Measuring What Matters: Rethinking Sustainable Economic Development Beyond GDP

We live in a world marked by uninhibited opulence, the kind that was almost unthinkable of a century or two ago, as remarkable changes have transformed life way beyond the economic sphere.

“Sustainable Development requires balancing economic progress with environmental conservation”, – Development as Freedom, Amartya Sen.

We live in a world marked by uninhibited opulence, the kind that was almost unthinkable of a century or two ago, as remarkable changes have transformed life way beyond the economic sphere. However the grim picture of it entails a society experiencing remarkable deprivation, economic and social oppression, persistence of poverty and unfulfilled elementary needs. Overcoming these problems stands at the quintessence of true development that measures wealth and prosperity beyond one’s wallet.

Historically, GDP has been used as a primary measure of a country’s economic health since the mid-20th century. Developed by economist Simon Kuznets in the 1930s, GDP was initially intended to provide a snapshot of a nation’s economic output. However, over time, its limitations have become increasingly apparent. GDP fails to account for important factors such as income distribution, environmental sustainability, social well-being, and quality of life. As a result, many experts argue that GDP alone is not sufficient to gauge the overall health and prosperity of a society.

One of the key figures in the movement towards moving beyond GDP is Nobel laureate Amartya Sen. Sen, an Indian economist, has been a vocal critic of GDP as a sole measure of progress. He has argued that focusing solely on economic output ignores important factors such as inequality, education, health, and personal freedoms. Sen’s work has helped to shift the conversation towards a more holistic approach to measuring development.

Another influential figure in this field is Joseph Stiglitz, a Nobel laureate economist and former chief economist of the World Bank. Stiglitz has criticized the overreliance on GDP, pointing out its shortcomings in capturing the true well-being of a society. He has advocated for the inclusion of measures such as income distribution, environmental sustainability, and subjective well-being in economic assessments.

The impact of moving beyond GDP as a metric for economic growth and development has been significant. Many governments and international organizations have started to incorporate alternative measures of progress into their policymaking. For example, Bhutan developed the Gross National Happiness Index as an alternative to GDP, focusing on factors such as psychological well-being, health, education, and environmental sustainability. Similarly, the United Nations has adopted the Human Development Index, which considers income, education, and life expectancy as key indicators of a nation’s well-being.

One alternative metric that has gained traction in recent years is the Genuine Progress Indicator (GPI). The GPI takes into account not only economic factors, but also social and environmental factors, providing a more holistic view of a country’s well-being. By including factors such as income distribution, volunteer work, and environmental degradation, the GPI provides a more accurate reflection of a nation’s overall prosperity. This more comprehensive approach allows policymakers to make more informed decisions that benefit society as a whole, rather than just focusing on economic growth at all costs.

In addition to the GPI, other metrics such as Multidimensional Poverty Index (MPI), Human Development Index (HDI) and the Bhutanese Gross National Happiness Index have also gained popularity as a valuable alternative to GDP.

Multidimensional Poverty Index  (MPI) seeks to understand and assess dimensions of well-being beyond monetary indicators, including access to education and basic infrastructure services to capture a holistic picture of poverty and deprivation. The phenomenon that comprises the quintessence of MPI is that people face more than one type of poverty in their daily lives, such as lack of access to education, sanitation, abysmal living standards, disempowerment, environmental hazards, to name a few. It aims to incorporate such indicators in order to form better economic policy planning as well as mitigate poverty levels in an economy.

These metrics focus on factors such as education, health, and the quality of life, providing a more nuanced perspective on a country’s development. By incorporating these alternative metrics into policy-making decisions, countries can ensure that economic growth is sustainable and inclusive, ultimately leading to more balanced and equitable societies.

However, there are also challenges and criticisms associated with moving beyond GDP. One common critique is the difficulty of measuring and quantifying factors such as happiness, well-being, and environmental sustainability. These concepts are often subjective and can vary significantly across different cultures and societies. As a result, some argue that alternative metrics may lack the objectivity and consistency needed for effective policymaking.

Additionally, there is a concern that shifting away from GDP as a primary measure of economic growth could lead to confusion and inconsistency in policy discussions. GDP is a widely understood and accepted metric that has been used for decades, so replacing it with alternative measures may pose challenges in terms of communication and comparability. Furthermore, some argue that focusing on subjective measures of well-being may lead to a loss of precision and objectivity in economic analysis.

While these metrics greatly ease the task of quantifying development and societal welfare, the economic decision making for the future must be underpinned by a system of value based approaches and principles. A textbook case of such thesis is presented by Daron Acemoglu and Robinson in their Magnum opus called “Why Nations Fail”, wherein the authors argue that  economic development and growth of a country is directly interlinked to the type of institutions that are present in that country and ultimately decide the fate of the nations.

The authors describe two types of institutions: Inclusive and Extractive. The combination of these institutions shapes a country’s economic and social progress. Inclusive political institutions lead to inclusive economic institutions, fostering development and growth. Conversely, Extractive political institutions, controlled by unscrupulous leaders, establish extractive economic systems that divert resources for personal gain. To break this cycle, societies require Inclusive institutions ensuring prosperity, accountability, rule of law, citizen-centric economic welfare, and equal access to basic infrastructure services for all.

Something similar is touched upon by Amartya Sen’s Capability Approach. First introduced in his seminal book “Development as Freedom”, Sen views poverty as a lack of capability rather than just income. It emphasizes social justice through analyzing a person’s capabilities and freedoms. He argues that development involves removing “unfreedoms” like poverty, tyranny, limited economic opportunities, social deprivation, lack of basic public services, and violence. The absence of these freedoms leads to economic deprivation and disempowerment, hindering upward social mobility opportunities for the masses.

Looking towards the future, it is clear that the debate around moving beyond GDP as a metric for economic growth and development will continue to evolve. As societies become more aware of the limitations of GDP, there will likely be increased interest in alternative measures of progress. Researchers and policymakers will need to work together to develop new metrics that provide a more holistic and accurate picture of economic well-being.

Taking a siloed approach to development would provide us with economic growth at the expense of environmental sustainability. The constitutive connection between productivity and human well-being is irrefutable, and is the only way to ensure the holistic and inclusive growth of the economy in the long term. Therefore real development shouldn’t solely be equated with economic output, but rather as a transformation of people’s lives, in a humanistic and sustainable manner, to ensure an equitable future for our generations to come.

Rameen Siddiqui
Rameen Siddiqui
A thought leader and youth activist with main focus areas being Sustainable Development, Political Economy, Development Justice and Advocacy. A member of the United Nations Major Group for Children and Youth (MGCY). Also a Youth Member of United Nations Association of Pakistan (UNAP).