Asia Global Institute

Measuring a Country's Worth Beyond GDP

Wednesday, September 16, 2015

Measuring a Country's Worth Beyond GDP

Patrick Low, Fellow of Asia Global Institute, questions the need for numbers in the quest to measure an economy's worth.

Back in March this column discussed the shortcomings of GDP as a metric for judging the well-being of citizens and how their national economies are performing. GDP estimates economic activity or people's income over a given time span.

It says very little about the quality of life, the environment, health, life expectancy or social stability. It does not tell us whether resources are being used sustainably. In short, reliance on GDP as a metric for progress emphasises quantity over quality and the future.

Awareness of the shortcomings of GDP has led to a growing number of alternative estimations of social progress and well-being. Bhutan has been measuring Gross National Happiness as well as GDP since the 1970s. The Organization for Cooperation and Economic Development has elaborated guidelines for measuring subjective well-being.

Some have tried to develop composite indicators to capture what matters most to people and their societies. Other efforts are focused on one thing, such as development, life expectancy, literacy, educational attainment, or poverty.

An interesting recent effort is a composite index published in the World Happiness Report. The 2015 version is the third report produced since the initiative was launched in 2012. It is published by the Sustainable Development Solutions Network, a non-governmental organisation. The Report aspires to influence national policymakers and inform debates at the United Nations.

The underlying data are collected by the Gallup World Poll, which was established in 2005 and is representative of 95 per cent of the world's adult population in over 10 countries. Gallup collect data for a multitude of indexes, and the World Happiness Report avails itself of elements of those involving subjective well-being.

Six variables make up the rankings listed in the World Happiness Report. These include two elements - GDP per capita and healthy life expectancy - for which official national statistics are readily available. The other four metrics of happiness are subjective, and measured through a "ladder" procedure where survey respondents are asked to rank their feelings on a scale of one to ten. Ten is tops.

The four subjective well-being measures are social support, freedom to make life choices, generosity, and perceptions of corruption. The way people feel about the issues underlying these four measures is clearly influenced by surrounding social norms and institutions.

The rankings are country averages benchmarked against an imaginary place called Dystopia - the polar opposite of Utopia - where everything is the pits. It is interesting to see what the surveys reveal in terms of shares among the six components of the World Happiness Report.

The averages for all 158 ranked countries place social support at the top, representing 30 per cent of what makes people happy. That involves family support social civility, a sense of belonging to a caring community and so on. Next were GDP per capita (26 per cent) and health life expectancy (19 per cent). Being materially well off seems to count for a lot, even if the prosperous like to emphasise other values. Freedom, generosity and the absence of corruption came in at 13 per cent, 7 per cent and 4 per cent respectively.

Interesting as these finding are, much can be said about why they are no more deserving of gospel status than GDP estimates. They are based largely on perception data. We are looking at averages and no two people are the same. Have we comprehensively canvassed the sources of happiness? The variables are intimately connected and sometimes count the same thing twice.

The 2014 ranking put Switzerland, Iceland, Denmark, Norway, Canada and Finland in the top six places. Yet all these countries except Denmark are among the top 20 in terms of divorce rates per capita. Thirty-nine per cent to 56 per cent of all marriages crash in these countries.

This is at least worth a question unless we believe failed marriages have nothing to do with happiness. But that is not a reason to arrest the struggle to improve our understanding of what matters beyond GDP machismo.

A version of this article first appeared in the South China Morning Post on September 16, 2015.

The views expressed in this article are the author's own and do not necessarily reflect Asia Global Institute's editorial policy.


Patrick Low

Senior Fellow, Asia Global Institute

Patrick Low


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The University of Hong Kong
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