Many commentators believe that the world should move away from measuring economic success in terms of GDP growth. Yes, growth has brought prosperity and untold riches, but it has had significant negative side effects for the planet, including climate change, pollution and species extinction. None of these are captured in GDP data.

A whole “beyond GDP” movement has emerged over the last several decades, arguing that we should adopt a new way of measuring the wealth of nations. There is an ongoing debate about the best alternative, and many indicators have supporters, such as gross national happiness and the genuine progress indicator.

Yet one stands out as having by far the most buy-in from major international institutions. Known as “inclusive wealth”, it expands what we mean by wealth to include things like the natural environment and the abilities of the population. But it comes with a major problem. There’s no agreement around how it should be measured, so different institutions publish very different figures. In our view, this is a major obstacle to its mass adoption.

Inclusive wealth

Inclusive wealth ascribes a value to the assets a nation has produced that generate well-being, and measures how they are changing over time. These assets are:

• Human capital: the knowledge and skills of the population.
• Produced capital: goods and services produced by human endeavour.
• Natural capital: the sum of all nature-based assets from which humans derive well-being, both now and in the future.
• Social capital: the social networks that exist within a society.

There is strong theoretical support for the idea that this approach is a good way of measuring the sustainability of economic development. The key point is that when inclusive wealth per capita is going up, the future wellbeing of the population will go up, which is a necessary condition for sustainable development.

Foundational texts in support of inclusive wealth include Cambridge economist Partha Dasgupta’s 2001 book, Human Well-Being and the Environment, and his Harvard counterpart Martin Weitzman’s 2003 book, Income, Wealth and the Maximum Principle.

Dasgupta carried out a review for the UK government in 2021 into the economics of biodiversity, which similarly advocates for measuring national inclusive wealth instead of national income. There have also been recent calls by academics in this field to use inclusive wealth to help with the global biodiversity framework, a UN-led drive to be “living in harmony with nature” by 2050.

Inclusive wealth is measured by both the World Bank and UN Environment Programme (Unep). The World Bank has been measuring it since the late 1990s, and first published global estimates in a 2006 report called Where is the wealth of nations : measuring capital for the 21st century. It has since published three major updates to this report, including a major revision to the methodology, with another on the way. As for Unep, it began measuring inclusive wealth in 2012.

But there are still some kinks that need ironing out before this indicator can be of any practical use. In a new paper in Ecological Economics, we compare the approaches of the World Bank and Unep and find a big divergence in their calculations.

This may explain why inclusive wealth has yet to be adopted in any serious way by any major economies (all we’ve seen so far is some mentions in policy documents, like this one from New Zealand, and a recent decision by the Biden-Harris administration to start tracking the value of US natural resources at federal level using natural-capital accounting).

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Countries are embracing the idea of a ‘well-being economy.‘ Will Canada follow their lead?

The discrepancies relate mainly to natural capital. Both Unep and the World Bank include similar if not identical data from the same components: non-renewables such as fossil fuels and minerals, and renewable elements such as fisheries and forest resources. The problem is that the institutions’ research teams value them differently.

The World Bank approach comes up with a present value for expected future earnings by discounting from what they will eventually be worth. In contrast, Unep uses fixed accounting prices, referred to as “shadow prices”, which are based on market prices today.

This leads to different conclusions about the trajectory of our natural capital, and thus, by implication, of the sustainability of current development paths. This is then exacerbated by another discrepancy around how the institutions measure changes in human capital.

Country differences

In our paper, we highlight the case of Qatar. According to Unep, it is one of the worst performers in terms of the change in inclusive wealth per capita, and so is judged unsustainable. Yet according to World Bank estimates, Qatar’s inclusive wealth per capita is growing positively.

Which is it? If development is unsustainable, some remedial action will be necessary, but if it is sustainable, no problem. How is the Qatari government to decide how to proceed?

We find similar conflicting signals for many other countries. According to the World Bank data, 20 countries’ inclusive wealth per capita is in decline (in other words, unsustainable), while the Unep data has 45 countries in decline. There is also little crossover in terms of these two lists.

As many as 34 of the countries that the World Bank says have growing inclusive wealth per capita are in decline according to Unep.

We agree strongly with the basic proposition that measuring inclusive wealth is key to ensuring the world develops sustainably. But there needs to be a more consistent approach for this signal to achieve enough credibility to be widely adopted. In our experience, the World Bank is much more transparent than Unep about the data in its calculations. Without full Unep transparency, it’s difficult to get to the root of the discrepancy.

Having said that, both broad approaches have merits, so it’s more a question of everyone committing to a single approach than arguing that one is better than the other. Unless this measurement problem can be resolved, it’s difficult to see countries taking inclusive wealth seriously. That could have serious consequences in the battle to make economic development sustainable.

Eoin McLaughlin is professor in economics at University College Cork.

Cristián Ducoing is a senior lecturer in sustainability transformations over time and space at Lund University.

Nicholas Hanley is chair in Environmental and One Health Economics at University of Glasgow.

This article was originally published on The Conversation.

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Along with New Zealand, Iceland, Wales and Finland, Scotland rounds out the Wellbeing Economy Governments (WEGo) partnership of nations – all five explicitly working toward building economies “designed to serve people and the planet rather than the other way around.”

So far Canada has been sitting on the sidelines as an official observer at WEGo conferences, signalling an interest in economies focused less on profit and more on human and ecological well-being. But does Canada have what it takes to be part of this group, working toward such a grand (but essential) vision?

What is a well-being economy?

A well-being economy is an economy that delivers an equitable distribution of wealth, health and well-being while protecting the planet’s resources for future generations of all species.

It offers an alternative to our current economic system of neoliberal capitalism. Under this system, with its imperative of private profit accumulation, the benefits of economic growth accrue mostly to those who already have high levels of wealth. This leads to widening income and wealth inequality, which are toxic to societal well-being. Moreover, this system does not recognize the benefits of nature to society, which results in support (such as public subsidies) for activities that destroy our ecosystems, upon which we all depend.

Working toward a well-being economy requires a bold and coherent vision that matches the magnitude and urgency of the intersecting social, economic, political, colonial and democratic crises we face that largely stem from, and are perpetuated by, our current economic system.

What is Canada doing, and not doing, with respect to a well-being economy?

Canada’s alignment with WEGo is based on the federal government’s Quality of Life Framework, which was introduced in 2021.

The framework has several important strengths. It is explicitly based on “beyond GDP” thinking and the need to consider not only economic growth, but also how fairly resources are distributed and the negative effects – including environmental harms – of economic growth.

The framework offers a coherent vision for well-being. It includes five areas (prosperity, health, environment, society and good governance) that, after broad consultations, were deemed to be important determinants of quality of life. Those five domains are then considered through the lenses of fairness and inclusion and sustainability and resilience.

However, the framework’s contribution to the well-being of current and future generations will depend significantly on whether, and to what extent, it leads to meaningful efforts to redress inequities of power and resources, which are built into our current economic system.

Canada’s Quality of Life Framework has been applied to three federal budgets so far. But, as the Canadian Centre for Policy Alternatives pointed out in its analysis of Budget 2023, it leaves much to be desired. For example, the budget was largely silent on affordable housing, despite a clear and growing housing crisis. It continued to focus on tax-free savings mechanisms for home-buyers, with no substantive attention to addressing the needs of tenant families or the broader problem of financialization and profiteering that drives growing housing insecurity. The government’s “targeted inflation relief” in the form of a one-time grocery rebate takes a similarly shortsighted approach.

As well, while Budget 2023 included a significant amount of money for transition to a lower-carbon economy, a large proportion of those funds takes the form of corporate tax breaks to incentivize private investment in technological solutions like carbon capture and storage, which has been described as “a dangerous distraction driven by the same big polluters who created the climate emergency.” There is no framework or mechanism to ensure a public-led vision that promotes environmental justice and ensures a transition that leaves no one behind in terms of the social foundations needed to be well.

To make these kinds of changes, Canada needs a way to ensure that the framework is not limited to budget impact reports and measurement, which is the case so far.

Luckily, others are leading the way

Examples of genuine progress toward a well-being economy are available from other members of WEGo. Wales, for example, passed a Well-Being of Future Generations Act in 2015. That legislation requires public bodies to think about the long-term impacts of their decisions and to work to prevent persistent problems such as health inequalities and climate change. They do so with the guidance and support of the Future Generations Commissioner, who is independent of government. This legislation is shaping planning and policy in important ways; one example is a recent decision by the Welsh government to scrap a number of large road projects because they would have destroyed biodiversity and intact ecosystems.

This is not to say that Canada’s federal government has done nothing of value. In Budget 2021, for example (the same year the Quality of Life Framework was introduced), it introduced the Canada-wide Early Learning and Child Care system. That initiative signifies an important commitment to early child development, gender equity and a robust care economy, all of which contribute significantly to population well-being and social sustainability. But there needs to be much, much more of this kind of thinking and acting.

What next?

There is a temptation to be pragmatic and to “do what we can” with respect to moving toward a well-being economy. Indeed, WEGo concedes that the included governments are “at different stages of the journey.”

But, at a certain point, pragmatism is not innocuous if it gives the illusion that we are doing enough. Considering that our society is already “on its knees” with respect to deepening inequalities, an erosion of trust in each other and our institutions, and the no-longer-distant prospect of catastrophic climate breakdown, this is not the time for incrementalism.

Lindsay McLaren is a professor in the Department of Community Health Sciences at the University of Calgary

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We were more than pleased with the reception of our report, which spurred an international movement of academics, civil society, and governments to construct and employ metrics that reflected a broader conception of wellbeing. The OECD has constructed a Better Life Index, containing a range of metrics that better reflect what constitutes and leads to wellbeing. It also supported a successor to the Commission, the High Level Expert Group on the Measurement of Economic Performance and Social Progress. At the OECD’s sixth World Forum on Statistics, Knowledge, and Policy in Incheon, South Korea this past November, the Group issued its report, Beyond GDP: Measuring What Counts for Economic and Social Performance.

The new report highlights several topics, like trust and insecurity, which had been only briefly addressed by Mismeasuring Our Lives, and explores several others, like inequality and sustainability, more deeply. And it explains how inadequate metrics have led to deficient policies in many areas. Better indicators would have revealed the highly negative and possibly long-lasting effects of the deep post-2008 downturn on productivity and wellbeing, in which case policymakers might not have been so enamored of austerity, which lowered fiscal deficits, but reduced national wealth, properly measured, even more.

Political outcomes in the United States and many other countries in recent years have reflected the state of insecurity in which many ordinary citizens live, and to which GDP pays scant attention. A range of policies focused narrowly on GDP and fiscal prudence has fueled this insecurity. Consider the effects of pension “reforms” that force individuals to bear more risk, or of labor-market “reforms” that, in the name of boosting “flexibility,” weaken workers’ bargaining position by giving employers more freedom to fire them, leading in turn to lower wages and more insecurity. Better metrics would, at the minimum, weigh these costs against the benefits, possibly compelling policymakers to accompany such changes with others that enhance security and equality.

“If we want to put people first, we have to know what matters to them, what improves their wellbeing, and how we can supply more of whatever that is. The Beyond GDP measurement agenda will continue to play a critical role
in helping us achieve these crucial goals.”
— Joseph Stiglitz

Spurred on by Scotland, a small group of countries has now formed the Wellbeing Economy Alliance. The hope is that governments putting wellbeing at the center of their agenda will redirect their budgets accordingly. For example, a New Zealand government focused on wellbeing would direct more of its attention and resources to childhood poverty.

Better metrics would also become an important diagnostic tool, helping countries both identify problems before matters spiral out of control and select the right tools to address them. Had the US, for example, focused more on health, rather than just on GDP, the decline in life expectancy among those without a college education, and especially among those in America’s deindustrialized regions, would have been apparent years ago.

Likewise, metrics of equality of opportunity have only recently exposed the hypocrisy of America’s claim to be a land of opportunity: Yes, anyone can get ahead, so long as they are born of rich, white parents. The data reveal that the US is riddled with so-called inequality traps: Those born at the bottom are likely to remain there. If we are to eliminate these inequality traps, we first have to know that they exist, and then ascertain what creates and sustains them.

A little more than a quarter-century ago, US President Bill Clinton ran on a platform of “putting people first.” It is remarkable how difficult it is to do that, even in a democracy. Corporate and other special interests always seek to ensure that their interests come first. The massive US tax cut enacted by the Trump administration in December 2017 is an example, par excellence. Ordinary people – the dwindling but still vast middle class – must bear a tax increase, and millions will lose health insurance, in order to finance a tax cut for billionaires and corporations.

If we want to put people first, we have to know what matters to them, what improves their wellbeing, and how we can supply more of whatever that is. The Beyond GDP measurement agenda will continue to play a critical role in helping us achieve these crucial goals.

Joseph E. Stiglitz is the winner of the 2001 Nobel Memorial Prize in Economic Sciences. His most recent book is Globalization and its Discontents Revisited: Anti-Globalization in the Era of Trump. Ten years ago, he was one of the authors of the International Commission on the Measurement of Economic Performance and Social Progress report Mismeasuring Our Lives: Why GDP Doesn’t Add Up

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