Alternative Economic Indicators

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Reliance on GDP (Gross Domestic Product) as a measure of prosperity has been broadly criticized as an inadequate representation of economic welfare or progress. The GDP reflects total national spending, making no distinctions between what adds to well-being and what diminishes it. It measures how much an economy is growing but as a proxy for progress, it was not intended to measure happiness or welfare. Recognizing the failings of this traditional metric, state and local governments have considered a variety of alternative indicators to measure how well their citizens are doing both economically and socially.

Generally, these alternative indicators either 1) adjust GDP for environmental and social costs and income inequality to produce measures of “green GDP” or 2) use subjective measures of well-being to capture non-monetary dimensions of prosperity such as arts, culture and recreation, community vitality, democratic engagement, education, environment, healthy populations, living standards and time use.

Examples

The Genuine Progress Indicator: Developed in 1995, the GPI takes the same personal consumption data used for the GDP, and adjusts for factors such as income distribution, adds factors such as the value of household and volunteer work, and subtracts factors such as the costs of crime and pollution. Cities including Akron and Cleveland, OH, Burlington, VT, San Francisco, CA, Edmonton, CN and Baltimore, MD have all developed versions of GPI for their communities.  

Wellbeing Index: With funding from the Bloomberg Philanthropies’ first Mayors Challenge, the City of Santa Monica, CA has developed an index to measure the community’s quality of life. Based on data from resident surveys and social media, as well as other City metrics, the index includes aspects of individual and community life that research shows drive wellbeing including outlook, community, place, learning, health and economic opportunity.

Gross National Happiness Index: Seattle included the Gross National Happiness Index in the Sustainable Seattle's fifth set of sustainability indicators in 2010.  The work transitioned to a non-profit, the Happiness Alliance, whose mission is “to improve the wellbeing of society by increasing understanding and appreciation of the factors that lead to life satisfaction, resilience and sustainability. In addition to economic status, we focus on examining sectors that span social, environmental and governance quality.” Tools available include the Gross National Happiness Index survey, leadership training and a community toolkit.

A related but somewhat different indicator is the Happy Planet Index which looks at life expectancy, experienced well-being and Ecological Footprint to measure how many “long and happy lives” are produced per unit of environmental input.

Value Proposition for Sustainable Consumption

These alternative indicators are closely aligned with the principles of sustainable consumption, providing communities with a more holistic measure of economic health beyond consumer spending. By developing and reporting a fuller suite of metrics, communities can redefine for the public what a thriving local economy looks like and lend credibility to a broader definition of prosperity. The measures can also inform public policy and help to guide local investments that contribute to individual and collective well-being in ways not often found in traditional economic development efforts that emphasize job creation and local business growth.  

Potential City Roles

  • Promote—report results to the public to frame new conversations about community prosperity
  • Develop—customize measures to reflect local data and complement traditional metrics
  • Make policy adjustments—use measures to inform investments and evaluate program performance
  • Convene—encourage business, labor and community stakeholders to normalize use of broad indicators
  • Advocate—work with other communities and state level economic development agencies to adopt similar measures

Implementation Challenges

There can be a fair amount of subjectivity in the design and interpretation of these alternative indicators. Because many of the qualitative measures rely on survey results (or social media), they may be difficult to quantify and track over time.  Even a more quantitative measure like the GPI reflects judgement about what’s included, limiting its value as an objective measure of sustainable economic welfare. The lack of standardization, consistent data sources and uniform application may also inhibit broad scale use.

It’s worth noting that the GPI relies on consumption related data and in so doing, equates increases in consumption with increases in the GPI. This implies that more consumption is better, as more consumption drives up the measure of genuine progress. Leading advocates for the measure are in the process of developing a new GPI 2.0 upgrade which is expected to address this concern. At this point, the measure is still in a proof of concept phase and no cities have officially adopted the GPI for use in policy settings.

Some of these concerns may be mitigated through the use of a mixed suite of economic indicators, some more traditional and some more experimental. For example, communities may want to use GDP along with the Well-Being Index, or both in combination with the Ecological Footprint which measures human demand on nature, and specifically, the “productive area required to provide the renewable resources humanity is using and to absorb its waste.” This could reveal interesting and useful relationships between income, economic activity, environmental impact and quality of life. The STAR rating system may also capture similar social, environmental and quality of life results for a community.

Further Resources