Beyond GDP

What defines the best country to live in? Is it the one with exquisite cuisine, the longest life expectancy, or the most pleasant climate? For the past seven decades, governments worldwide have heavily relied on a single number to answer this question—a number that influences elections, the stock market, and government policies. However, this number was never originally intended for such purposes, and some argue that the world has become addicted to perpetually growing it.

This number is known as the Gross Domestic Product (GDP), invented by economist Simon Kuznets in the 1930s to provide a simplified measure of an economy's size. GDP represents the total monetary value of a country's production and sales on the market. Even today, GDP per capita, which is calculated by dividing the total GDP by the population, is widely regarded as an indicator of well-being. However, GDP does not directly reflect well-being as it overlooks what a country produces and who has access to it. For instance, a million dollars spent on weapons contributes the same to GDP as a million dollars invested in vaccines or food. Furthermore, valuable contributions from services like public education or firefighting are entirely excluded from GDP because they are not sold on the market. Additionally, if a country possesses substantial wealth but it is concentrated in the hands of a few individuals, GDP per capita offers a distorted representation of the average person's financial situation.

Despite these limitations, higher GDP historically correlated with a higher quality of life for people in many countries. From 1945 to 1970, as GDP doubled, tripled, or even quadrupled in some Western economies, wages often grew proportionally. However, a significant shift occurred in the 1980s when countries continued to grow richer, but wages no longer kept pace with GDP growth—sometimes even declining. Consequently, the majority of benefits accrued to an increasingly smaller portion of the population. Nevertheless, the idea of encapsulating a nation's well-being in a single number persisted.

In 1972, King Jigme Singye Wangchuk of Bhutan introduced an alternative to GDP called Gross National Happiness. This metric considers factors like health, education, strong communities, and living standards. Citizens are asked questions such as "How happy do you think your family members are at the moment?" and "What is your knowledge of names of plants and wild animals in your area?" The United Nations' Human Development Index is another widely adopted metric that incorporates health, education, and income per capita to estimate overall well-being. Similarly, the Sustainable Development Index considers both well-being and the environmental impact of economic growth, condensing complex data into a single number. While no country has successfully met its people's basic needs while fully maintaining sustainable resource utilization, Costa Rica has come closest. In recent decades, it has achieved significant economic growth and improved living standards while minimizing increases in emissions. Other countries, such as Colombia and Jordan, have also made noteworthy progress. Presently, Costa Rica boasts superior well-being outcomes, such as life expectancy, compared to some of the world's wealthiest nations.

Ultimately, any approach that simplifies the quality of life in a country to a single number has its limitations. Increasingly, experts advocate for a dashboard approach that encompasses all relevant factors, avoiding the oversimplification of a single metric. Such an approach aligns with the fact that people prioritize different aspects, and the answer to the question of the best country to live in depends on who is asking. So, what if you were designing a well-being metric for your country? What do you value, and what aspects would you measure?

Henrik Leandro