Trevor Hancock: GDP is not a useful measure of well-being

The way we define and measure progress in our communities, nationally and globally, really matters. It shapes the decisions we make in every realm of life, from social development to environmental and economic policy.

So it is a big problem that two of the leading indicators — gross domestic product and life expectancy — are misleading, resulting inevitably in poor decisions. Since these are the basis for two of the three main indicators in the UN Human Development Index (the third is education), the implications for global development policies are also troubling.

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First, GDP, a measure that was developed in 1934 by Simon Kuznets for the U.S. Congress. He warned against its use as a measure of social welfare, noting that “the welfare of the nation can scarcely be inferred from a measurement of national income.” Yet that is exactly what we do. GDP — and especially GDP growth — has become the yardstick for determining how well societies and economies are doing.

But if we look deeper, we will see what a ridiculous measure GDP really is. For example, when the Exxon Valdez ran aground in Prince William Sound, the cleanup costs added about $2 billion to the U.S. GDP. Presumably, a big oil spill from a tanker taking Alberta oil to Asia could have a similar impact on the B.C. economy — but is that the economic growth we want?

Equally absurdly, both the production, marketing and sale of tobacco products and the health-care expenditures in caring for the victims of the tobacco industry add to GDP. Does that make any sense in the real world?

Finally, my favourite example: If you have five cents to spend and want to have the largest possible impact on GDP, where do you invest it? Most favour investing in education, but five cents doesn’t get you far.

The answer is you buy a five-cent book of matches and torch the largest building you can find (I am not advocating this, by the way!). The resulting costs of fighting the fire, demolishing, rebuilding and refurnishing will add millions of dollars to the GDP.

In short, GDP fails to distinguish between “good” expenditures — things that add to human well-being, social development and ecological sustainability — and “bad” expenditures that harm these outcomes; they are treated as the same.

Turning now to life expectancy — this is usually expressed as life expectancy at birth, which sounds like a prediction: A child born this year will live this many years.

However, it is not actually a prediction, because life expectancy is really just a complicated way of measuring the average age of death this year. It says if those born this year experience the same life-course as those who died this year, then they would be expected to live this long.

It tells us a lot about those who die this year, but nothing about the possible length of life of those born this year.

There is absolutely no reason to believe their length of life will be the same, or better, nor to believe that life expectancy will keep on increasing.

Some are already raising the spectre that rising rates of obesity and physical inactivity mean that the current generation of children will have shorter lives than their parents. If we add to that the emerging global crises of ecological change that I highlighted last week, the prospect of widespread declines in life expectancy from a “business as usual” policy is significant.

The problem is we are navigating using the rearview mirror (because things improved in the past, they will in the future) and with misleading gauges. So what are the alternatives?

There are several leading contenders, including the Genuine Progress Indicator and the Happy Planet Index. Additionally, we need to pay more attention to measures of health that are not based on measuring death — there is more to life than death, I hope! I will discuss these alternatives next week.

 

Dr. Trevor Hancock is a professor and senior scholar at the University of Victoria’s school of public health and social policy.

thancock@uvic.ca

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