Should we still be using GDP to measure a country’s progress?
As part of a session on reforms to global economic rules so that they better align with human rights, the United Nations Human Rights Council discussed whether Gross Domestic Product (GDP) is the most effective way to measure a country’s progress. In 2023, the UN secretary general stated how GDP ‘does not account for human well-being, environmental sustainability, unpaid household services’ and fails to capture the human and environmental destruction of some economic activities’.
With this in mind, should we still be using GDP to measure a country’s progress?
This article will explore the history of GDP, why it was used and a possible solution to efficiently measure a country’s progress.
What is GDP?
GDP is the most common measure of economic growth and it measures a country’s national output and expenditure. It is relatively easy to calculate, accessible, quantifiable and comparable across borders. Dividing GDP per the population gives GDP per capita, which is a widely used benchmark as it reflects levels of average development by accounting for discrepancies in population size.
The idea of GDP originated from Simon Kuznets, an economist working at the National Bureau of Economic Research. In 1937, he presented it in a report to the US congress with its aim being to capture all ‘economic production by individuals, companies and the government in a single measure’. In 1944, after two world wars and the Great Depression, America’s President Roosevelt’s government was using statistics to justify policies and budgets with the purpose of bringing the country out of depression. As a result, GDP was used to estimate whether the country could provide sufficient supplies for fighting in World War Two, while maintaining sufficient production of consumer goods and services. In the same year, the Bretton Woods conference made GDP the standard tool for measuring and growing a country’s economy.
Why has GDP been criticised?
Over the decades, GDP has been criticised extensively. Scholars have argued that the concept is ‘outdated’ and does not ‘measure other indicators’. As a tool which solely measures economic output and growth, GDP has been stated to be ‘ill suited’ to evaluate improvements of wellbeing at the social level; it does not measure poverty, health or jobs, while its growth can even worsen health status, pollution in the environment and reduce leisure time.
Furthermore, unpaid work, which is conducted by a majority of the world’s population is also not considered when looking at GDP. According to the International Labour Organisation (ILO), an estimated 16.4 billion hours are spent on unpaid work everyday. With no remuneration, this figure is equivalent to 2 billion people working 8 hours a day. When looking at gender, 75% of women perform unpaid work worldwide, dedicating on average four hours and 25 minutes daily, and this is not included in GDP measures.
A Human Rights Approach as a Solution
In the 1990s, the UN used the Human Development Index (HDI) to evaluate the wellbeing of citizens in different countries. This Index was introduced as the organisation believed GDP inadequate at measuring individual quality of life, thus hindering a ‘well rounded’ view of human development. The HDI measures development in three core areas:
Health - Measured through life expectancy at birth
Education - Measured by the average number of years completed by adults and that by children too
Standard of living - Measured by Gross National Income (GNI) per capita
Combined, these indicators give a single HDI score between 0 and 1 and 1 being classified as very high human development. The HDI has been released annually since 1990 with exceptions in 2012 and 2020/21. Most ‘developed countries’ such as Norway, Iceland, Hong Kong, Sweden, Germany, Ireland, Singapore and Australia have an HDI score of 0.8 and above as they tend to have stable governments, widespread affordable education and healthcare and high life expectancies.
On the other hand, the world’s ‘least developed countries’ such as South Sudan, Central African Republic, Niger, Chad, Burundi, Yemen and Sierra Leone tend to have scores below 0.55 for reasons such as widespread poverty, lack of access to healthcare and poor education. These reasons coupled with low life expectancy mean that these countries tend to be in most need of assistance.
The HDI is not without its criticisms either. As highlighted in this paper, it appears to ignore inequalities of quality of life factors such as empowerment, environmental sustainability or security. As a result of this, the United Nations Development Programme (UNDP) developed additional tools such as the Gender‐Related Development Index, and the Gender Empowerment Measure. Despite their potential, these indices have not been widely used.
Overall, while GDP remains a useful and powerful economic indicator, its limitations in measuring wellbeing and other human centric factors necessitate a broader approach. The HDI and other human centred metrics offer a more comprehensive framework for measuring the world’s progress, yet they also require further refinement. As a result, it is recommended that policymakers embrace multidimensional measures that not only reflect economic growth and activity but also the quality of life of their citizens. By adopting a more holistic approach, we can ensure that economic policies align with human rights and broader goals of sustainable and inclusive development.
Published in the 6th edition of Developmental Insights
