Tuesday, April 6, 2010

Towards Sustainable Development - Alternatives to GDP for Measuring Progress

Economic performance of a country is generally being measured through GDP (Gross Domestic Product), a variable that has also become the de facto universal metric for "standards of living". However, GDP does not properly account for social and environmental costs and benefits. It is also difficult to achieve sustainable decision-making aiming at sustainable progress and well-being if welfare is being considered from a purely financial point of view.

The study highlights the benefits and some of the shortcomings of GDP. It serves as a helpful and practicable instrument for monetary and fiscal policies. The real problem presumably is that GDP growth is too often confused with (sustainable) welfare growth in people's minds. While there certainly is a correlation between the two, this study shows that this is a highly conditional correlation, void of substantial causality for GDP levels observable in the European Union. In order to be able to assess people's well-being and general sustainable development in the sense of sustainability, an alternative instrument going beyond GDP is necessary.

Using so called SWOT analyses, several alternative progress indicators have been assessed in the context of this study. On the one hand it was analysed how far ecological and social factors can be integrated in the GDP measurements. Thereby difficulties arose then trying to monetise these factors. As a further possibility indicators were analysed which are to replace GDP as a whole.

The category supplementing GDP seems to be the most realistic and acceptable option for going beyond GDP. Within this approach, GDP is being complemented with additional environmental and/or social information.

In order to make this kind of solution feasible the study claims the establishment of an overarching and transparent indicator system for improving economic decision-making in support of sustainable development.

Philipp Schepelmann, Yanne Goossens, Arttu Makipaa (ed.):
Towards Sustainable Development
Alternatives to GDP for Measuring Progress
Wuppertal 2010, ISBN 978-3-929944-81-5
(Wuppertal Spezial no. 42)

ws42.pdf ( 2.18 MB )