Written by Otto Scharmer via The Huffington Post on 4/6/2018
In a famous stump speech at the University of Kansas in March 1968, a few months before he was shot, then-presidential candidate Robert Kennedy laid bare the dangers of using gross domestic product to measure success.
GDP, he said, “measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.”
Fifty years on and we are still obsessed with this flawed metric as the key indicator of economic success. We are trapped in a way of thinking that says “bigger is better,” that higher GDP is the solution to our problems.
Yet evidence bears out Kennedy’s analysis: GDP growth is no salve for deepening inequality across the globe. In China, while growth has taken hundreds of millions out of poverty, growing inequity ― including income inequality levels among the worst in the world ― is tolerated because GDP growth remains strong. Likewise, in the U.S., the superrich have accumulated obscene levels of wealth without any redistribution to lower-paid and less-skilled workers who don’t benefit from globalization.
We can track Trump, Brexit and the rise of the far-right globally as phenomena with a direct link to the use of GDP as a synonym for economic progress. Many of the voters for Trump and Brexit live in areas that suffer from job losses caused by globalization, and they see the richest continuing to hoard their gains. The GDP growth in a country like the U.S. can hide the fact that certain regions, “the forgotten people,” are worse off.
Here is why. GDP, which measures the dollar value of goods and services produced by a nation, measures none of the practical outcomes such as the well-being of communities. When a terrorist throws a bomb into a marketplace, for example, the subsequent reconstruction will increase GDP. But nobody would argue that the nation is better off because of terrorist attacks.
Nor does GDP adjust for how the benefits are distributed. Two very different economies, one with obscene levels of inequality and another with more equitable wealth distribution, could have the same GDP per capita.
The metric also makes no adjustment for leisure time. Imagine a country where the average number of hours worked per day is four and a country where the average is 12. Where would you rather live?
GDP also fails to account for unpaid caring and domestic work, which props up the economy. Nor does it account for the informal or black-market activity that represents a significant part of overall economic activity in less developed economies.
Vitally, it pays no heed to environmental costs. If two economies have the same GDP per capita, but one has massive pollution of soil, air and water and the other doesn’t, their citizens’ well-being will be different. GDP per capita won’t capture that distinction.
As Nobel Prize in Economics laureate Joseph Stiglitz and MIT’s Erik Brynjolfsson noted in 2016, “GDP is a poor way of assessing the health of our economies and we urgently need to find a new measure.”
The good news is that alternatives do exist. We can look to Bhutan. Since the 1970s, the tiny Himalayan kingdom has rejected GDP as the sole way to measure progress. Instead it has implemented a Gross National Happiness Index, with the aim of finding a way to govern and live that looks beyond narrow economic metrics. The indicators on which it gathers data range from psychological well-being, culture and education to ecology and community vitality.
International bodies have also attempted to devise better ways of assessing well-being. Since 1990, the United Nations Development Program, through its Human Development Index, has tried to measure those factors that make a good life beyond just income. It takes into account a country’s life expectancy at birth, the adult literacy rate, and the standard of living.
The World Happiness Report, produced by the U.N. Sustainable Development Solutions Network, offers an annual index ranking countries on factors including social support, healthy life expectancy, freedom, trust and generosity, in addition to income. And the Organization for Economic Cooperation and Development produces a Better Life Index, which allows people to compare well-being across countries based on factors the organization deems essential to quality of life, including housing, community, health and environment.
The problem, therefore, is not a lack of better measures, indicators and frameworks. The problem is that we are not using them sufficiently given the pressing challenges we face: widening environmental, socioeconomic and cultural-spiritual divides.
What can be done? We need to move from inventing new indicators to fundamentally changing the way we think about the economy. The dominant economic thinking of the past century-plus can be characterized as the pursuit of narrow self-interests ― whether of a person, an organization or a country. The challenges we face, however, require an awareness that goes far beyond the self, that considers the whole economic system.
We must reframe how we talk about the economy. This means tackling what educational institutions teach and changing how our media discusses these issues. Traditional economists have a huge blind spot when it comes to recognizing the importance of ecological, social and cultural factors. So often termed “externalities,” they are considered ancillary to, and less important than, blunt economic metrics like GDP.
But all these factors make up the system in which we live. We need a new type of media and education that looks at entire systems to inform mainstream discussions of our current challenges.
To achieve this, we urgently need institutional innovations and mechanisms that allow people across different cultures and sectors to come together, to see and make sense of the complex global challenges we face, and to create new solutions to tackle these systemic problems.
Many examples of this exist on local and regional levels ― for example, the Sustainable Food Lab, a collaboration among more than 70 organizations to make sustainable food mainstream. Replicating these efforts in other sectors and regions, and illuminating how they work ― whether through media coverage or through educational bodies ― would help accelerate the economic shift that most people feel is necessary today.
If put to work at scale, these new economic narratives, methods and tools could address the root issues of what Robert Kennedy critiqued so eloquently all those years ago.
Otto Scharmer is co-founder of The Presencing Institute. Its Transforming Capitalism Lab connects change-makers around the world, equipping them with the tools they need to lead the shift toward a new economy.
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