Position Paper: Beyond GDP

Rethinking GDP to value what matters

Executive Summary

This position paper discusses the limitations of Gross Domestic Product (GDP) as a measure of economic health and development. While GDP has been used for over half a century, it fails to integrate vital externalities, both positive and negative. GDP focuses on trade, labour, and production-related activities and ignores services that have a greater impact on the economy. GDP values the transaction of ownership and might overestimate or underestimate the value extracted from ownership over the lifetime of a product or economic activity. The pursuit of growth and GDP has improved living standards and prosperity for many, but it has not been equally distributed between and within countries. Recent ecological challenges hinge on commodification, which relies on treating the environment as parts rather than an ecosystem where connectivity trumps fragmentation. The economy and ecology exist in a nested relationship, yet economics remains decontextualized from the real world. Two schools of thought have emerged to raise a need for theoretical change: green growth and post-growth or de-growth. The former argues for a fast adoption of technologies, while the latter calls for reducing the dependence on economic growth. GDP falls short in accounting for all the positive and negative impacts of production. Its use as an umbrella term for progress has been misleading and indeed damaging. These two shortfalls, alongside the unfettered goal of growth, have given rise to the spread of inequality and the unsustainable, now existentially fraught, exploitation of natural resources.

As a global interdependent society, we need fundamental changes to achieve a climate resilient and sustainable world. Despite evidence of unsustainable growth, people continue to seek material possessions instead of valuing health, personal skills and what drives resilient communities. Emerging and developing countries can invest in sustainable infrastructure, eliminate fossil fuel subsidies, and introduce fiscal and economic instruments such as carbon pricing. However, unpredictability and volatility require a shift in the financial understanding of true risk, and greater precaution must be taken to prevent environmental tipping points from occurring. A plethora of green financial instruments are available to incentivise firms to adopt sustainability improvements. Overall, the need for a re-evaluation of personal values, roles, and responsibilities is emphasised as a means of defining the direction of travel for organizations and the economy.

Article by

Ana King


05 May 2023