Measuring Progress : Beyond GDP
Updated: Mar 27
‘We cannot seek achievement for ourselves and forget about progress and prosperity for our community... Our ambitions must be broad enough to include the aspirations and needs of others, for their sakes and for our own.’
The quote above from the United Farm Worker labor leader Caesar Chavez is the essence of the term intersectionality. Progress is not merely a matter of calculating an average of gains across society, it’s a measure of how well and often the needs and aspirations of the community can be met. No person is an island in modern society, we are connected, and so are our fates. Yet it seems that the way in which public policy is developed in an effort to provide public benefits is far from sufficient. Private and public interests are siloed and in opposition, with often little recognition in policy proceedings of the starkly divergent views of the public good.
The tension that exists between policy and market power exists because there are widely accepted ways to measure success in business, but not many sufficient ways to measure success in the society. This often leads to gridlock in policy, and insufficient gains in public good, leading only negative measurements for how well society is served by policy. This kind of gridlock is certainly common in national politics, but if one looks hard enough, symptoms of this gridlock are everywhere. There is gridlock behind power outages, and there is gridlock behind bad public transportation, and there is gridlock behind market failures and climate change too. Although there are certainly dishonest actors in policy proceedings that will never be satisfied unless the outcome is to their greatest benefit, the absence of a dependable way to measure progress across a number of indicators of progress are a big reason why policy fails. Although we are aware of the symptoms of policy failure, we are not aware of a set of metrics that determine success or failure in policy before it happens. Simply put, we don’t know how to measure progress or success.
How we measure progress in policy is a big problem for anyone engaged honestly in crafting policy that benefits the public and gets written into law. That means policy is not getting passed that benefits the economy in a realistic and comprehensive way. If the health of the economy is the overarching goal of a given policy, it gets even murkier. Unless it’s centered on the public good, economic policy will primarily and solely benefit private interests. The Gross Domestic Product (GDP) is the most widely used metric to measure the health of the economy, but it only measures the production of goods and services in the economy. Originally created in the US to measure economic output during World War II, the GDP was designed to track growth, and this method of tracking growth is agnostic to a great number of indicators of a healthy or unhealthy economy. What was once a useful tool to track the progress of the war machine building the ‘arsenal of democracy’, has become an inefficient way of grappling with the many subtle and intersectional issues present in the global economy. How do we account for income inequality or the size and impact on productivity of student loan debt? How do we properly account for economic drivers that simultaneously provide economic value, and exacerbate climate change?
In the US, financial services have the highest share of the GDP than any other industry sector in the US, but this tells us more about the health of the financial sector than the health of the economy. Given that most financial services are related to financial products rather than fungible goods and services, there’s a very limited connection to the health of the economy. Labor productivity only tracks the GDP with regards to the increase in employment, but it does not track the wages of those employed. These are a few examples, but If you dig deep enough, these inconsistencies abound. GDP growth assumes that the economy is a garden where growth is the most important way to measure it’s health. Understandably, when it comes to crafting policy that has broad benefits for the public, we are up to our armpits in weeds. It’s therefore incredibly urgent that we look beyond the GDP for new ways to measure the success of not only the economy, but also public policy.
Luckily, in recent years the GDP has been under a great deal of scrutiny by many of the world’s leading economists. It started in 2007 when the Organization for Economic Cooperation and Development and other intergovernmental organizations met in Europe to discuss the development of new ways of measuring economic progress in a rapidly changing world. The name for this conference itself was called ‘Beyond GDP’, and 14 years later it is referred to as the ‘Beyond GDP Initiative’.
Although the first Beyond GDP meeting preceded the 2008 financial collapse, there was increasing attention to the inefficient ways that countries measured economic success leading up to this crisis. As noted by many of them in hindsight, the economy which was deemed healthy by former US Fed Chair Alan Greenspan on the eve of the collapse in 2008, was actually teetering on the brink of cascading failures.
As American economist Joseph Stiglitz points out in ‘Measuring What Counts’, a short book that chronicles his and his colleagues work on the Beyond GDP Initiative, ‘Indicators that could have provided a warning to policy-makers of what was about to happen were, in many cases, available, but were not a part of a well-established reporting system and were mostly ignored by those who should have noticed’. In a very basic sense, if you don’t measure what counts, how can you plan responsibly for the future?
Image Courtesy of Organization of Economic Cooperation and Development iLibrary "How's Life 2017 : Measuring Well-Being / How's Life in the United States"
In the case of the Great Recession, a proliferation of consumer debt leading up to the collapse was a clear sign of the stark inequality present throughout the economy that persists to this day. Economic inequality and wage stagnation can put the economy at risk when credit is widely available and no one is able to pay their loans back. It can also fuel a mistrust in democratic institutions that are meant to provide them with policy that serves in the public good. In this latter case, is this mistrust wrong? If we do not measure what matters to the public in policy, they are essentially invisible in whatever policy is crafted.
Similarly, what about the effects of climate change which will exacerbate this inequality? The environment, and climate change are inextricably intertwined with the health of the economy, without a single doubt. This past year, the Commodity Futures Trading Commission released “Managing Climate Risk in the U.S. Financial System”, which provides needed attention to climate risks in finance and there’s an acknowledgement almost immediately in the report’s first few pages that “Climate change is expected to affect multiple sectors, geographies, and assets in the United States, sometimes simultaneously and within a relatively short timeframe”. This awareness is crucial to not only confronting the climate crisis, but addressing its impacts on the most vulnerable people in society.
This is all the more important with regards to an energy transition away from resources that fuel climate change and a necessary transition away from a trend in public policy to ignore important indicators that not only could shed light on what’s interest of individuals, but also society.
This is meant to be a series of posts that regards this idea of developing a better way of measuring success in public policy. The next installment of this series will be dedicated to the challenges of the energy transition and the importance of recognizing and measuring the diverse challenges present in the current era of climate change, and the shape of things to come in the era that follows it. The purpose of exploring this idea of taking a proper of things that matter, is to provide a perspective that is rare in public policy, but necessary for progress. In policy deliberations, we are so often stuck with measuring things that are important to powerful interests, but if we do not include a framework for success in public policy that is centered on people, our measure of success is limited, to say the least.