Should We Still Care about GDP?
In its latest report "The Future of GDP", the Credit Suisse Research Institute looks into the main concerns around measuring economic well-being based on gross domestic product data and explores the alternatives.
The world we live in today differs significantly from the world in which gross domestic product (GDP) was born. Those were the days of war, crisis, and much more locally-focused economic development. Long before globalization and the digital revolution made the world smaller, less tangible and much more inter-connected. This begs the question: Is GDP still relevant today? Can we look at progress using GDP-driven statistics?
If we were to analyze the meaning of the word "progress" 70 years ago and today, we'd probably end up with two very dissimilar definitions. Today's one would take into account social development, women's rights, inequality, environmental issues, access to education or healthcare, to name just a few modern dimensions of progress.
The definition and methods behind GDP have been questioned since it was first introduced in the mid-1930s. GDP critics point out that a number of key aspects of economic growth are overlooked and not considered in the GDP metric. Household services and childcare, for example, were excluded as apparently the market for these was minimal and collecting data might prove challenging. Also, back in the 1930s the common understanding was that the world's natural resources are free and infinite, and that pollution and waste were an acknowledged side-effect of progress [see chapter "How GDP Fails the Environment and How to Fix It" by Pooran Desai and Nicholas Schoon].
Concerns over these and other issues led to the development of many alternatives. Although, to date, none of them proved powerful enough to dethrone GDP, they offer valuable complementary information [see chapter "Alternatives to GDP" by the CSRI Academy Members].
GDP belongs to the analogue world where every product had a physical form and every economic activity was conducted in a traditional manner. With the digital revolution new products have evolved and we see new business models, while the existing ones are severely impacted by new technologies.
Virtual, de-materialized products emerged, such as music shared electronically or software which can be accessed and used in the cloud. The "sharing economy" was born, new models of work were developed, and automation is penetrating most sectors.
How to reflect these new developments, such as digital intermediation, in key economic data is one of the challenges that statisticians have yet to face [more in chapters "Measuring the Modern Economy with 1940s Methods" by Prof. Diane Coyle; "Main Challenges to GDP" by Nicholas Oulton].
With the report "The Future of GDP", the CSRI and the participating authors aim to fuel the debate and encourage decision makers and academia to continue to analyze the weaknesses of GDP metrics, while using alternative, complementary indicators of economic development to paint a more accurate picture of progress and the well-being of societies.