The following post is part of the course work for “Live Exchange” the foundational course on communication for The MBA Design Strategy Program at California College of the Arts. The rest of the posts are presented here.
By Corey Lee
The Gross National Product was the official measure of production in the United States until 1991. At that point, GNP was replaced by it’s close cousin Gross Domestic Product. GDP measures the production occurring within a nation’s borders. Calculation is pretty straightforward: add up the value of every transaction occurring within the country. Over time, scholars began to equate GDP with a country’s standard of living under the premise that a higher GDP per capita means more spending per person and more spending means people are better off. As you might imagine, there are flaws with this logic.
Within the GDP framework, any dollar spent leads to an increase in GDP—all purchases look the same. Though many transactions represent activities that positively influence our lives—groceries, shelter, healthcare—not all expenses are good ones. For example, a farm that pollutes a river boosts GDP through beef sales, but also through the people it sends to the hospital and the drugs and treatment they require. On top of this, when a group pays to clean the contaminated river, GDP goes up again. Pollution is just one example. Crime, disease, natural disasters, and even divorce all entail some sort of fix just to get things back to normal (police, medical operations, construction, legal battles) and yet each counts as economic gain.
While GDP deems every transaction with a cost as good, it fails to recognize any transaction without a cost (i.e. unpaid work). Volunteer work, baby sitting, and house work add as much to society as other jobs, but because no wage is associated with them, they go unvalued and unrepresented.
Finally, GDP fails to account for income distribution. A skewed distribution means dramatically different standards of living for the poor and the rich. If a small percentage of the population is significantly wealthier than the rest, then GDP per capita will not adequately reflect the country’s true standard of living. And changes to GDP, for better or for worse, won’t paint an accurate picture because in this case a rising (or shrinking) tide does not lift (o lower) all boats equally.
Fortunately, there are alternatives to GDP. The Genuine Progress Indicator (GPI), designed by Redefining Progress, calculates a country’s well-being by factoring crime, income distribution, resource depletion, pollution, long-term environmental damage, changes in leisure time, lifespan of durables, among many others. When compared, GDP and GPI paint shockingly different pictures. While GDP would demonstrate that US economic welfare has risen markedly over the last half century, the GPI argues actual economic progress has been relatively flat.
With a more accurate measure of our well-being, we might recognize the last fifty years as a period with increased economic activity, but no real change to our quality of life. Instead of praising pollution, crime, and disease, we’d praise those fighting to end them. We’d put business during this time into perspective and understand that we need to do things differently to make life better.