HOW'S LIFE

This might be the best alternative yet to GDP as a way to measure a country’s growth

What if we didn’t measure a country’s growth by looking at its GDP?

Despite most advanced economies recovering from the recession—most of them had annual growth near 2% in 2016—the World Economic Forum (WEF) reports that between 2008 and 2013 (latest data available), median-per-capita income across 26 rich nations actually fell by 2.4%. With inequality and wealth distribution a growing concern, one that’s stirring populist results in elections worldwide, this seems to call for a better way to measure a country’s actual growth—as it is experienced by its citizens.

To offer an alternative, ahead of its annual meeting in Davos this week, the WEF is launching today an Inclusive Development Index (IDI), which offers a combination of growth and development measures (such as employment, life expectancy, GDP per capita), inclusion parameters (poverty rate, inequality), and intergenerational equity and stability (dependency ratio, net savings).

The results rankings upend the established economic order of the world.

Among the advanced economies, the IDI puts Norway at number one—despite its economy only growing 0.5% between 2008 and 2013, the country saw living standards rise by 10.6%. Luxembourg, Switzerland, Iceland, and Denmark round of the top five most inclusive nations, by the WEF’s measure.

The US, which is the world’s largest economy, is only 23rd—faring worse than countries like Estonia, the Czech Republic, and South Korea.

The WEF said that 51% of the 103 countries it looked at saw their IDI scores decline over those five years, “attesting to the legitimacy of public concern and challenge facing policymakers regarding the difficulty of translating economic growth into broad social progress.”

This is not the first attempt to come up with a better metric to measure the development and growth of countries. Another attempt is the Human Development Index (HDI), set out over 25 years ago by the United Nations Development Program (pdf, p. 208); its results aren’t tremendously dissimilar from the IDI scores: Norway has traditionally been leading it, too, with Switzerland and Denmark also close to the top. Though Australia and, more remarkably, the US fare much better in the HDI.

According to the WEF, the aim is to move away the focus from plain wealth creation towards accomplishing a combination of other goals, producing more inclusive development.

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