Further economic development as a result of advancing progress beyond Gross Domestic Product

Introduction In the 2030 Agenda for Sustainable Development and Our Common Agenda, it is recognized that a harmful anachronism exists at the heart of global policymaking, which is that our economic models and measurements overlook many aspects that sustain life and contribute to human well-being, while perversely placing disproportionate value on activities that deplete the planet. The intention of the proposals presented in the present policy brief is not to replace gross domestic product but to outline a path to develop complementary metrics in which what matters to people, the planet and the future is more fully recognized. Today, the world is facing catastrophic and interconnected crises – including climate change, deteriorating ecosystems and biodiversity loss, devastating conflicts and violence, increasing poverty, hunger, inequalities, unsustainable debt burdens and heightened costs of living – which show no sign of abating. The Sustainable Development Goals are badly off-track. Gross domestic product (GDP) has become a proxy for how we determine value, how we measure wealth creation and development progress and how we allocate resources on that basis. As mentioned in paragraphs 38 and 39 of my report entitled “Our Common Agenda” (A/75/982), GDP does not account for human well-being, environmental sustainability, unpaid household services, such as care work, and the biased distributional dimensions of economic activity. Moreover, it fails to capture the human and environmental destruction of some economic activities. Harmful practices, such as deforestation, overfishing and the burning of fossil fuels, often contribute to increases in GDP. To achieve the targets that we have set to address the triple planetary crisis and other crises, a fundamental shift in how we measure progress is urgently needed. Discussions on moving beyond GDP have been under way for decades.1 These efforts have laid the foundation for establishing a shared language and community of practice to go beyond GDP. Examples of recent initiatives include: a) The 2030 Agenda for Sustainable Development and the Sustainable Development Goals, with their economic, social and environmental dimensions; b) The United Nations Development Programme human development index, which supplements GDP with measures of well-being and agency, inequality and multidimensional poverty and takes into account the interconnectedness of socioeconomic and planetary systems; c) Gender-specific indicators across thematic areas that go beyond the Goals and adequately measure and compare the situation of women and men in all areas of life, including measures of time spent on unpaid care and domestic work and its distribution and economic value, along with other measures, such as the social and economic cost of violence against women; d) Work focused on inclusive growth and efforts to go beyond GDP undertaken by the Organization for Economic Cooperation and Development, the European Commission, the World Bank and the International Monetary Fund; e) Measures of environmental degradation and depletion, environmental and economic accounting and measures of inclusive or comprehensive wealth by the United Nations Environment Programme and the World Bank. Of these initiatives, the Sustainable Development Goals and their indicators, universally adopted by Member States, were consciously crafted to address the shortcomings of GDP. Indeed, the Goals and their indicators are the most comprehensive “Beyond GDP” framework agreed to and measured today. Moreover, in target 17.19 of the Goals, Member States are specifically called upon to build on existing initiatives to develop measurements of progress on sustainabledevelopment that complement GDP and support statistical capacity-building in developing countries by 2030. This call was taken up in Our Common Agenda and in the report of the High-level Committee on Programmes entitled Valuing What Counts: United Nations System-wide Contribution on Progress Beyond Gross Domestic Product,3 which serves as the technical foundation for the present policy brief. The brief is also aimed at building on ongoing processes, including the multi-year upd ate of the 2008 United Nations System of National Accounts4 by 2025 and the implementation of the System of Environmental-Economic Accounting and the System of Environmental-Economic Accounting – Ecosystem Accounting.5 Nevertheless, GDP continues to play a key role as a yardstick for providing international support, including in criteria for countries classified as least developed7 or eligible for support by the International Development Association,8 leaving some countries with high vulnerabilities without access to concessional financing. It oversimplifies and obscures the complex needs of countries in special circumstances, including middle-income countries, small island developing States and landlocked developing countries. GDP emerged as a tool to address the crises of the twentieth century but fails to sufficiently address the environmental and social concerns of the world today. A number of examples are provided below: • GDP does not account for air pollution, natural resource depletion, environmental degradation and biodiversity loss. Rather, these negative externalities often drive increases in GDP without consideration of the broader, longer-term socioeconomic and environmental damage involved. Global GDP has doubled since 1970, while the depletion of resources has more than tripled, with disastrous consequences for the natural environment. GDP contributes to the perception that permanent economic growth, without reference to environmental and social considerations, can reasonably continue indefinitely within planetary boundaries. • GDP does not capture the full extent of the informal economy, such as unpaid care work in households, nor does it capture the social value of activities, such as health care, or the value of security.9 For example, unpaid care work, carried out largely by women, is often invisible and undervalued. This was particularly pronounced during the coronavirus disease (COVID-19) pandemic, when women spent an estimated 512 billion hours globally doing additional unpaid childcare work that sustained our economies.10 • GDP does not offer a lens on distributions to identify and address inequalities, including inequalities between women and men and those faced by refugees, migrants and minorities, nor does it account for the targeted interventions needed to address the needs of people facing intersectional forms of inequality. The social and environmental exclusion inherent in GDP perpetuates the misallocation of resources in ways that further exacerbate inequalities. • As a result of serious compilation and measurement challenges, GDP still often insufficiently captures new economic phenomena, for example, digitalization and the use of free digital services, the use of crypto assets and the development of data. These particular issues are being addressed in the current discussions on the 2025 revision of the System of National Accounts. Over time, it has become clear that there are intrinsic limitations to what GDP can measure. It does not fully capture the complexities of the urgent challenges we face today. Despite these evident shortcomings, GDP continues to be used – or misused – as the benchmark for important national and international policy settings, in particular in respect of development financing. This notably includes criteria of eligibility for official development assistance and decisions on debt relief and concessional financing, as well as such matters as graduation from the status of least developed country. This excessive dependence on GDP has created damaging bottlenecks and grave inequities in the functioning of the international financial architecture, with serious consequences for the sustainable development of all countries, in particular middle-income countries and small island developing States. For that purpose, the document proposes First, that Member States make an explicit commitment to go beyond GDP by agreeing on a conceptual framework, firmly anchored in the 2030 Agenda, by the time that the Summit of the Future is held in 2024. The report of the High-level Committee on Programmes provides a basis for the framework, as it draws on research carried out across the United Nations system and beyond, including discussions on GDP – its strengths, limitations and uses – and the identification of issues at stake to formulate a framework for the development of policies and metrics. The framework should be designed to achieve three main outcomes:11 a) Well-being and agency. Putting the focus on people and promoting meaningful participation to ensure that decisions reflect people’s needs and enable everyone to contribute to transformational change; b) Respect for life and the planet. Safeguarding the planet and ensuring possibilities for life and well-being in the future; c) Reduced inequalities and greater solidarity. Making efforts towards a more equal distribution of well-being. The framework should also be based on three additional elements to pave the way for transformation: a) Participatory governance and stronger institutions. Steering us towards equitable, inclusive and safe societal conditions in which everyone is empowered to participate and contribute and from which everyone can benefit safely and effectively (the social dimension); b) Innovative and ethical economies. Serving people and the planet through innovative approaches as a way to find collective solutions to our challenges, involving responsible and ethical actions to deliver positive outcomes that uphold people’s rights (the economic dimension); c) From vulnerability to resilience. Focusing on our interaction with the natural and built environment to strengthen preparedness and ensure well-being in a context of multiple risks and uncertainties (the environmental dimension). Second, the political commitment to develop a conceptual framework to value what counts must go hand in hand with a technical and scientific process to develop the metrics that inform the framework. In this regard, the document proposes the establishment of a high-level expert group of independent experts with a mandate to produce by March 2024 an initial value dashboard of a limited number of key indicators (ideally not more than 10–20 indicators) that go beyond GDP. This should be presented for consideration by Member States in preparation for the Summit of the Future. The aim should not be to establish a single composite indicator that goes beyond GDP. An indicator of everything would summarize too much and reveal too little to be able to adequately inform policy. Instead, It proposes the selection of a se t of core metrics that would be assessed, developed and selected through a scientific, multidisciplinary process and that would need to be: • Comparable across time and countries, well-established and trusted • Country owned • Universally applicable • Able to convey strong and clear messages that are actionable and intuitive • Scientifically robust and statistically sound • Iterative and dynamic, based on what exists, while allowing for the addition of new indicators, as relevant The methodology and process to develop these indicators should build on current capacities and ongoing work and incorporate appropriately the results of the High-level Panel on the Development of a Multidimensional Vulnerability Index, as well as existing indices and indicators, including the Sustainable Development Goal indicators, the human development index and other relevant indicators that account for human rights and gender equality What is the beyond GDP approach? The Beyond GDP approach is about developing indicators that are as clear and appealing as GDP, but more inclusive of environmental and social aspects of progress. GDP is a useful indicator of a nation's economic performance, and it is the most commonly used measure of well-being. However, it has some important limitations, including: The exclusion of non-market transactions. The failure to account for or represent the degree of income inequality in society. GDP includes what is spent on environmental protection, healthcare, and education, but it does not include actual levels of environmental cleanliness, health, and learning. GDP includes the cost of buying pollution-control equipment, but it does not address whether the air and water are actually cleaner or dirtier. GDP includes spending on medical care, but it does not address whether life expectancy or infant mortality have risen or fallen. Similarly, GDP counts spending on education, but it does not address directly how much of the population can read, write, or do basic mathematics. Beyond GDP indicators refers to alternative economic indicators that do not place economic growth as the most important variable in assessing a country's progress. Beyond GDP indicators are inclusive of other aspects of development, such as, environmental and social Precisely because of this,GDP is not, on its own, an adequate gauge of a country's development. Development is a multi-dimensional concept, which includes not only an economic dimension, but also involves social, environmental, and emotional dimensions. Some examples of general index that had been developed recently HDI - Human DevelopmentIndex. HPI - Human PovertyIndex. Multidimensional PovertyIndex. Produced by the UN Development Programme in 1990, the first Human Development Report outlined a new approach to development, focused on people and their opportunities rather than economic growth alone. The Human Development Index (HDI) was introduced as a way to quantify this approach. Nearly 30 years later, the Sustainable Development Goals have rekindled discussions on how we measure progress. Does the Index offer a way forward? The HDI framework comprises three indices: Life Expectancy Index, based on life expectancy at birth. The index is 1 when it is 85 years and 0 when it is 20 years. Education Index, based on mean years of schooling (15 is the projected maximum for 2025) and expected years of schooling (18 is the projected maximum – this is the equivalent of achieving a postgraduate degree in most countries). Income Index, based on Gross National Income (GNI) per capita by Purchasing Power Parity (PPP), which considers exchange rates and inflation adjustments when determining individual wealth. The index is 1 when GNI per capita is US$75,000 or above, and 0 when it is US$100. Together, these three indices provide an indication of a person’s capabilities and wellbeing. They provide a richer picture of progress than gross domestic product (GDP), which relates to a country’s wealth, or even GDP per capita, which tells us something about an individual’s means but nothing about their life outcomes. Of course, the HDI has its limitations. It omits several factors that can have a significant influence on quality of life, such as environmental degradation. Industrial pollution and deforestation, for example, can lead to complex health problems (e.g. lymphatic filariasis) or mental health conditions that do not necessarily have an impact on mortality rates but which can severely impair one’s mobility or quality of living. The HDI could serve as a reference point for new indices as we move towards understanding human development in a more comprehensive and capabilities-focused way. Why should we encourage a Process Beyond Gross Domestic Product? With their emphasis on leaving no one behind, it is clear that the SDGs will require a deeper understanding of development outcomes on the ground. However, as the framework swells in complexity – with 17 goals, 169 targets and even more indicators – there is also a need for a simple way to measure progress. Over a 15-year timeframe, the HDI did a better job than GDP of capturing what progress is being achieved. It reflects a more nuanced understanding of human development while being simple enough to remain inclusive: unlike other more complex indices, the HDI is based on data that is likely to have been collected in many countries for a number of years. Despite this, most countries still use GDP to assess standard of living and ‘development’, and it is easy to understand why. GDP is a measurement developed in the 1930s to measure the size of a state’s economy by giving consideration to the value of goods and services produced within the country. The data used in determining GDP is relatively easy to access, and measurements are straightforward. Moreover, this very narrow definition of wealth is easy to apply universally, hence its popular use as an indicator of quality of life. It remains the preferred indicator of politicians. However, even as a measurement of wealth, GDP leaves a lot to be desired. It does not consider levels of inequality within a country – whether it be the gap between the rich and poor or any instances of social or political discrimination. It also does not consider the methods of the creation or accumulation of wealth, such as the detrimental effects of the exploitation of natural resources. In this regard, GDP does not measure a standard of living at all – it should instead be seen as a measure of economic activity. Human development, on the other hand, concentrates on qualitative outcomes. The HDI’s consideration of life expectancy and education – alongside per capita income – allow us to flesh out this picture a little. These relatively simple forms of data are very important indicators of social welfare and freedom. Nevertheless there have been other elements that also shadow the HDI performance. When looking for the factors determining quality of life outside of GDP, some specific instances can shed light on just how differently data is perceived when compared to the HDI. Qatar, Kuwait and the UAE – all top 10 countries by GDP (PPP) per capita, drop quite significantly in ranking in the HDI. Clearly, as the Gulf states demonstrate, high GDP is no guarantee of high HDI. Taking a capability approach to development may explain these successes and failures. The Human Poverty Index (HPI) The Human Poverty Index complements the HDI as it is an indication of the standard of living in an economy. It considers the level of poverty and deprivation of a community in a country. The HPI uses twoindices: The HPI-1 is used to measure developing countries. The HPI-2 is used for developed countries that are part of the Organization for Economic Co-operation and Development (OECD). The HPI has limited utility as it combines the average deprivation levels of each dimension and it can’t be linked to any particular group of people. The Multidimensional Poverty Index The MPI replaced the HPI in 2010. It differs from the HPI as it assesses poverty at the individual level. If one person is deprived of a third or more of ten (weighted) indicators, the global index identifies them as 'MPI poor'. The extent of poverty is measured by the percentage of deprivation a person is experiencing. Economic happiness and economic growth Can be happiness linked to economic growth? In economics, measuring happiness is very subjective. This would involve the evaluation of a wide range of factors that affect wellbeing, quality of life, and self-reported levels of happiness. Some of these factors are: Income Quality of consumption Quality of work Thewelfare of familymembers Leisure Environment, politics, and other non-economic factors that can affect happiness, such as religious freedom. The Gross Domestic Happiness Index Despite the number of factors that impact happiness and how subjective it is, there is an index that economists use to measure happiness: the Gross Domestic Happiness (GDH) index. From the neoclassical economic perspective, higher income levels correlate with higher levels of utility and economic welfare, as a person is more able to purchase the goods and services (food, shelter, healthcare, and education) that would improve their quality of life. ‘Happiness’ is a complicated concept to quantify for measuring purposes, but many economists claim 'psychological surveys' can give a reliable measure of the level of happiness or satisfaction people are experiencing in their lives. Other reasons why a rising GDP may not lead to increased happiness include the fact that the allocation of resources for the purpose of economic growth may bring about negative costs to society, which will impact its happiness levels. A country could achieve economic growth thanks to mining, but if they're mining in their natural parks, this will be detrimental to society in the future: people will have fewer natural places to visit and pollution will increase. This, in turn, will affect their health in the long run. Conclusions This paper reviews debates and practice around the conventional and alternative measures of economic well-being. Evaluating the major contending “Beyond GDP” measures, as Human Development Index, HPI - Human Poverty IndexHPI ,Multidimensional Poverty Index, Happiness/lifeevaluation index, Happy Planet Index, the OECD’s Better Life Initiative dashboard The proposals to develop a set of more integrated index to incorporate inequality, care for human beings and care for the environment in a single framework. Could be crucial to guide policy in responding to the major challenges of our time – rising inequality, climate change, environmental destruction. It is important to develop indicators that make it suitable to gauge economic performance that contributes to well-being outcomes and examine proposed policies. Meanwhile, its dashboard-like features allow changes in contributing variables to be tracked in physical and monetary terms. There are true limitations to this process that have to be presented. The indicators that should be provided could generate additional data demands, which would make difficult to estimate all the possible indicators, especially in low-income countries, and there will be a strong need to develop the logical methodology and financial support to really reach the purpose.. Taking into account the present global multidemands, the main obstacles to adopt the framework could be social and institutional, including lack of financial and institutional support. Bibliography For example, the Brundtland report (A/42/427) of 1987, the Stiglitz, Sen and Fitoussi report of 2009 and the Organisation for Economic Co-operation and Development listing of 500 initiatives to go beyond GDP (2019). 2 See World Health Organization, “Violence against women”, 9 March 2021. Available at www.who.int/news-room/fact-sheets/detail/ violence-against-women. 3 See https://unsceb.org/topics/beyond-gdp. 4 See https://unstats.un.org/unsd/nationalaccount/sna2008.asp. 5.See https://seea.un.org/sites/seea.un.org/files/seea_cf_final_en.pdf and https://seea.un.org/ecosystem-accounting. 6 United Nations Development Programme, Human Development Report 1990 (Oxford, Oxford University Press, 1990). 7.Seewww.un.org/development/desa/dpad/least-developed-country-category/ldc-criteria.html. 8 See https://ida.worldbank.org/en/about/borrowing-countries. 9 See JayatiGhosh, “Let’s count what really matters”, Project Syndicate, 16 June 2022. 10 United Nations Entity for Gender Equality and the Empowerment of Women (UN-Women) and United Nations, Department of Economic and Social Affairs, Statistics Division, Progress on the Sustainable Development Goals: The Gender Snapshot 2022. 11 The outcomes should be based on the principles outlined in the report of the High-level Committee on Programmes and draw from the human development approach, the Brundtland report, the aspirations set out at the Rio and Rio+20 conferences and the 2030 Agenda.