Beyond GDP: policy by numbers

David Cameron has announced that he wants UK policy to be directed more by a measure of its citizens' general well-being than national GDP alone.

This is an important development.

The problems with basing government policy on GDP (as most nations do) are manifold. A war, an increase in the divorce rate or a natural disaster can each increase GDP, illustrating the fact that human economic activity is not identical with human flourishing. Of course, there is a basic level of material well-being required for a good life: nourishing and reliable food, safe water, shelter from the elements, somewhere comfortable to sleep, access to human relationships and perhaps a few other things (a dram of whisky from time to time, perhaps). But the bigger picture on which we base our social policy has to be bigger than just GDP. Yet in our obsession with measurement, we end up measuring GDP because it is so easily measured.

What can be counted, counts. That is at the heart of why GDP sends us up the wrong policy paths. Measuring what is easily measurable, we find we end up prioritising quantity over quality. The economy may be growing, but are our lives any better as a result?

There are various attempts at alternative indices. The UN supports the Human Development Index (HDI), a measure that relates per capita GDP to both life expectancy and education in order to suggest a more rounded picture of flourishing. This has the advantage of being still quite measureable, but still has GDP has a very significant component of the index, despite the fact that numerous studies (as well as traditional wisdom from many cultures) point out that beyond a certain level of material well-being, the benefits of extra personal wealth suffer from rapidly diminishing marginal returns. It also lacks any account of the ecological cost of the development in question, which could be (and often is) being gained at the expense of future generations.

Another measure is the Happy Planet Index (HPI), which focuses on the relation of life expectancy, subjective level of well-being and ecological footprint, thus claiming to measure how efficiently human well-being is delivered per unit of ecological impact. This approach gives a very different list of national rankings to the HDI (for instance, the USA comes 114th out of 143 countries studied, between Madagascar and Nigeria). Including ecological footprint sinks pretty much all the "developed" countries. For comparison, here are recent rankings of GDP per capita and here are recent HDI rankings.

Yet relying so heavily on self-reported levels of satisfaction (while trendy) has its drawbacks, as can be noted via the observation that the inhabitants of Huxley's Brave New World would have scored off the charts, and from counting the suspicious number of totalitarian, autocratic, repressive and/or highly corrupt societies that make it into the HPI top twenty.

And so while I am actually a big supporter of moving away from GDP-obsessed policies, I am ambivalent about the apparent necessity of replacing it with another number. Measurements are not irrelevant, and evidence-based policy making is a step forward in many areas. If we must have metrics, by all means let us develop better ones than GDP. But let the numbers be our servants, not our masters, since so much that is of the highest importance in the life of a society cannot easily be measured in numbers. Quality is not always reducible into quantities.