What We Measure Shapes What We Become: Moving Beyond GDP towards Comprehensive Well-Being
Measurement of development goals should clearly encapsulate societal values and goals. Advancements should be measured in terms of human well-being, which intrinsically also includes environmental sustainability, not just production and consumption.
Today, 17 October, marks the International Day for the Eradication of Poverty. The occasion this year should make us pause to honour the immense bravery of those who survive persistent poverty, whose adversities have been heightened by Covid-19, wars and climate change. It is also opportune to consider the debates surrounding a fundamental question: How should we measure well-being? Can we move beyond monetary values and take into account the multiple intricacies of life?
The noted philosophy professor Martha Nussbaum argues that, by using the single metric of Gross Domestic Product (GDP) to measure a country’s quality of life, economists, policymakers and bureaucrats have for decades told people a distorted story of human experience. Her view follows the reasoning of Amartya Sen, the Nobel Laureate in Economics. According to Sen’s Capability Approach, there is no guarantee that every person’s “GDP per capita” leads to the fulfillment of the positive aspects of life that people actually value.
Now, imagine a world where an index of well-being and life satisfaction is the main measure of progress. In this realm, decisions are guided by the need to expand fulfilment in the various domains that comprise well-being, be it psychological aspects of life such as emotions, dignity and self-reported living experiences, or the more objectively measured indicators of health and education. Our strivings will be guided by advancements in these multiple domains. The focus thus falls not only on achieving economic growth, which more often than not, comes at the expense of low-income households and the natural environment.
What we measure shapes what we become. Measurement of development goals should clearly encapsulate societal values and goals. Advancements should be measured in terms of human well-being, which intrinsically also includes environmental sustainability, not just production and consumption.
The goal to end multidimensional poverty — encompassing income, education, health, living conditions, and more — is already incorporated into the Sustainable Development Goals. Achieving this remains an arduous task, as 1.3 billion people still live in conditions of multidimensional poverty, among which half are children and youth.
How can we do better? Before moving to alternative measurements of well-being, we must affirm that GDP — the value of goods and services produced in a given time — remains an important starting point for assessing economic progress, but we also need to improve the way we measure GDP. There are many economic activities and costs that are not included within its computations, such as the informal sector, the true value of the digital economy and the environmental costs that economic activities incur. Indeed, GDP was never intended to be a measure of comprehensive well-being. It has always needed supplements.
Any fundamental policy reset will encounter political difficulty — and also opportunity. Indonesia, as the host of the G20 and Southeast Asia’s largest economy, can add momentum to the adoption of comprehensive measures of well-being.
One highly deliberated complementary measure to GDP is the so-called inclusive wealth measure. The idea is to have an indicator of the stocks of assets that countries possess — human capital, natural and social assets — similar to a balance sheet, instead of only focusing on flows of income, most popularly in the form of GDP. Unless we can measure the assets underlying growth, we cannot know whether this growth will be resilient or sustainable. Another complementary reference is the so-called SAGE framework, which aggregates four elements, including the mainstream concept of sustainable growth, but also concepts that are more distinctive. SAGE stands for: solidarity (the strength of one’s community relations and support of family and friends), agency (how well one could control one’s own life or destiny), material gains, and environmental sustainability. Achievements within each of these elements correspond with intrinsic satisfaction in life.
Multidimensional approaches are particularly relevant to Southeast Asia. The global Multidimensional Poverty Index 2021 found that the incidence of multidimensional poverty in the region is higher than monetary poverty (based on consumption or income). These patterns underscore the possibility that fixation with GDP per capita and income growth may overlook other aspects of being poor.
Southeast Asian nations can learn from each other. For example, the Philippines’ National Statistical Agency (NSA), in disseminating a national-level multidimensional poverty measure, reported that poor households experience deprivation most acutely in education — even more than in asset ownership, housing, or food consumption. Thailand’s National Economic and Social Development Council (NESDC) has also launched a national multidimensional poverty measure, with involvement of different stakeholders in the selection of domains and statistical indicators. Two components are notable: the “Health Domain”, including the often overlooked ability to “take daily care of yourself” as an indicator, and an additional domain that measures “Financial Security”. These national multidimensional measures aim to reflect the lived realities of poverty specific to each country, and to employ a flexible method of measurement that allows the use of both qualitative and quantitative data.
Of course, significant challenges arise in moving from one measure to the next. The hurdles are both statistical and political.
While a global index may lend weight to the cause, arriving at a consensus may be unfeasible and even unadvisable given countries’ uniqueness. The creation of national-level measures, such as those exemplified above, may prove beneficial, and Southeast Asia as a region could consider innovations at the regional level. Such comprehensive measures require data that are conventionally costly to obtain. Nonetheless, the financial burden can be reduced by harnessing big data possibilities and the improved quality of social registry data. As an example, alternative data sources such as satellite data could be used to assess whether household needs in electricity and sanitation are fulfilled.
Any fundamental policy reset will encounter political difficulty — but also opportunity. Indonesia, as the host of the G20 and Southeast Asia’s largest economy, can add momentum to the adoption of comprehensive measures of well-being. Indonesia holds the stage to urge other G20 leaders to commit to go beyond GDP and to measure progress in multiple, meaningful domains.
It is through measuring both GDP per capita and comprehensive well-being that we concretely acknowledge the importance of striving for the fundamentals of life, such as the need for dignity, respect and freedom. Only then will we be able to truly understand how poverty is experienced.
Putu Geniki L. Natih supports the OPHI (the University of Oxford) Outreach team and is also a lecturer at the Faculty of Economics and Business, Universitas Indonesia.
Maria Monica Wihardja is an Economist and Visiting Fellow in the Indonesia Studies Programme and the Regional Economic Studies Programme, ISEAS - Yusof Ishak Institute.