OKPOLICY.ORG
Dr. Michael Givel
is Associate Professor of Political Science at the University of Oklahoma
What’s the best way to measure social progress? For decades, the United States and other nations have primarily measured social progress by the economic measure of Gross Domestic Product (GDP). However, recently, a growing chorus has expressed considerable concerns that GDP is an inadequate measurement of well-being because it fails to assess important factors like environmental degradation and social factors like poverty and income inequality. Dissatisfaction with GDP has led to a growing number of alternative indicators that now simultaneously measure economic, environmental, and social factors. In 2009, Maryland became the first state to develop an alternative GDP measure, when it created the Genuine Progress Indicator (GPI). Oklahoma should consider moving down the same road.
The origins of the GDP measure date to the 1930s, when the world suffered through the Great Depression in which millions became unemployed or underemployed. In direct response to this crisis, Keynesian or “demand side” economics was adopted in the U.S. under the New Deal. The GDP indicator was developed to aid President Franklin D. Roosevelt in implementing Keynesian New Deal policies of government intervention to counter the Great Depression. Simon Kuznets, a Nobel Prize winning U.S. economist, first conceived of GDP in 1934, when he assisted the U.S. Department of Commerce in developing a standardized measurement of economic productivity. The formula that economists now use to calculate GDP is derived by totaling national private consumption + gross investment + government spending + (exports – imports).
Kuznets cautioned, however, that GDP should not be used as a broad indicator of general welfare including overall economic or social well being. In support of GDP as an indicator of economic well being, Kuznets wrote that, “…the welfare of a nation can scarcely be inferred from a measure of national income.” In 1944, a strong orthodoxy emerged among 44 nations in attendance at the Bretton Woods Conference in Bretton Woods, New Hampshire, that a primary measure of human well being would be economic progress based on GDP. This was subsequently adopted by international financial institutions including the World Bank and International Monetary Fund,
GDP has received considerable criticism as an inadequate indicator of societal progress. Underlying these critiques are analyses of what GDP measures and what it ought to be measuring. These critiques indicate that GDP does not capture objective or tangible indicators of well-being such as health care, political democracy, educational attainment, environmental degradation, gender equality, and poverty and income and wealth inequality. The definition of well-being continues to expand to include subjective measures of what citizens of a nation, themselves, conclude is their well being . As John Helliwell, Richard Layard, and Jeffrey Sachs point out in the 2012 World Happiness Report:
No government has ever had GDP per person as its only goal. But in the last 30 years income creation as measured by GDP has become an increasing mantra, and we are often told that we cannot afford the “luxury” of harmonious social relationships when they stand in the way.
The first lesson of happiness research is that GDP is a valuable goal but that other things also matter greatly. So GDP should not pursued to the point where:
- economic stability is imperiled
- community cohesion is destroyed
- the weak lose their dignity or place in the economy
- ethical standards are sacrificed, or
- the environment, including the climate, is put at risk.
In reaction to the growing dissatisfaction with GDP as a suitable measure of well being, several nations and prominent world institutions have developed measures outside GDP. These include Bhutan’s Gross National Happiness Index; the Organization of Economic Cooperation and Development’s Better Life Initiative; the European Commission’s measure of well-being beyond GDP; the Australian Bureau of Statistics’ integrated environmental and economic accounting system; the United Kingdom’s analysis of national subjective well being; the United Nations Human Development Index ; and the New Economic Foundation’s Happy Planet Index .
The Maryland GPI responds to the growing recognition that GDP does not adequately gauge issues like air pollution, water pollution, income inequality, or the value of volunteer work linked to economic productivity. Maryland’s groundbreaking and far reaching Genuine Progress Indicator uses 26 sub-indicators, that scientifically, rigorously, and accurately measure and integrate, over time, economic productivity, environmental degradation, and social factors.
Given the significant environmental degradation and social issues such as a lack of health insurance or income inequality linked to economic growth in Oklahoma, the development of a GPI for Oklahoma should be considered and implemented. A Maryland GPI-style indicator in Oklahoma, would generate more accurate data better matching the actual realities of social, economic, and environmental progress, better inform citizens, and aid public decision makers in a much more efficient and effective fashion as they deliberate on the issues that significantly challenge Oklahoma in the present and future.
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