Want to know how to get beyond GDP? Start here.

Everyone agrees: we have to get beyond GDP. Yes, yes, but enough talk – let’s get this train moving.

Some say we should forget GDP and jump straight to measuring well-being. I agree well-being measures are needed, but the economic description of the world is never going to go away, so rather than push it to one side, we should try to improve it. So here’s a first go (in very simple terms, and not-drawn-to-scale graphics) of what a wider conception of economic development would include.

The starting point: good old (bad old) GDP.


Gross Domestic Product is essentially the value of goods and services exchanged within a nation’s monetized economy in one year. Whether it is going up or down matters, most especially in countries that need to increase the incomes and wealth of people living in poverty. But it is far from all that matters.

I think there are at least three broad shifts needed to reach a concept of economic development that won’t keep leading us into environmental and social crises.

1. From monetized to un-monetized goods and services too.

The first shift is to take account of the value of goods and services that contribute so much to well-being but that fall outside of the monetary economy.

Anyone who got kids washed, dressed, fed, and off to school this morning knows the value (and cost) of the unpaid care economy (aka the reproductive economy) both to the household and to industry, in terms of raising and caring for the future workforce.

Anyone who breathed in clean air and drank clean water today should be grateful to the planet’s atmospheric system and freshwater cycle for these ecosystem functions – sometimes described as ecosystem services.

And anyone who has had a heart operation knows that its value far exceeds the cost of doctors and medicines required to perform it: most public goods get valued at cost, so are undervalued in reality.

plus non-monetized goods and services

The flow of goods and services, both monetized and un-monetized, gives a much more realistic picture of the consumption that we truly value. If we ignore the ‘free’ stuff and just focus on increasing GDP, we’ll squeeze out much of what actually matters to us.

2. From goods and services to underlying assets and debts.

Any company that presented only its profit and loss account would get laughed off the stock exchange. And any country that focuses only on its GDP account should get pulled up for it too. GDP matters, but so do changes in the underlying stock of assets / wealth / capital (pick your favourite/ least offensive word) from which all goods and services flow.

National physical and financial assets (or debts) have long been counted but so too should be human, social and natural assets – after all, without this trio, there would no physical or financial capital to talk of. Finding meaningful measurements of these is no easy task, but there are some interesting (and controversial) initiatives under way, especially around ‘natural capital’ and the care economy.

plus underlying assets

Monitoring changes in this underlying wealth is crucial for providing a better sense of whether GDP is growing by running down capital (turning forests into timber, turning community centres into business centres) or by building it up and reaping the reward (richer soils producing higher yield crops, closer communities producing safer neighbourhoods).

3. From averages and aggregates to distribution.

All these shifts above are well and good, but they still focus at the aggregate level (like national GDP) or average level (like GDP per capita). As the Occupy Movement has made loud and clear, distribution matters. We also need data and indicators that reveal the distribution of goods and services, and of assets, across households by income, by sex, by ethnicity.

plus distribution

So these are three conceptual shifts needed to get from a narrow focus on economic growth to a broader concept of economic development. Imagine if this ‘dashboard’ had indicators like a car dashboard, country by country. We’d have a far richer picture of each country’s economic progress – and whether GDP was going up or down at any one moment would no longer be the only question worth asking. Take the full dashboard away again and that little black arrow of GDP suddenly seems a rather impoverished view of what an economy should be aimed at.

Of course there are still big questions. How should un-monetized goods and services be accounted for – in ‘natural metrics’ (like hours of care worked) or ‘monetary’ metrics (like the going market rate for care)? How should natural capital be accounted for, and how much should there be? (Could planetary boundaries provide a powerful starting point for defining that?) What are the trade-offs and synergies between investing in natural, human and social capital, and increasing GDP? How equally should incomes and assets be distributed across households?…

Big questions – but at least we now have the beginnings of an economic framework in which we can discuss them. And it also happens to fit pretty well with the main recommendations of the Stiglitz Sen Fitoussi Commission’s work on measuring economic performance.

So what’s the verdict? Is this a helpful (albeit very simple) way to convey the essential difference between economic growth and economic development? What is missing or misconstrued? And do the political risks of framing nature and social cohesion as ‘capital’ outweigh the importance of ending their economic exploitation when left as invisible freebies?

Suggestions please, in the name of pushing us further along the track beyond GDP…

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