Jacinda Ardern, Prime Minister of New Zealand, where GDP is being replaced with measures of wellbeing. Credit: Hagen Hopkins/Getty Images

The idea that societies should constantly pursue economic growth has, lately, become rather controversial. Economic growth means economic consumption, and the more weāre consuming, the more we use the assets of the world, goes the concern. Eventually weāll run out.
More than that, economic growth is not an end in itself. Presumably we want to grow our economies so that we can improve citizensā lives. In that case, why not measure the happiness and wellbeing of citizens directly, and work towards that, rather than the proxy of GDP?
Thatās exactly what New Zealand is trying to do. The UK and other countries measure wellbeing through various metrics, but New Zealand is the first country to use it as a basis for its national budget. There are five parts to it: improving mental health, improving “child wellbeing” (reducing poverty and abuse), improving national productivity, supporting indigenous peoples, and moving to a zero-carbon economy.
Those are, of course, all good things to pursue. But Iām still a little concerned about it. Obviously GDP is a crude tool: it doesnāt distinguish between a local coffee shop making nice Americanos for passersby, and a factory that builds cluster bombs and pumps poisonous waste into rivers. But it does have the advantage of being relatively easy to measure. Wellbeing, on the other hand, is not.
New Zealand appears to be basing its budget on the Organisation for Economic Co-operation and Development (OECD)ās Better Life Index (BLI). This takes into account housing, income, jobs, community, education, environment, civic engagement, health, life satisfaction, safety, and work-life balance.
But itās only one available measure. The UKās Office for National Statistics uses a different set of metrics. A 2016 study in the BMJ did a literature review, searching for ways of assessing the adult population, and found 99 different measures of wellbeing looking at 196 different dimensions (the BLI looks at 11). Some took as their basis Maslowās hierarchy of needs; some a model of psychological well-being; others self-determination; others the WHOās definition of health as āa complete state of physical, mental and social well-beingā. It found that 27 new measures were invented in the decade 1990 to 1999 alone.
They may all find the same results, of course, but I am instinctively wary. I asked a couple of psychologists about it and they were too.
One said that self-reported data like this has lots of problems with āconstruct validity and operationalisationā ā that is, whether what youāre measuring really relates to the underlying thing you want to improve, happiness or whatever, and what weights you give all the factors. āHow you rigidly define āwellbeingā in a robust and benchmarkable way is non-trivial,ā he said.
The other was starker: āGiven how much dodgy research there is in the world of āhappiness psychologyā,ā he said, āI’d be pretty worried about them choosing a measure that’s actually worthwhile.ā
And economists know that GDP isnāt a perfect measure. But it does seem to correlate with most of these measures of national wellbeing āĀ on balance, the richer a country gets, the happier it becomes. Thatās hardly surprising. If thereās more money in the economy, people have more money to spend on their families; if thereās more money in the exchequer, public services ā schools, transport, policing ā can improve.
Of course itās not as simple as that, and if all the money concentrates in a few rich people then the GDPāhappiness link can break. (As tends to happen in states that get suddenly rich from discovering natural resources, such as oil.) But in general, reported subjective wellbeing goes up fairly linearly with GDP.
Thatās not to say that national budgets should blindly chase GDP. It is absolutely true that, in general, increased GDP leads to increased environmental impact. The relationship has become more complex in the modern information economy ā for instance, an author could sell hundreds of thousands of books for only a negligibly greater impact of selling the first one, if theyāre all sold as ebooks.
Once a video game has been made, you can sell an essentially infinite number of copies via Steam, without having to expend significant physical resources. In the UK, the link between growth and environmental degradation has apparently been largely severed, but in many other developed countries ā and even more so in developing ones ā it has not. As economies decarbonise and technology becomes more energy-efficient, perhaps it will, but whether it happens fast enough to avoid some really devastating consequences is an open question.
And itās also true that GDP is only a proxy for what we actually care about, which is presumably some ineffable and complex but nonetheless real combination of human flourishing and happiness and a sustainable future. And if we could measure that thing, whatever it is āĀ if we could even define it ā then we should absolutely direct all our efforts to increasing it.
But all our wellbeing measures are just proxies for that thing too. Theyāre intended to be more direct proxies, but whether they actually are is very hard to tell.
I will watch the New Zealand experiment with great interest. ButĀ one thing I have learnt fromĀ writing a lot about psychological experiments in recent years, is that it is possible to find almost anything you want in the data if youāre not profoundly careful in how you go about collecting it.
Thereās something else, as well. An old GK Chesterton parable, about a fence across a road or a field. Someone walks up to it and says āI canāt work out why this is here, so letās get rid of it.ā He does so and is then promptly gored by a bull that was being kept in the next field by that fence.
A more intelligent reformer, says Chesterton, would have told the first: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.”
For close to a century, since the development of the modern GDP concept in a 1934 report for the US Congress ā and especially since the Bretton Woods conference of 1944 ā GDP has been used to measure national economies. In that time, almost all metrics of human progress ā life expectancy, childhood survival, levels of violence and war, disease burdens, gender equality, education, nutrition, life satisfaction ā have consistently moved in the right direction, around the world.
Iām not saying that if we stop measuring GDP and start measuring the Better Life Index instead, all that will collapse or go into reverse. Iām just saying: using GDP is, broadly, working. Of course we need to work hard to make sure that GPD isnāt seen as the be-all and end-all: if we strip away all our natural resources and ruin our climate, itāll slow human progress.
But it turns out GDP is a pretty good proxy for human wellbeing. Tearing it down because you think you can do better might not be such a smart thing to do.
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