Development, Economics and finance, Government and governance | The World

30 September 2016

In the new Policy Forum Pod, three experts discuss the global obsession with Gross Domestic Product (GDP), why it’s a problem, and whether there are better alternatives for the 21st century.

For decades, Gross Domestic Product (GDP) has been used by just about every country in the world as the measure of wealth and progress. In the new Policy Forum Pod, experts Ehsan Masood, Ida Kubiszewski, and Bob Costanza discuss why the world is so obsessed with GDP, whether we should keep using it, and if not – what we might replace it with. Listen here:

Ehsan Masood is a well-known science journalist and editor of the research funding news service, Research Professional. He’s also the author of the new book The Great Invention: the story of GDP and the making and unmaking of the modern world.

Dr Ida Kubiszewski is a senior lecturer at The Australian National University’s Crawford School and the managing editor of the magazine, journal and website Solutions and a co-founder and former managing editor of the Encyclopedia of Earth, an electronic reference about the Earth, its natural environments, and their interaction with society.

Professor Bob Costanza is a professor and chair in public policy at ANU. Bob is also the founding editor of  Solutions. Prior to his time at ANU, he was Distinguished University Professor of Sustainability in the Institute for Sustainable Solutions at Portland State University.

Professor Costanza said GDP emerged from the Great Depression, when countries were trying to get a handle on what the market economy was doing. Since then, he said it has been misused as a measure of overall societal progress, a purpose for which it was never designed.

“It was really designed only to measure production and consumption in the market. These days there are a lot of things which affect human wellbeing which are outside the market that GDP has sometimes negative impacts on, so it’s really the wrong thing to be using as a guide to overall progress.”

He says while it true that there are many underlying variables that contribute to our overall wellbeing, in the end, we still need one aggregate measure to measure progress. He uses a metaphor of a car to explain why it’s so important that we choose the right aggregate measure, or else we might find ourselves heading in the wrong direction.

“If you’re driving a car, you want to know what all the instruments are telling you, the fuel gauge, the speedometer, but you also want to know where it is you’re going in the first place, and whether you’re actually making progress towards your goal.”

In describing some of the alternatives to GDP that have been developed, Costanza highlighted the Genuine Progress Indicator (GPI), which includes things like income distribution while subtracting the costs of externalities like crime and pollution.

Dr Kubiszewski said that a lot of progress has been made on this, with GPI already being used in places like Maryland and Vermont in the United States as an indicator alongside GDP.

“They’re using it in a way where, if GDP goes down one year, they say that’s okay, because inequality was reduced, employment was increased, we have more green spaces, people are actually doing better even though GDP has gone down.”

Conversely, using GPI as a measure can help illuminate some of the enormous social and environmental costs that often accompany strong GDP growth, as Kubiszewski explained.

“When GPI has actually levelled out while GDP has grown, that difference often is due to environmental costs and inequality. If you look at places like the United States and now even China, inequality is huge, and that is a cost to society which GDP doesn’t care about.”

Ehsan Masood said that one of the problems with changing GDP is that there’s very little economic or financial literacy about how GDP is constructed. He highlighted an example of a story in the Financial Times in which the US economy overnight increased by 3 per cent because of a change to how the index was constructed.

“What it’s really showing is that it is possible for this indicator to change, and that different things could go in… If there is a will, then certainly there is the technical capability to make that change.”

All three experts agreed that there is strong appetite for change, with Costanza pointing to the Sustainable Development Goals as an example of changing attitudes among policymakers, and Masood highlighting the enormous growth in literature on this issue in recent years. But perhaps one of the most significant demonstrations of an appetite for something beyond GDP is in the public sphere, as Kubiszewski explained.

“I think that’s why we’re seeing things like Brexit, Donald Trump, Bernie Sanders. People want something different, they just don’t know what that difference is.”

Ehsan Masood, Ida Kubiszewski, and Bob Costanza were in conversation with Policy Forum’s Martyn Pearce.

You can catch up with our Policy Forum podcast series via iTunes and Stitcher. If you like what you hear, please give us a review on iTunes and help us get the word out.

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