Progress beyond GDP

Any measure of progress must include individual welfare for sustainable and inclusive growth welfare first.

In 2008, French President Nicolas Sarkozy boldly declared, “We must change the way we measure growth,” adding that “French people can no longer accept the growing gap between statistics that show continuing progress (in the growth of GDP) and the increasing difficulties they are facing in their daily lives.”

Sarkozy’s call echoed the concerns voiced by Robert Kennedy in his 1968 speech, where he lamented that a measure like GDP “does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry, the strength of our marriages, the intelligence of our public debate, or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile.”

Sarkozy and Kennedy both underscored the significant gap between conventional economic measures, such as gross domestic product, and tangible realities.

Although GDP has been a measure of a nation’s success for a long time, there is an increasing recognition that these metrics fall short of capturing the overall well-being of citizens.

A pivotal moment came in 2009 with a report by economist Stiglitz and his colleagues, revealing a disconnect between GDP growth and societal welfare. For instance, activities such as committing certain types of crimes or purchasing petrol, may boost GDP but do not necessarily improve overall well-being. 

This challenges GDP per capita as the sole measure of welfare and progress. Several influential economists, including Kuznets, Galbraith, Samuelson, Nordhaus, Tobin, Amartya Sen, and Scitovsky, also challenged the adequacy of GDP as a comprehensive metric and advocated for alternative indicators to provide a more nuanced reflection of societal progress and individual welfare. 

GDP falls short because it overlooks crucial things such as nature, social connections, and people’s skills. It erroneously assumes these are endless and free. Think of it like this: if we only focus on making more goods and not on taking care of our environment or the well-being of our communities, we might miss the bigger picture.

After Robert Kennedy’s speech, experts introduced new ways to measure progress, such as the Ecological Footprint, Human Development Index, Happy Planet Index, and Genuine Savings Approach, for a more comprehensive understanding of the well-being of both individuals and the environment. However, GDP remains the primary measure, assuming more production equals a better life.

In recent years, interest in measuring well-being directly has grown, focusing on happiness and satisfaction. This shift in emphasis signifies an evolving recognition that genuine progress should not solely revolve around increased production but should also include enhancing the general quality of life.

Happiness economics studies the Easterlin paradox, which delineates a paradoxical correlation between income levels and happiness. Coined after R A Easterlin, the paradox garnered recognition through Easterlin’s publications in 1973 and 1974.

His empirical investigations revealed that, at a given point in time, individuals with higher incomes tend to report higher levels of happiness on average compared to those with lower incomes. However, the average self-reported happiness remains relatively constant despite income growth over time. This paradox challenges the conventional belief that more money should yield more material benefits and increased happiness.

The disconnect between rising income and a corresponding rise in happiness raises several questions and prompts societies to reassess their priorities. This re-evaluation is reflected in various initiatives worldwide that prioritise measures of well-being over strict economic indicators. Whether it’s the pursuit of Gross National Happiness in Bhutan or the Canadian and French endeavours to develop comprehensive well-being indices, or the United Nations’ World Happiness Index, societies acknowledge the importance of happiness in shaping their development goals. 

Measuring subjective well-being involves various methods, with four primary approaches: physiological and neurobiological indicators, observed social behaviour, nonverbal behaviour, and surveys. Among these, surveys have been the most widely used  by psychologists and economists since the late 1960s. Self-reported happiness, gauged through questions like “How happy would you say you are?” in surveys, has emerged as a robust indicator. The World Values Survey, for instance, employs such questions, assigning ordinal scores based on responses.

Psychologists often use multi-item scales that delve into different dimensions of subjective well-being, offering higher validity and reliability. However, cross-national comparisons face challenges due to cultural and language differences, potentially impacting respondents’ interpretations. Despite potential shortcomings like response biases and memory distortions, self-report measures generally exhibit moderate to high temporal reliability.

For instance, studies show that life satisfaction correlations remain strong over extended periods. While some studies highlight cultural nuances, most conclude that reported subjective well-being is a sufficiently valid measure of true average well-being, provided cultural differences are not overly pronounced. Overall, the survey-based assessment of subjective well-being offers valuable insights into individuals’ perceptions, contributing to a comprehensive understanding of well-being.

Prioritizing subjective well-being in policy decisions opens doors to a new era of governance. Policies focused on mental health, social support systems, and sustainable development enhance citizens’ quality of life and contribute to long-term economic stability. Public awareness and education are essential to truly embracing the paradigm shift towards subjective well-being. Initiatives that help people understand and prioritise well-being can reshape societal values and foster a culture where individuals and communities thrive.

In our relentless pursuit of progress, we must reconsider the metrics we use to measure success. Subjective well-being offers a more human-centric, comprehensive approach that aligns with the values and aspirations of our society. By prioritising our citizens’ happiness and life satisfaction, we can build a future where progress is economic, inclusive, and sustainable. It’s time to redefine our path forward and embrace a measure of success that reflects the well-being of all.

(Maya K is an assistant professor at the Dept. of Economics, Christ (Deemed to be University), Bengaluru.)

(Kumar is a PhD scholar at the Dept of Econometrics, University of Madras, Chennai)