Beyond GDP: Redefining Economic Success

This article is part 11 of 12 in Tom Rippin's Economy Myth Busters series.

The inventor of Gross Domestic Product (GDP) told us not to use it as a measure of success. We've been ignoring him for 90 years.

Simon Kuznets invented GDP. He also warned the US Congress explicitly not to use it as a measure of welfare. That was 1934. It is still the primary yardstick of economic success almost everywhere in the world.

Much of this series is about ideas that started as simplifications and ended up as received wisdom. GDP is perhaps the most pervasive example — a measure designed for one purpose, now used to judge almost everything.

GDP measures the total monetary value of goods and services produced in an economy. It counts:

• oil spills - because cleanup costs have economic value
• prison building
• cigarette sales and advertising

It does not count:

• unpaid care
• volunteer work
• the quality of social relationships
• the health of ecosystems

Kuznets knew all of this. He designed the measure for a specific purpose - tracking industrial output during the Great Depression - and he explicitly listed what should be excluded if it were ever used as a welfare indicator. Policy-makers quietly ignored his caveats.

The consequences: Because governments optimise for what they measure and GDP is the primary target, environmental destruction is acceptable if it produces output. Rising inequality is invisible if the aggregate number rises. A country can become wealthier in GDP terms while its citizens become less healthy, less secure and less happy - and the dashboard says everything is fine.

Alternatives have existed for decades: the Human Development Index, the Genuine Progress Indicator, the OECD Better Life Index, the Doughnut Economics framework. New Zealand, Iceland and Scotland have adopted wellbeing frameworks alongside or ahead of GDP targets.

The tools are ready. The question is whether "prosperity" means more spending - or a better life.

Further reading

Stiglitz, J., Sen, A. & Fitoussi, J-P. Report by the Commission on the Measurement of Economic Performance and Social Progress (2009)

About the author

Tom Rippin is CEO of On Purpose. He writes about leadership, systems change and creating lasting social and environmental impact. Connect with Tom on LinkedIn.

AI disclosure: This post is written with AI assistance. The ideas, topic selection and editing are mine; Claude researched the posts, found the references and sourced the image suggestions. I try to be transparent about my AI use. I think that's important in and of itself and can contribute to people's understanding of what AI can do.