Beyond GDP: How global shifts are reshaping the measurement of progress

With popular concern about affordability, inequality, AI-related job disruption and climate change on the rise, has the time finally come for gross domestic product (GDP) to be dethroned as the paramount measure of national economic progress?

Financial markets and economists often swoon over the release of a strong GDP or productivity growth number, but something more tangible is required to impress the general public. People judge the success of their country’s economy by progress in their household’s standard of living, whether in terms of employment status and prospects, wage growth, the cost of necessities or economic, social or environmental security.

Of course, GDP growth is highly correlated with rising living standards over time, but the relationship between the two is not in lockstep. It tends to weaken as countries grow richer. And standards of living can vary widely within an economy, especially in the presence of major shifts or shocks, or when political power and economic rents are highly concentrated.

We are currently living in such a period of heightened transformation, transition and concentration. This is rendering GDP growth an even less satisfactory measure of material progress in this century than it was in the last one – even if growth remains important, especially for poverty reduction in low- and lower-middle-income countries.

The question of how to create a better – that is, more economically accurate and socially relevant – measure of progress is an old one. But technical work and political discussion on this challenge may be about to take a big step forward.

It’s been more than 15 years since the landmark Stiglitz-Sen-Fitoussi report on how to measure economic performance and social progress was published following the 2008 Great Financial Crisis. Now, a new set of recommendations by the UN High-Level Expert Group on Beyond GDP is expected to be issued this week.

This will kick off an intergovernmental negotiating process in the UN aimed at finally moving this field from patchy and disparate good practice to internationally comparable customary practice. And this could include establishing a new headline measure of progress to replace, or more likely incorporate or be paired with, GDP.

One of thorniest challenges these negotiations will face relates to the heterogeneity of the relevant topics and data.

A recently published paper by a group of UN-affiliated economists, of which I was lead author, suggests governments should clearly segment the three key dimensions of measuring progress: productive output, material living standards and other, non-material or subjective markers of wellbeing. They should report on all three in an internationally standardized fashion while encompassing the first two in a new headline measure of economic progress: gross national sustainable development (GNSD).

GNSD would integrate an improved version of the standard measure of productive output (GDP) with a new multidimensional living standards index (MLSI). This would provide an internationally standardized view of economic progress from the other end of the telescope – that is, the material lived experience of people, or median household living standards.

The paper provides a detailed illustration of both new constructs. It is meant as a fundamental reflection – in some ways a return to first principles – on how the long-running Beyond GDP project could achieve maximum behavioural impact among policy-makers, while also boosting the transparency of countries’ “progressive realization” of universal economic and social human rights.

Such a more complete and balanced headline measure of economic progress could enable better policy debates and decisions on some of the biggest economic challenges facing countries in the 21st century. Artificial intelligence (AI), for example, which is likely to increase productivity and national income but aggravate inequality.

In addition, climate change, population ageing and fragmentation of the international trading system appear poised to constrain the quantity of economic growth in the coming years in many countries. This will make it more important than ever for the governments of these countries to prioritize policies that improve the social quality of their growth, which is to say the human outcomes or dimensions of living standards tracked by the MLSI index.

In economics, as in many other fields of human endeavour, what gets measured as a priority tends to get managed as a priority. The time has come to measure the aspects of economic progress that people really care about on an internationally consistent basis.

If headlines were to focus on GNSD, it would help to rebalance policy priorities and improve public accountability on the oft-stated goal of making economies more inclusive, sustainable and resilient.