The Future of GDP and Measuring What Matters

This blog post is by Bonnie Chiu, Senior Advisor at Social Value International and Managing Director of The Social Investment Consultancy, who was invited to contribute to the Future of GDP Symposium organised by the Dubai Future Foundation. Her blog post draws from her insights at the symposium, as well as recent events in the UK.

GDP – a succinct way of measuring economic growth – has led to policy decisions and obsession with increasing this metric. Progress has driven unprecedented levels of wealth, human development and innovation. Think about China, the Communist Party has set targets for GDP every year since the country opened up to the world more than 30 years ago, and that is the key to the Party’s legitimacy in a country that has prioritised economic growth above everything else. As someone coming from Hong Kong, where economic growth has undoubtedly done wonders for my family – from my grandmother who is illiterate and spent many years working as a garment factory worker with poor working conditions, to me having a great education and being able to think about alternative measures to GDP.

But growing up in a hyper-capitalist society, under the primacy of GDP, has led me to question GDP and its impact on social inequalities and environmental degradation, among other negative impacts.

Social Value International aims to optimise wellbeing for all through changing the way society accounts for value – broadening beyond a limited economic concept of value, i.e. GDP. But the way Social Value International has created change is not through a top-down imposition of what the alternative values should be – rather, we create a set of principles and the methodology for Social Return on Investment (SROI) so that different actors, from investors to policy makers, can measure and value transactions differently. Our view is if the transactions can measure what matters , impacts on wellbeing, then from the bottom up we can inform this aggregate measure for the whole society.

In short, there is no one metric that can replace GDP. Instead, we should think about the underlying principles of how GDP is calculated. As we face global recession there is much talk about economic growth or the concepts of ‘de-growth’ or ‘post-growth’. This article hits the nail on the head by asking: The real question is therefore not “growth or not?”, but “growth of what?”. It goes on to state that: “It would be truer to say that most of the public will be glad to have rising incomes, but not if they are accompanied by ecological disaster, rising inequality and declining quality of life. Of course, a sustainable, egalitarian and wellbeing-focused economy would require a different approach altogether.”

SVI offers this different approach. The first Principle of Social Value is Involve Stakeholders: Inform what gets measured and how it is measured and valued in relation to social value by actively involving stakeholders. Stakeholders mean people who experience the change – and we have a strong focus on those whose voices are systematically not heard. Back to one of the limitations of GDP – progress was defined, back in 1944, by a very narrow set of people, mostly men in the developed world. Measuring what matters – moving forward – is to broaden the set of stakeholders who can influence the future direction, and this can now be done efficiently and easily through technology.

The eighth, and final, Principle of Social Value is Be Responsive. People should act based on the information they collect, to maximise social value. This also speaks to a downfall of GDP. In the UK, our short-lived Prime Minister Liz Truss was advocating for the relentless pursuit of GDP growth, but we see that voters are losing patience with it, as a top-level GDP growth does not mean anything when you can’t heat your home, or pay your rent or mortgage, or when your money isn’t worth anything abroad. Whatever alternatives to GDP will need to be rooted in what matters to people and planet, so that we can act on what we collect to ultimately improve people’s wellbeing.

Finally, an alternative to GDP should be rooted in social equity and inclusion. Because of Covid -19, the time it takes to close the gender gap grew, to now 132 years, according to World Economic Forum. One of the reasons is because of lockdowns impacting the provision of care, which disproportionately falls on women and girls. Feminist economics have long advocated for the inclusion of care in how we account for value. As we see social inequalities coming to the fore in so many countries, alternative measures to GDP must have social equity and inclusion at the heart of its design.

A lot of us, fellow travellers imagining a new, regenerative economy, turn to “Doughnut Economics” by Kate Raworth. I would like to end with a quote of hers, “As humanity’s values, context, and aims continually evolve, so too should the way we envision the economy”. Any thinking about the future should be rooted in humanity. Thank you.