Is GDP really an effective way of measuring economic well-being? The newly-launched Vibrant Economy Index aims to be the elusive yardstick that really measures how the whole of society is being enriched.
It's not new to suggest that using gross domestic product (GDP) as a measure of a society's success has run its course.
Forty-eight years ago, Robert F Kennedy declared that GDP “measures everything except that which makes life worthwhile”. This year we have seen the political consequences of the failure of western societies to act on this.
The UK and USA have both seen overall growth in GDP over recent years, as they recover from the financial crash. But this wealth has been unevenly distributed across regions and groups of people, creating a bigger gap between the rich and those who are "just managing", which the campaigns for Brexit and for Donald Trump have both expressly tapped into.
Why we need a new way of measuring economic well-being
A new way of measuring economic well-being is now an imperative. Many alternative measures have been suggested – a quick web search of "replace GDP" will throw up articles by esteemed economists, politicians and think-tanks all passionately arguing that we need to do better.
Why do we think that the Vibrant Economy Index has potential to be that elusive yardstick of how people’s lives are being enriched?
A vibrant economy is about more than economic growth. Our index tackles this head on. It identifies six broad objectives for society: prosperity; dynamism and opportunity; inclusion and equality; health, wellbeing and happiness; resilience and sustainability; and community trust and belonging.
For each of these we have put together a ‘basket’ of national statistics that together aim to measure these objectives. We have given each of the six objectives equal weight – on the basis that what makes a place vibrant depends on a balance between all of them.
Vibrancy is multi-dimensional: places are vibrant in different ways. The most vibrant place will not necessarily be the one that has the highest average score across the six baskets – a place with a lower average score but a balanced equilibrium across all areas may be more vibrant. One of the things we want to explore over the next year is how to use a composite measure that reflects a balanced society.
The Vibrant Economy Index may also prompt debate about whether national statistics (the data that government gathers and measures) cover all the things that really matter.
In developing the index we found that there was relatively little data that measures levels of community engagement (whether people are actively involved in their local community). On the basis that “what gets measured gets done”, we may identify a need for some new national statistics.
The Vibrant Economy Index recognises that society is complicated. Action to nurture successful societies is the bread and butter of a thousand academic treatises and ignites revolution as well as heated discourse. GDP is easy to quantify – which is why it’s so widely used.
It’s straightforward for the Chancellor of the Exchequer to give a forecast, and for others to hold the Chancellor to account. But vibrant societies aren’t simple, and policies to increase growth don’t necessarily translate into societies that feel they are making progress.
Progress is personal and local – as well as national
The Vibrant Economy Index acknowledges that progress is personal and local, as well as national. It can mean different things to different people in different places, which inevitably means that initiatives to increase the vibrancy of a place need to be more sophisticated than ‘increase GDP’.
The Vibrant Economy Index could help to identify those areas where new policies and action could have a real impact on shaping a vibrant economy, as well as helping place-makers (planners, local government, community groups and the like) be realistic about the limitations of the impact of their actions.
More than all of this, we need a measure that speaks authentically about what matters to people, at both a national and a local level. GDP tells us what it thinks is good: it is prescriptive. Increase economic growth, and it's good for us all. In theory, at least.
Politics this year has been proof that citizens are fed up of being told what is good for them, and are taking decisive action. Refining the Vibrant Economy Index through listening and learning about what makes a place vibrant for the people that live there will ensure that our new gold standard of progress is rooted in what progress means to us.
By having this conversation with as many people as possible we have a much better chance of being able measure our progress in making places we think are worth living in.