On Monday, French President Nicolas Sarkozy addressed the French national statistics agency on the adequacy of GDP in measuring a country’s economic well-being. He requested that the agency give greater consideration to factors such as quality of life and the environment (versus solely relying on GDP’s reporting of goods and services produced) in determining the nation’s fiscal health. If realized, what effect would this mentality have on sustainable development in France and worldwide?
According to a report by the New York Times, Sarkozy made the request after reviewing a report by a panel of top economists, which he commissioned in February 2008 to evaluate the adequacy of GDP as a fiscal standard. (The report is known formally as “The Measurement of Economic Performance and Social Progress Revisited.”) According to the report, while GDP accurately gauges an economy’s overall growth or reduction, it is a poor measurement of social health – a vital component of national well-being. GDP measurements ignore damage to society and the environment by unsustainable activities, and they do not always accurately reflect average citizens’ disposable incomes. Moreover, disproportionate focus on GDP metrics by policy makers (to the exclusion of data indicating increased unsustainable indebtedness of households and businesses – precursors to the recession) contributed to the current financial crisis’ onset.
The report advised that GDP be measured uniformly by every country and supplemented with social and economic evaluations. “What we measure affects what we do; and if our measurements are flawed, decisions may be distorted,” the panelists reportedly wrote. “Policies should be aimed at increasing societal welfare, not GDP.”
Incidentally, Sarkozy’s comments came just two weeks before the next G20 summit meeting, at which Sarkozy will reportedly encourage other countries to examine his findings. “France will put this on the agenda of all of the international meetings and all the discussions that have for an objective the creation of a new order,” he reportedly said.
What effect would demoting GDP on the economy-measuring hierarchy have on a nation’s sustainability and overall welfare? While the effects would vary country to country, a prime example is that of a developing, oil-rich country dependent on foreign investment for mining revenue. While the developing country’s GDP would be increased by that investment, if the country received minimal royalties, suffered environmental degradation, and subjected its miners to health hazards, the country’s overall benefit would be low. On the other hand, if the country – and the global community – were to include social and environmental factors in measuring its well-being, it would be more difficult to ignore the damage being done.
What are your thoughts on the matter?