“A Measure Remodeled”
By John Thornhill
Published: January 28 2009 02:00 | Last updated: January 28 2009 02:00
Standard measures of economic performance are suddenly producing terrible results for most countries.
The UK learnt last week that its economy had shrunk by a real 1.5 per cent in the fourth quarter, the
fastest rate of decline since 1980. Germany reported an even sharper fall, while Singapore - an open
economy seen as a bellwether for global trade - expects negative growth of as much as 5 per cent this
Maybe it is time to rethink the metrics. Most experts agree that the most commonly used indicator, gross
domestic product, is an imperfect yardstick of economic activity. The trouble is, no one has yet invented a
But wait: a 24-member commission of prominent economists led by Joseph Stiglitz and Amartya Sen,
both Nobel prize winners, is due to report in April on ways of improving our economic bookkeeping. The
aim is to render economic data more comprehensive, more intelligible to the public and more relevant for
policymakers by taking into account such factors as environmental degradation and quality of life.
In changing the way we calculate economic activity, some commission members hope, we might also be
able to change our political priorities and build happier, greener societies.
This ambitious initiative was launched last year by Nicolas Sarkozy, France's president, who had grown
concerned about popular distrust of economic statistics. All too often, he argued, official data seemed to
conflict with personal experience, creating a dissonance between politics and ordinary life. The threat of
catastrophic climate change should also force policymakers to recalibrate the broader environmental
impact of economic growth, he said.
Mr Stiglitz, a professor at New York's Columbia University, says that as an indicator of the market value
of all goods and services produced in an economy, GDP has always been a flawed measure of economic
performance, let alone social progress. He argues that the current global economic turmoil has made its
deficiencies even more glaring. "This crisis has shown that the GDP numbers for the US were totally
erroneous. Growth was based on a mirage," he says.
"Many people looked at US GDP growth in the 2000s and said: 'How fast you are growing - we must
imitate you.' But it was not sustainable or equitable growth. Even before the crash, most people were
worse off than they were in 2000. It was a decade of decline for most Americans."
Over the past year, the Stiglitz-Sen commission has been reviewing a vast array of alternative economic
indicators while debating three main issues: how to improve standard GDP; how to incorporate new
measures of economic, social, and environmental sustainability into the data; and how to devise fresh
indicators for assessing quality of life. The commission may not invent a single measure to replace GDP
but it could suggest a "dashboard" of indicators aiming to stimulate broader debate about the use - and