Gross domestic product (GDP) is invariably a focus of debate about the state of the economy and whether this country, or any other, is making progress.
Yet it has its critics. Some complain that the focus on GDP as the single measure of progress distorts our priorities. They argue that GDP blinds us to many other important ways in which society should flourish.
There are indeed good grounds for thinking GDP is an incomplete measure of societal progress. Case in point: it has up to now omitted the depletion of the natural world, though this will be addressed in the upcoming updates to the international standards for the compilation of GDP – the new System of National Accounts WS.6 covers depletion.
Moreover, GDP does not capture lots of types of worthwhile activity that are not paid for (caring for a relative, for example) but does capture activities that are not worthwhile (like trading in illicit drugs).
Over 2024, we saw the maturing of several endeavours to address this issue. They fall into two camps. The first involves using the framework of GDP (or national accounts, to be more precise) to create a more comprehensive measure of growth and wealth. The second looks to develop adjacent measures that focus more directly on well-being and prosperity.
Let’s begin with approaches that focus on GDP.
One solution to this problem is to enrich the idea of GDP – to measure more things within the concept of the economy, like income, capital and growth. For example, GDP could measure the value of work done in the house and could incorporate the depletion of the natural world. A recent speech by the UK Statistics Authority Chair, Sir Robert Chote, highlights international work to widen what is captured as capital in economic measurement, and in particular to include natural capital.
A good example of an attempt to enrich GDP is the ONS’s recent inclusive income release. It supplements the standard GDP measures of output with measures of unpaid work, the costs of depleting the natural world and some elements of cultural wealth. The ONS summarises it well:
“Inclusive income estimates provide a broader measure of the economic welfare of the UK population. They reflect the economic value of both paid activity, included in gross domestic product (GDP), and unpaid activity, which includes ecosystem services and unpaid household services. The result is measures of economic progress that include activity and assets beyond those currently included in GDP.”
It’s an interesting endeavour, and provides some notable insights. For example, unlike GDP per person, inclusive income per person has not yet returned to its pandemic peak. In short, I applaud the ONS’s ambition in taking on this difficult and methodologically challenging work – though it has initiated a lot of debate within OSR, which my colleague Jonathan Price will highlight in a subsequent blog.
The second approach suggests that we should keep our focus on GDP more or less as it is (subject to the usual improvements and use of better data sources, as well as the communication of uncertainty; see our GDP review on this). And instead of extending the framework, it proposes supplementing it with meaningful alternative measures, including personal well-being measures, which focus on the things that GDP does not capture well. The ONS in fact provides an important foundation for these alternatives with its Measures of National Wellbeing.
A great example of the personal well-being approach is provided by Pro Bono Economics (PBE)’s recent report on the state of well-being in the UK, which estimates the number of people in the UK with low well-being. The report highlights what can only be described as a crisis of low well-being in the UK. (And full disclosure: I am a trustee of PBE).
The PBE report is not the only work that focuses on non-GDP measures of well-being:
- Along similar lines, the BeeWell project has proposed measuring children’s well-being, and has been implemented in Manchester, Hampshire and the Isle of Wight.
- Carnegie UK’s Life in the UK provides a comprehensive overview of well-being. It extends the analysis from personal well-being to broader societal well-being, including perceptions of democratic health.
- Complementing this UK-level perspective, the Global Prosperity Institute’s work is also noteworthy. It is more granular and micro, considering the prosperity of small areas using a citizen research approach. Its application to areas of East London is rich in insights into the experience of redevelopment.
What these various outputs show is that the “Beyond GDP” space is maturing. The ONS is doing some thoughtful, innovative things to extend the framework of national accounts. And a plethora of independent approaches are emerging.
So I begin this year optimistically.
Could 2025 be the year Beyond GDP moves from being a slogan to a reality for policymakers, Parliament, media, and, most importantly, citizens?