GDP Alternatives:

7 Ways to Measure a Country’s Wealth

GDP & Alternative Measures
• Economists and politicians across the globe use Gross Domestic
Product (GDP) as the ultimate yardstick for measuring and ranking
countries’ wealth. But as more and more economists begin to question
GDP’s true worth, there are growing calls to find GDP alternatives to
measure countries’ wealth and welfare.
GDP as a measure
• Introduced on the floor of the U.S. Congress in 1937, GDP is a metric economists
use to analyse the objective wealth of a country. It looks at all the goods and
services exchanged within a country’s borders in a given year. To avoid counting
things twice and skewing numbers, only a final product is measured, not the
materials that go into producing it. When economists talk about GDP, they’re
often talking about “real GDP” which is adjusted for inflation.
• And when you measure a country’s wealth using this method, you get a ranking
that looks like this:
• 1st place: United States
• 2nd place: China
• Last place: Tuvalu
What’s the problem with GDP?
• As economists like Joseph Stiglitz have pointed out, GDP can’t accurately represent the wealth
of a country when it ignores how money is divided up. Considering GDP alone, a rich country
where 10% of the population controls 75% of the wealth (looking at you, United States) may
rank higher than a poorer country with a more even distribution of wealth.
• That’s only part of the problem, though.
• One of GDP’s biggest flaws is that it counts tragedies as economic bonuses. If a hurricane or
tornado hits and a country spends millions of dollars rebuilding, those expenses boost GDP,
even though people lost their homes, jobs, and lives.
• And that’s not all. GDP ignores many crucial ways to measure the wealth of a country: clean air,
health, life span, gender equality, opportunity, education, and more. This is understandable –
GDP wasn’t developed to rank countries’ welfare, but simply to measure money as the world
recovered from the Great Depression.
• But once you realise how many flaws GDP has as a measure, it’s a wonder it’s become the
ultimate yardstick of a country’s wealth – especially when there are so many alternatives. And
those alternatives paint a radically different portrait of global wellbeing.
1. GROSS NATIONAL HAPPINESS
• In 1972, King Jigme Singye Wangchuck of the Buddhist kingdom of Bhutan publicly
declared he would no longer seek to grow GDP. Instead, he said, his country would
pour its energy into growing their Gross National Happiness (GNH).
• What is it?
• Guided by Buddhism and mindfulness principles, the king decided that a more
spiritual and holistic approach reflected his country’s needs. Instead of only looking at
the money put towards products and services, GNH takes 9 variables into account:
• living standards, health, good governance, ecological diversity, Resilience, time use,
psychological wellbeing, cultural diversity and resilience, community vitality
• To measure these factors, government officials interview a random selection of 8,000
households, who are compensated a day’s wage for answering an in-depth
questionnaire.
2. THRIVING PLACES INDEX
• UK charity Happy City developed the Thriving Places Index (TPI) to give local organisers
and politicians a better view of the welfare of their people. Since its first run in 2016
assessing 9 cities, it’s grown significantly – as of 2019, TPI generated scores for 351 English
and 22 Welsh councils.
• TPI’s primary focuses are sustainability, equality, and local conditions. These three
categories are then broken down into 60 indicators. Emphasising local welfare, TPI doesn’t
do country-wide rankings – instead, it seeks to answer 3 questions about a given area:
• Is it a fair and equal place to live?
• Is it sustainable enough so that future generations can flourish?
• Are the conditions present for everyone to do well?
• Happy City has a second project, called the Happiness Pulse, which is a micro index for
communities, teams, and organisations – kind of like TPI for your workplace.
3. HAPPY PLANET INDEX
• Founded by the New Economics Foundation, the Happy Planet Index seeks to
measure wellbeing in a new way. By factoring in the ecological footprint, inequality,
wellbeing, and life expectancy of a country, the HPI provides a simple but rounded
glance at the wealth of a country.
• They compile their information from a Gallup World Poll, the U.N.’s data on life
expectancy, and the Global Footprint Network. And unlike GDP, this index measures
equality by investigating how evenly distributed life expectancy and wellbeing are
across a country.
• To get each country’s score, they use this equation:
• (life expectancy x experienced wellbeing) x inequality of outcomes
            ➗
Ecological Footprint
4. HUMAN DEVELOPMENT INDEX
• A United Nations Development Programme, the Human Development
Index (HDI) was made with a focus on opportunity and capability,
rather than just economic growth or environmental sustainability.
Interestingly, the U.N. encourages nations to use it alongside their
gross national income data. They say that it can help governments
assess national policy by “asking how two countries with the same
level of GNI per capita can end up with different human development
outcomes.”
5. GREEN GDP
• A spin on traditional GDP, the Green GDP adjusts the measurements
by monetising environmental damage factors to help countries
better understand exactly where they stand environmentally. It was
developed by the Chinese government in an attempt to understand the
consequences of their carbon emissions and account for the losses they
experience from climate change.
6. GENUINE PROGRESS INDICATOR
• Created in the U.S. as an alternative to GDP, the Genuine Progress
Indicator (GPI) takes into consideration all the same factors as the
GDP, while also accounting for things like the cost of crime, ozone
depletion, and lost leisure time, to paint a more rounded picture of
the success of a country.
7. BETTER LIFE INDEX
• The Better Life Index was developed by the Organization for Economic
Cooperation and Development (OECD), a group founded in 1961 with one
goal: to help governments design better policies to improve lives.
• They’ve identified 11 facets that they feel are essential to wellbeing
– housing, income, jobs, community, education, environment, civic
engagement, health, life satisfaction, safety, and work-life balance – to
create the Better Life Index.
• First launched in June 2014, the Better Life Index (also known as Regional
Well Being) has been gathering data since its inception and has plans to
compare current conditions to conditions over time once enough data has
been gathered.