells you “what your economy can produce when you’re at war, but it does not tell you how you can make people happy when you’re at peace”. As such, GDP tells us nothing about individual and societal wellbeing, and the level of inequality that exists.
The environment
From an environmental standpoint, it tells us “how valuable trees are when you cut them down and turn them into fences or benches, but not what they’re worth when left standing”. GDP’s focus is on aggregate consumption and production, but neglects the environmental impact of economic decisions.
In light of GDP’s significant deficiencies, it’s time to move beyond looking at GDP growth as the most important measure of prosperity – and focus on well-being of both people and the environment instead. After all, how can we achieve prosperity without a healthy environment, when human health is closely tied to the health of the environment?
New metrics, old mindsets?
In order to measure well-being, we can look to alternatives like Gross National Happiness (GNH) or the Human Development Index (HDI) for inspiration (HEConomist, 2021).
There is only one country in the world which has adopted the concept of Gross National Happiness – Bhutan. Gross National Happiness focuses on four aspects: sustainable and equitable socio-economic development, environmental conservation, preservation and promotion of culture and good governance. The country has pledged to conserve 60% of the country’s forests, and even safeguards the environment and prohibits ecological degradation in its constitution. Despite this, Bhutan has a literacy rate of only 67%, a poverty rate of 39% and a clean water access rate of 36%. Given these numbers, the country came in 95th place in the UN’s 2020 happiness report.
“GDP tells you what your economy can produce when you’re at war, but it does not tell you how you can make people happy when you’re at peace.”
Another alternative to consider is the Human Development Index created by the United Nations. By taking life expectancy, education and income levels into account, it attempts to be more realistic by balancing income and human capital indicators. However, as a rather outdated indicator, the HDI fails to account for environmental degradation and income inequality. Also, since life expectancy and education levels are closely linked to income, the richest countries are ranked the highest, disregarding their large environmental impact.
Ultimately, it is challenging to adopt a universal indicator for well-being, as different indicators face reasonable criticisms. Perhaps, some lessons from Stockholm+50 can illuminate the way forward for us.
Lessons from Stockholm+50
The recent Stockholm+50 event highlighted the need for bold, urgent collective action to address the triple planetary crisis of climate change, pollution and biodiversity loss (UNEP, 2022). Societies will not be able to prosper should we remain within the status quo. These recommendations were provided to accelerate initiatives for sustainable development:
‘Adopt system wide change in the way our current economic system works to contribute to a healthy planet’
‘Align public and private financial flows with environmental, climate and sustainable development commitments’
‘Accelerate system-wide transformations of high impact sectors, such as food, energy, water, buildings and construction, manufacturing, and mobility’
As a report by Stockholm Environment Institute points out, a significant obstacle in changing the mindset from growth to a redefined prosperity is businesses’ reliance on consumption for growth. It highlights that ‘excessive reliance on the model of consumption-led value generation for shareholders poses a barrier for businesses to reorient themselves from growth to prosperity beyond material wealth’ (SEI, 2022). As Stockholm+50 has reminded us, business models need to turn away from a focus on growth and instead look to a common prosperity as the goal.
“After all, how can we achieve prosperity without a healthy environment, when human health is closely tied to the health of the environment?”
Not business as usual
Companies who choose to take on the mindset shift from growth to a common prosperity will undoubtedly be the pioneers. Adopting such a change will be challenging, but investing in the future of the planet will be worth it.
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