The Genuine Progress Indicator: A Measure of Net Economic Welfare

Abstract

The United Nations has been deeply involved in setting broad goals for humanity with the recently sustainable development goals (SDGs). However, despite all UN countries signing on to these goals, gross domestic product (GDP) is still used as the primary measure of societal progress by every nation in the world. GDP is increasingly recognized as a deeply flawed proxy for development. GDP interprets every expense as positive including environmental disasters and illnesses, leaves out many components that enhance wellbeing including home care and the informal economy, and does not account for income and wealth distribution. We need better measures of societal wellbeing. Many alternatives have been proposed. The genuine progress indicator (GPI) is one that has been applied to several countries. GPI starts with personal consumption expenditures, a large component of GDP, and adjusts it using 24 different environmental, social, and economic components to estimate net “economic welfare” rather than merely income. GPI has been flat or decreasing in many countries for decades because of increasing inequality, environmental damages, and other costs. GPI is not a measure of overall human wellbeing since it leaves out several important aspects, but it is a better indicator of economic welfare than GDP.