The Rise and Fall of GDP

Most first-year economics units begin with a recitation of the factors, formulas, and flaws of Gross Domestic Product (GDP).[1] GDP is enshrined as the holy grail of economic calculations in the minds of students, by which all countries are judged. Recessions and contractions are bad while growth and expansions quickly become synonymous with all things good. Students, however, are rarely asked to turn their minds to why we care so much about GDP. Or, better yet, why do we care so much that GDP grows.

In hindsight, it is unsurprising that the development of GDP by Simon Kuznets,[2] an American economist, coincided with the rise of the industrial revolution.[3]Capitalism is a game of comparison and GDP declares the winner. Following its adoption as America’s main economic measure in 1944, GDP has become increasingly popular, with countries like America, China and Japan consistently leading the charts. It has been endorsed by countries, worldwide, as the quintessential sign of economic growth; until now.

Gradually, countries are spurning GDP as their leading indicator of economic value as they realise the environmental and personal wellbeing consequences of pursuing high economic growth.[4] Countries like New Zealand, Iceland and Scotland are turning to alternative measures that highlight non-material factors, such as health and happiness, as the key metrics of economic success.[5] These countries focus on the wellbeing of the people the economy is meant to sustain, rather than the success of the economy itself.

In part, the switch to wellbeing factors is recognition of the negative externalities of a purely capitalist society as expanding production capacities diminish the earth’s limited resources. This growth however is of diminishing utility to individuals as their needs are already met but their list of wants is ever-growing. When everyone is told to work hard, to pull themselves up by their bootstraps, it becomes more and more unlikely that any one person will succeed, particularly the disadvantaged. It is also an acknowledgment of the environmental harm that a growth-orientated country produces.[6] In chasing never-ending growth, planetary health becomes an inconvenient, glossed-over fact. To focus on it, would risk the model. So long as growth-at-all-costs is the objective, environmental concerns will never be given the government attention or media airspace they deserve.

Rationally, the countries abandoning GDP are almost universally led by women, who have long struggled to have their labour efforts included in the calculation of GDP. GDP measures the monetary worth of production but fails to account for factors, such as household work and child-rearing, which are invaluable to the efficient functioning of society. Such is the nature of a capitalist growth model. Everyone wants a piece of the pie, especially when generally denied it.

The case against GDP is rising but sadly it is a fair way off being completely replaced as it’s political value ensuring its continued prominence. GDP is a powerful tool, bandied about as a symbol of a country’s might or as an indicator of it’s prosperity. Unfortunately, a nation that solely focusses on GDP risks severe social inequality, declining non-material living standards, and thrusts the world closer to the environmental cliff. Simply put, GDP elevates economic expansion above all other human needs and if it remains on its pedestal, it will be at the expense of humanity.  


[1] Worldometer. What is GDP? https://www.worldometers.info/gdp/what-is-gdp/#:~:text=The%20first%20basic%20concept%20of,Bretton%20Woods%20conference%20in%201944

[2] Dickinson, E (2011). https://foreignpolicy.com/2011/01/03/gdp-a-brief-history/

[3] Bank of England. How has Growth Changed over Time? https://www.bankofengland.co.uk/knowledgebank/how-has-growth-changed-over-time

[4] Green, M (2015). Why we shouldn’t judge a country by its GDP. Retrieved from https://ideas.ted.com/why-we-shouldnt-judge-a-country-by-its-gdp/

[5] Ellsmoor, J (2019). New Zealand Ditches GDP For Happiness And Wellbeing. https://www.forbes.com/sites/jamesellsmoor/2019/07/11/new-zealand-ditches-gdp-for-happiness-and-wellbeing/?sh=5a68e41f1942

[6] Raworth, K (2017).  What on Earth is the Doughnut? https://www.kateraworth.com/doughnut/