Measuring Wealth of Societies with GDP Alone Shows an Incomplete Picture

By Rafal Rudzki via Emerging Europe

6/24/16

Recent statistics, for example, those from the Brookings Institution, prove there have been impressive reductions in the percentage of people living in poverty. Is the problem solved and should we all applaud? Well, no, as progress in improving people’s lives has been uneven at best. Often, economic growth has depended on industrial, agricultural, and economic processes that are not environmentally sustainable and which, in many cases, produce social inequity. While it was once assumed that economic growth would solve most problems, it is now clear that social and environmental improvements do not necessarily accompany sustainable economic growth. 

Moreover, there is growing awareness that economic measures alone do not fully capture social progress. Currently, Gross Domestic Product (GDP) is the traditional benchmark of success in the global economy. However it is a known fact that GDP provides us, conversely, with an incomplete picture of the state of affairs. For instance, it ignores for example the environment or well-being of society; both of which are important conditions for societal and economic advancement.

Social progress depends on the policy choices, investments, and implementation capabilities of multiple stakeholders: governments, civil society and business, says Michael Porter of the Harvard Business School. However, in order to make the correct decisions one needs a robust, yet credible, source of information. This has been the starting point for the Social Progress Index (SPI), a new tool to provide a measurement framework that supports the analysis of a country’s performance as an aid to discussions, insights and investment decisions.

The SPI framework does not cover economic indicators and measures only social and environmental outcomes. The 2016 results have helped in the ranking and analysis of 133 countries, covering 94 per cent of the world’s population. It measures country performance across 53 areas (including anything from access to electricity, through obesity to tolerance for immigrants) and seeks to answer three questions: Does a country provide for its people’s most essential needs? Are the building blocks in place for people to improve their lives? Is there an opportunity for people to improve their position in society?

Why are the answers to these questions relevant? It is because the Social Progress Index identifies priority areas for action and aims to spark discussion among governments, international organisations, regional governments, businesses and civil society about where to focus investments.  These investments could bridge social and economic development gaps and could leverage developmental opportunities, which are a base for an inclusive and sustainable growth of societies and economies.

In addition to this, making an impact has become the focus of policy makers and business leaders who are seeking ways to resolve social, economic, and environmental issues. 2015 was an especially important year on this path, as it was marked by the announcement of new 17 Sustainability Development Goals (SDGs); these are the goals to transform our world over the next 15 years e.g. to end poverty, fight inequality and injustice, and to tackle climate change by 2030.

“In an increasingly performance-oriented society, metrics matter. What we measure affects what we do. If we have the wrong metrics, we will strive for the wrong things.” Jean-Paul Fitoussi, Amartya Sen and Joseph Stiglitz wrote in “Mismeasuring Our Lives Now”.

It is time to reflect on where we are as businesses, nations and regions and to contribute to our future growth. SPI is one of the ways of looking at where we stand globally in the achievement of our inclusive and sustainable growth agenda.