Antonio Guterres, the secretary general of the United Nations, wants to change the way economic growth is calculated and has set up a high-level working group of distinguished economists, including Joseph Stiglitz, to look at alternatives to traditional measures such as Gross Domestic Product (GDP). In an interview on Monday, he told the Guardian that “GDP tells us the cost of everything, and the value of nothing. Our world is not a gigantic corporation. Financial decisions should be based on more than a snapshot of profit and loss.”
The relevance of using GDP as the main measure of economic welfare has been discussed over the years, though it has retained its position internationally as the key metric. There is a compelling rationale to the argument that change is needed. If the performance of a country is based on GDP-measured growth, then factors such as sustainability, well-being and equity will remain secondary considerations.
Measurement is important as it drives actions. And traditional economic and accounting measures have shortcomings. In the aftermath of the 2008 financial crisis, there were sweeping changes in the corporate sector, including new reporting responsibilities and targets on sustainability, which did change business behaviour for the better. Unfortunately, US president Donald Trump has changed the reporting rules in the US and this has influenced the mood internationally.
But climate imperatives remain. Last week the Supreme Court overruled a decision not to grant planning permission to the Coolglass Wind Farm project in Co Laois, saying this was not consistent with Ireland’s climate change rules. This sends a message out to Ministers and civil servants that climate change policies, sometimes seen to run counter to economic growth, cannot be ignored.
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It is all part of the same story, which is about how wider climate and other welfare goals should be included in policies and the key metrics then used to measure progress. Increasingly, GDP is looking inadequate, even if coming up with a simple replacement is far from straightforward.
