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How do we measure wellbeing?
Gross Domestic Product (GDP) is how we measure the wellbeing — or success — of an economy. It adds up the monetary value of all the finished goods and services made within a country in a given year. GDP growth is synonymous with a country doing well. GDP decline is synonymous with a country doing badly.
Why is this bad?
But GDP as a measure of how well we’re doing is pretty flawed:
- As it mainly looks at market transactions, it ignores other indicators of wellbeing. For e.g. education, air quality, equality, health etc.
- GDP doesn’t think about negative externalities (costs that don’t appear on a balance sheet) of economic activity. For e.g. deforestation, ecological collapse, air pollution.
- It doesn’t consider what good or service a transaction was for. Just as long as money was spent, that’s all that matters. Author David Pilling summed it up: “From a GDP perspective, nuclear warheads do just as well as hospital beds or apple pie”.
- This also means that a tragedy is considered a success, through the lens of GDP. For e.g. a community is impacted by massive flooding, killing people and destroying homes. It costs millions to rebuild. This spending boosts GDP, despite the human misery and suffering.
- It tells us nothing about how the wealth of a country is distributed amongst the people. In the UK, for e.g., the wealthiest 10% hold 43% of all the wealth while the bottom 50% hold only 9%. GDP does not — can not — account for that.
The alternatives
So, what can be done about it? We can update how we measure success. Meet 8 interesting alternatives to GDP.
1. Thriving Places Index (TPI)
Developed by UK Charity Centre for Thriving Places (previously called Happy Places), it gives local groups and politicians an idea of how well their area is doing. TPI focuses on sustainability, equality, and local conditions, which are broken down into 60 useful indicators. The overall questions the TPI seeks to answer when analysing a local area are:
- Is it a fair and equal place to live?
- Are the conditions present for everyone to do well?
- Is it sustainable enough so that future generations can flourish?
See it in action for Lambeth, my old London Borough.
2. Happy Planet Index (HPI)
Founded by the New Economics Foundation in 2006, the HPI considers the ecological footprint, inequality, wellbeing, and life expectancy of a country. Using a Gallup World Poll, the U.N.’s data on life expectancy, and the Global Footprint Network, it creates a unique country score using this equation:
((Life expectancy x Experienced wellbeing) x Inequality of outcomes) ÷ Ecological Footprint
Top 5 (as of 2021): Costa Rica, Vanuatu, Colombia, Switzerland, Ecuador. Bottom 5: Zimbabwe, Lesotho, Central African Republic, Mongolia, Qatar.
3. Better Life Index
Launched in 2014, the Better Life Index looks at 11 key factors: housing, income, jobs, community, education, environment, civic engagement, health, life satisfaction, safety, and work-life balance.
According to the Better Life Index:
“The United Kingdom performs well in many dimensions of well-being relative to other countries in the Better Life Index. The United Kingdom outperforms the average in income, jobs, education, social connections, safety and life satisfaction. It underperforms average in environmental quality and civic engagement”.
Read the UK’s full profile.
4. Gross National Happiness (GNH)
First used by the Buddhist kingdom of Bhutan in 1972, this approach is guided by Buddhism and mindfulness principles. It considers 9 variables: living standards, health, good governance, ecological diversity, resilience, time use, psychological wellbeing, cultural diversity and resilience, community vitality. The Government would then interview 8,000 randomly selected households on the 9 points, who are compensated a day’s wage for the in-depth questionnaire.
5. Human Development Index (HDI)
A creation of a UN Development Programme, HDI focuses on opportunity and capability. Interestingly, the UN encourages countries to consider HDI alongside Gross National Income data, to get a fuller picture of wellbeing in the country.
Top 5 (as of 2020): Norway, Ireland, Switzerland, Hong Kong, Iceland. Bottom 5: Burundi, South Sudan, Chad, Central African Republic, Niger.
6. Inclusive Wealth Index (IWI)
Another product of the UN, the IWI looks at sustainability — and considers 3 different types of capital when assessing a countries score. They are manufactured capital (e.g. roads, buildings, machines and equipment), human capital (e.g. knowledge, aptitude, education and skills), and natural capital (e.g. forests, agricultural land, rivers, the atmosphere, oceans and ecosystems more generally).
As per the 2018 report, it:
“provides a tool for countries to measure whether they are developing in a way that allows future generations to meet their own needs”.
7. Green Gross Domestic Product (Green GDP)
A spin on traditional GDP, Green GDP takes into account any environmental costs incurred from the production of goods and services included in GDP. First tried by China in 2004, it showed the country lost a massive 511.8 billion yuan ($66.3 billion) — or 3.05% of the nation’s economy — through the environmental damage of economic growth.
The equation is:
GDP — environmental costs of production = Green GDP
8. Genuine Progress Indicator (GPI)
Born in the U.S. in 1994, GPI takes into consideration all the same factors as the GDP, while also accounting for 26 other data points, which are grouped into three categories: social e.g. crime, economic e.g. income inequality, environmental e.g. pollution.
Your turn
So, what do you think? Which — if any — of these sound like good alternatives? Which do you think would create the best conditions for humane tech to thrive? I’d love to know your thoughts!
P.S. if you’re an economist (or just someone who knows what they’re talking about) please don’t get mad if I’ve skewered something. I’m just a chimp with access to Google. 🙈