For 75 years now, gross domestic product (GDP) has been the economic equivalent of an early morning thermometer in the mouth of a schoolchild. It was devised in 1937 as a single, neat measurement of a country’s economic health that captured all economic productivity by people, by corporations and by governments. Since then, it’s been held aloft as the best barometer by which a nation’s economic success or failure can be measured. It’s easy to see why economists and governments of that era bought into it so evangelically. The freewheeling growth western economies enjoyed through the second world war’s destruction and post-war reconstruction was, after all, the antithesis of the widespread misery of the Great Depression that preceded it.

Dissent, however, has always been bubbling beneath the surface and is at its most audible in times of downturn, such as the one we’re experiencing now. Critics argue that while GDP might be useful in measuring an economy’s material productivity (although some dispute that, too), it’s no way to measure the progress of society. Governments that pursue economic growth at all costs, the argument goes, are doing so to the detriment of their citizens.

Is growth always good?

The limitations of GDP as a measure of economic health are clear. For one, it only includes things that have an actual price. So for instance, it includes shares in Facebook, but a free service like Wikipedia falls between the cracks (as do all free services and voluntary work). Equally, if a mother buys her child a Happy Meal from McDonald’s, it goes toward GDP. But if the same mother grows her own food and cooks up a healthy dinner, it doesn’t.

Another criticism of GDP is that it only adds without ever subtracting. When it first came into vogue in the 1940s, it included all the extra manufacturing output that went towards the war effort, including the production of weaponry. But it factored in none of the human cost which the use of weapons led to. More recently, it was predicted by bankers at J.P. Morgan that the Deepwater Horizon oil spill in the Gulf of Mexico would actually add to American GDP. They claimed that the amount of money spent on the cleanup effort offset the financial losses caused by the spillage, despite the destruction of hundreds of miles of coastline and the loss of livelihood endured by entire communities of commercial fishermen.

For Molly Scott Cato, an economist and member of the Green Party, our “obsession with growth” is systemic and boils down to flawed ideology. “If you’re involved in economic management,” she says, “then you do need to know the size of what you’re dealing with. But measuring that in a way that relates to money is not very helpful. The fact that we rely on GDP is symbolic of something much deeper that’s wrong with the way we think about an economy. We’ve detached importance from stuff that has real value and replaced it on stuff that only has financial value.”

Molly feels that it’s important to separate what’s productive and useful and what’s not. “Sitting in a call centre, selling somebody something they don’t need that was produced in China is not useful productivity,” she says. “Neither is creating a derivative product and gambling with it at high speed across international networks.” Yet, both of these activities contribute to GDP. While Molly’s green outlook means she objects to constructing runways and manufacturing cars, her argument is that we need to look toward measuring things that have a positive, tangible impact on society.

Sagar Shah is an economist and researcher at the New Economics Foundation (NEF), an independent think tank. He agrees that GDP is “not a perfect indicator” but, playing devil’s advocate, sees why it’s useful. “I think it’s used because it’s convenient and it’s available. GDP is highly correlated with other things that are often said to measure the success of a society well. From a macroeconomic perspective, it allows you to monitor things like inflation, interest rates and unemployment. But it’s not a perfect way of looking at human progress.

“It can become dangerous when it’s treated as an end in itself, when activities that could be linked with human progress are overlooked because they might compromise GDP. Whether the economy is contracting at 1 per cent or growing at 1 per cent, it’s not going to mean a huge amount for people’s overall living standards.”

The pursuit of happiness

So if GDP is an unreliable indicator of human progress, then what should we be monitoring? In 1972, the fourth Dragon King of Bhutan coined the phrase “gross national happiness” (GNH), a concept that would serve as the unifying vision for the Himalayan nation’s policymaking for years to come. It reflected the strong Buddhist values the Bhutanese held dear, but was also based on extensive empirical evidence gathered by the Centre for Bhutan Studies. Rather than being beholden to economic growth, GNH takes a more holistic approach, focusing on sustainable development, cultural values, conservation and “good governance”.

While the influence of GNH has been minimal in the west, its emergence has prompted a certain amount of self-reflection here. Has our pursuit of GDP made us happier? Has it made our lives better? Many would argue that it hasn’t. In the US, for instance, inequality (measured by the distribution of market income) rose by 23 per cent between 1979 and 2007. On average, we work longer hours than our grandparents and spend less time with our families. Many jobs previously considered to be satisfying have been offshored or automated, particularly in the manufacturing sector, meaning more people are working in jobs perceived to be menial and unrewarding.

In recent years, then, western thinkers have been wondering what we can learn from Bhutan. Sagar Shah is a member of the Well-Being Centre at NEF and part of the team behind the Happy Planet Index (HPI), one of the most widely cited of the recent wave of happiness indices. HPI is designed to tell us how efficiently countries convert their resources into happiness and is derived from (what looks to be) a simple equation:

experienced well-being x life expectancy ÷ ecological footprint

Putting a value on subjective values like someone’s well-being and – to a lesser extent – their ecological footprint sounds problematic, however. But Sagar explains that the data is gleaned from experienced large-scale pollsters like Gallup and government bodies like the Office of National Statistics (ONS) through surveys and questionnaires. These research tools are loaded with big, open questions exploring people’s satisfaction with their finances, their work, their social relationships and other subjective metrics. Sagar is confident that “there’s a good academic base for suggesting that people’s responses to these questions are, on average, very accurate”. And as any sociology student knows, if you have enough reliable qualitative data, it can be extrapolated for quantitative purposes.

This year’s Happy Planet Index was released in June and the results are surprising. Costa Rica is top of the pile, followed by Vietnam, Colombia and Belize. The highest ranked western nation is Norway, at number 29. The UK is 41, with America coming in at a lowly 105, sandwiched between Hungary and Djibouti.

Costa Rica has a life expectancy of 79.3 years, with an experienced well-being of 7.3 and an ecological footprint of 1.7. So it scores very high on the first two metrics, but very low on the third. The UK has a higher life expectancy than Costa Rica (80.2 years), but a lower well-being (7.0) and a much higher footprint (4.7). So people in Britain are, according to the data, marginally unhappier than Costa Ricans, but they use many more resources to achieve that level of happiness.

The road forward

Despite the interesting insights to be gleaned from the HPI, the NEF doesn’t believe that it should be a replacement for GDP. If anything, we should learn not to use a single indicator. Sagar uses a motoring analogy: when you’re driving, you don’t just look at the speedometer, nor just your fuel gauge or miles to the gallon. Equally, you don’t put them all on one dial: it would be impossible to follow. Instead, it’s important to have a range of indicators which ensure that your journey is completed successfully.

NEF’s ultimate aim is for HPI to influence government policy and so improve our national well-being and future prospects. There are five steps we need to take to do so, according to NEF: connect, be active, take notice, keep learning and give. The challenge is to turn these buzz words into concrete, implementable policies.

Sagar gives an example. “It’s important to turn people towards community and to give them the tools to improve social relationships. Under the Labour government, the Welfare to Work scheme tried to get both parents back into the workplace as soon as possible [after the birth of a child]. If you take social relationships to be very important, maybe both parents staying at home for a bit longer would bring benefits for both children and parents.”

Not everyone, however, is sold on happiness indicators – even on the left. Green economist Molly says the data collected is so subjective, it’s “pretty useless”. She explains: “If someone’s been in a concentration camp for a few years, they’re really happy if they find a grain of rice on the floor. We all felt happy on the Saturday night in which we won three Olympic gold medals, but by the Sunday we were worrying about going back to work again. Humans are so changeable and adaptable that to ask us how happy we are is a bit pointless.”

Molly’s preferred indicator would be child mortality: “It’s a real thing,” she explains. “There was really a life that isn’t there anymore and it’s summing up an awful lot about your economy and society. For example, if women are better educated and more empowered, they’re going to have fewer children, but more of them will survive.”

While the economists we spoke to differ wildly on what they thought should be used to measure our national progress, both agree that the current metric, GDP, isn’t up to scratch. But while the government has made interesting noises about including other factors in policymaking (the public body ONS, for instance, has been commissioned to gather the world’s largest set of well-being data), GDP is so deeply ingrained in our society, it would take huge attitudinal and structural shifts for us to move away from it. The appetite to pursue such changes seems, sadly, to be lacking in the political mainstream.

 Written for the Gateway, 2012.

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