Why do we need the Happy Planet Index?
In the Western world, economics is at the heart of our thinking about most issues. When we talk of growth or development, we are typically thinking about the distribution and flow of money. A nation’s progress is also most commonly measured in terms of GDP. Defined as the total value of a country’s annual output of goods and services. GDP is the standard measure of economic activity and the key headline indicator for government policy in the vast majority of countries.
GDP was never intended to function as an indicator of well-being. Even the economist Simon Küznets, a central figure in the development of GDP, in 1934 urged the US Congress to remember “The welfare of a nation can scarcely be inferred from a measurement of national income.” Yet, until quite recently, it has routinely been assumed to be a reliable proxy for standard of living.
The logic underlying this was that- growth in GDP implies economic activity, which in turn implies that people are spending money and improving their quality of life. But GDP turns out to be a poor indicator of welfare in several key respects. For a start, interpreting it as a standard-of-living measure means assuming that income is strongly correlated with national well-being, such that -all else being equal general well-being will increase as the economy grows. It has been repeatedly proven in recent years that this is simply not true. Undoubtedly, a relationship exists between income and well-being, but after a certain, surprisingly low level of GDP is reached, the strength of this relationship declines markedly.
GDP is also insensitive to the distribution of income within countries. A country with high rates of poverty, a small but affluent elite, and high exports could have a similar GDP per capita to one with comparably little inequality and a thriving domestic economy. GDP also fails to distinguish money spent correcting or compensating for undesirable events. This can lead to some apparently perverse results. For example, it has been estimated that the Enron accounting scandal may have contributed up to $1 billion to US GDP. Natural disasters - hurricanes, floods and so on -also tend to boost GDP, because huge amounts of public money are typically spent in mitigating the resulting damage. From an environmental perspective this is a disastrous oversight - GDP counts resource consumption, but takes no account whatsoever of the extent to which it can be maintained, or its real cost.