How to Best Measure a Country’s Prosperity:
Gross Domestic Product or an Index of Happiness
Robert James Fischer
Introduction
In my last short essay, I wrote about the need to look into the future when making decisions today. Decisions need to be made for the good of humanity and Mother Earth. However, the focus today is primarily based on economics. The question is— Do we need to focus on money or is there a goal that better serves the whole of humanity and Mother Earth?
A Look Back
Capitalism has been a dominant economic model for centuries. Invest in a product or service, sell the service or product, and make money. The model has been so pervasive that most countries use the dollar value to measure a nation’s prosperity. The model works well for many people (certainly not for minimum wage earners) as long as there are buyers, and persons who can successfully convince buyers, to purchase a company’s product or service. Economic growth is only possible by increasing sales. Sales mean prosperity for the company and its stockholders/investors. Others make enough money to purchase needed and desired products. On the whole the global economy, at least in recent times, has profited from this model. However, most companies today have forgotten that Henry Ford best understood this model when he paid his workers a wage that would allow them to buy his automobile. Today, many workers struggle, while the top 10% (managers and investors) prosper.
As long as the world’s population continued to increase, it was possible to increase sales. The system relies on adding more people at the bottom of the sales scheme. However, this model of growth in sales is in jeopardy. World population growth is decreasing, and in many countries, populations are declining. American’s birth rate for 2021 was actually lower than our death rate.
The Alternative—Economic measures versus quality of life metrics
Money isn’t the only way to measure national success. In 2006 the Legatum Institute had begun publishing its Prosperity Index. The Institute is a British based think tank focusing on the advancement of learning about political, social and economic policy. It is committed to creating pathways from poverty to prosperity, transforming society. (li.com) The Index combined traditional economic indicators with other factors. In 2008, following the lead prepared by the Institute, then President Nicolas Sarkoszy of France commissioned a study on alternatives to Gross National Product and Gross Domestic Product measures. Another recognized leader, then Prime Minister of England David Cameron, proposed a measure of national well-being.
While it would be nice to believe that Cameron’s measure of well-being is groundbreaking, it is not. As early as 1781, during the Enlightenment, Jeremy Bentham proposed a philosophy of utility to assess the merits of a nation’s actions in relationship to citizen happiness. However, the difficulty in measuring happiness was and still is difficult. Measuring economic factors was and is much simpler.
Robert Kennedy said, “Our gross national product… counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of natural wonder in chaotic sprawl… Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play.” (Remarks at the University of Kansas, March 18, 1968) According to Justin Fox of the Harvard Business Review, Kennedy captured the three main problems with the GDP: 1) It is a faulty measurement. 2) It fails to account for sustainability. 3) A nation’s progress and development is better gauged by other means. (Justin Fox, “The Economics of Well-Being,” Harvard Business Review, January-February 2012.)
By the 1980s, economists such as Amartya Sen, Nobel Prize winner in Economic Sciences, started to distinguish between commodities, which are easily measured in the GNP or GDP, and capabilities which are not. By 1990 a university Colleague, Mahbub ul Haq (also co-author of Sen’s work) noted, “Many things of value in life cannot be captured by the GDP, but they can be measured by metrics of health, education, and freedom. The two friends collaborated to develop the Human Development Index (HDI).The HDI, first published in 1990, put America (ranked first by GDP) in 10th place, behind Japan, Canada, and Australia. Other countries such as Sri Lanka, Vietnam, and China received high rankings, far above their GDP.
The United Nations has published the HDI every year since 1990. Today, the Index includes 189 countries. It incorporates three factors of human development: 1) a long and healthy life, 2) knowledge, and 3) a decent standard of living. Variables that were considered in 2020 were: life expectancy, mean years of schooling for children, mean years of schooling for adults, and gross national income per capita.
An HDI above .8 is considered very high. A score between .7 and .799 is high. A score of .55 to .699 is medium, and a score below .55 is low.
While the Index has been criticized, the United Nations has taken the criticisms seriously and has continually adjusted the indices to reflect needed changes.
For more information on the HDI, see the United Nations report, Human Development Report 2020 (http://hdr.undp.org/sites/default/files/hdr2020.pdf)
Today
While the United States is currently ranked number 17, down 3 places from 2014, it lags behind in the inequality-adjusted index, placing 23rd. The countries ranked ahead of the United States in rank order are: Norway, Ireland, Switzerland, Hong Kong, Iceland, Germany, Sweden, Australia, Netherlands, Denmark, Finland, Singapore, United Kingdom, Belgium, New Zealand, and Canada.
Conclusions
Unfortunately most people do not recognize the term Human Development Index (HDI). Most countries are still tied to the GNP or GDP measures. However, with 189 countries (out of 195 worldwide) contributing to the UN’s HDI, there is a growing interest in measuring success in human rather than monetary terms.
Thoughts from the Middle by Robert J. Fischer 