Aug 21, 2020

Is GDP Getting Replaced?

Matthew Mann

f you follow the news and world events, it’s quite likely that you have seen plenty of references to GDP (Gross Domestic Product) over the last little while. In light of the global pandemic, most world economies have been suffering, creating a significant decrease in their GDP.

Why does GDP matter, and where did it come from?

GDP measures a country’s material wealth as a measure for total growth. This is done by looking at the total amount of goods and services that are exchanged within a country’s borders over the course of a year. The more that a country is exchanging goods and interacting with other countries, the higher the likelihood that the country is thriving. Like most people can probably guess, the United States and China have the highest GDP. It sounds like a great way to measure a country's worth but it is somewhat outdated. The system was first introduced to the world on the floor of the U.S. Congress in 1937. Near a century old, it may be time to re-assess if it still is the best way to country and its output.

What are the problems with GDP?

For those who care about more than money, a big problem with GDP is that it is a purely economic tool that deals in value, based exclusively on financial power. It does not take into account any essential non-economical factors of wealth, such as life span, clean air, education, or opportunity. Factors such as these can do wonders for developing countries or countries that are not ranked as high as the United States or China.

GDP also rises in the event of a natural disaster. If a hurricane or earthquake hits, the country must spend more money to repair the damage. When evaluating the GDP after such a horrid event, the sudden burst of money being spent and exchanging of goods, boosts the GDP tremendously; giving a false evaluation of the stater of the economy.

GDP also pays no attention to how wealth is distributed. In the United States, 10% of the population control 75% of the wealth. In other countries where this distribution is more equal, GDP isn't reflected as being as substantial.

How about GNH as an alternative?

Gross National Happiness is a method used in Bhutan to determine how well its country is doing. Guided by Buddhist and mindfulness practices, GNH is based on health, cultural diversity, living standards, and ecological diversity.

One downside of this system is it takes 3 hours to answer all of the questions that go into computing the score. Both the interviewers and the people of Bhutan are paid for the time it takes to complete the questionnaire.

So far, GNH hasn't been widely adopted as some may think. Bhutan continues to be the only user of this evaluation method, but maybe it needs to be given a second look.

Thriving Places Index

TPI was developed by a charity in the U.K, entering its focus on sustainability, equality, and local conditions. At the movement, it remains a localized test that is given to councils across the U.K.

One of the positives of this test is that it can be used to understand how local economies are affected by the state of the larger economy. It can also be applied to places other than the U.K. as it is simple to administer.

A drawback of TPI is that it includes subjective questions, which is completely different from the black-and-white, economically-driven simplicity of the GDP.


The Human Development Index (HDI), a United Nations-backed development program, focuses on more than just economic factors. It deals with opportunity and capability too. The U.N. suggests that counties compare their HDI with their GDP to better understand the fuller picture of their own country and the state of the world.
A big plus of the HDI is the way it looks closely at education and income per capita. Its focus on life expectancy also gives a broader picture of what is going on inside a country.

Negatives include no focus on environmental issues or safety. Currently, the countries with the highest HDI are Norway, Switzerland, and Ireland. Interestingly enough, even though HDI doesn't account for environmental issues or safety, said countries are known for being some of the most environmentally friendly and clean places to live in the world.

It would appear that there are no genuine alternatives to GDP at the moment, at least not any that could be so universally applied. What is clear however, is that economic wealth alone is not an accurate indicator of the health of a nation. The current protests all over the States and in Hong Kong are clear examples of that.

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