GDP is not fit for purpose any more. To save democracy, we need new economic metrics

Chancellor Philip Hammond, who gives his first budget today. Image: Getty.

In 2008, the world missed a huge opportunity to transform how we think about the economy. This culminated in two political earthquakes eight years later that have rocked the global order to its core.

There is every chance Brexit and a Donald Trump presidency could have been avoided, had politicians and “experts” capitalised on the opening provided by the Great Recession. We should have re-written the rules governing our economies and global capitalism.

Failing to reform the most basic one – how we measure economic success – fuelled the growing wedge between what the experts were telling us (there’s been a recovery) and what ordinary people were actually experiencing (there hadn’t). Decision-makers continued to privilege the former while only paying lip service to the latter, helping to trigger a populist backlash. 

Politicians knew this could have been avoided, because they almost came up with a solution. In 2008, right-wing French president Nickolas Sarkozy commissioned heavyweight economist Joseph Stiglitz to run a Commission that would give us the tools to assess our economies in new ways – on the grounds that GDP could not tell us anything useful about how well economic output was being converted into better lives and livelihoods for people.

GDP may have been a somewhat useful proxy for welfare in the age of mass production and full employment, but not so in an era of globalisation, service-based economies and labour market turbulence. The UK government under David Cameron responded by looking for the right answer in the wrong direction, developing the Gross Domestic Happiness and subjective wellbeing initiatives. But these indicators have sat in the shadow of mainstream statistics, rarely shaping serious economic analyses.

The lens through which our political leaders saw and made decisions about the economy changed very little. Three things have generally been used to vindicate the British Government’s “long term economic plan”: financial savings (austerity), GDP growth, and dropping unemployment rates.

But this narrow diagnostic has only served to disguise structural economic problems (such as chronically low productivity), stagnating or dropping living standards for many people and places, and a sharp rise in low pay and economic insecurity. Sure, we have been getting some growth and record employment: but families haven’t been getting better off, not least because these jobs haven't been providing enough to make ends meet.


This is why, as the Final Report of the Inclusive Growth Commission published this week argues, “business as usual” is no longer good enough. We need to define and measure economic success in a new way, looking not just at the quantity of growth but also its quality. This, in our assessment, forms one of the five cornerstone principles of inclusive growth: we must track the human experience of growth, not just its rate. 

There are three key things wrong with the way we design, collect, report and apply economic statistics. First, as GDP critics have argued, the indicators that shape our policymaking and public debate are unjustifiably narrow. As a result, they lead to conflation on an industrial scale. Growth in output is conflated with growth in productivity and economic dynamism; growth in employment is conflated with growth in family incomes; and extremely narrow economic indicators (such as GDP) are conflated with broad improvements in human and societal wellbeing.

It is in our cities where much of this conflation has its most perverse effects. Our report reinforces the evidence that cities are the hubs of economic growth, but also where inequality and deprivation tend to reach their peak. The disparities within London tell their own story. 

Second, we too often deal in aggregates, national aggregates in particular. These aggregates – whether it is GDP, employment rates or household incomes – conceal the significant variations that exist between different places and different groups of people.

This is what Bank of England’s chief economist Andrew Haldane discovered when he toured Britain to understand why so many people claimed not to have felt the post-recession recovery despite GDP growth, a jobs boom and growing market confidence. He found that, when you cut up and disaggregated the data, things became much clearer: this was a recovery “which for most has been slow and low, for many partial and patchy and for some invisible and incomplete”.

Just look at the employment gap for disabled people: it has actually grown from 30 to 32 percentage points since 2010. There has been no jobs miracle for most of the 7m working age disabled people in the UK. Similarly, if you studied the job creation statistics in the US you would have seen an important precursor to the grievances that propelled Trump into power: a lot of good quality jobs have been created since 2008, but nearly all of them have gone to college graduates. Those with less formal education, who had already lost out from the “adjustment costs” of globalisation, did not see a recovery.

Estimated average household income (after housing costs) by middle layer super output area, England and Wales (2014), with proportions of neighbourhoods in selected city regions in top and bottom 20 per cent of income distribution (2014). Click to expand. Source: RSA Visual Analysis of ONS (2016).

Thirdly, privileging a small set of economic indicators has had a distortive effect on our decision-making. Everything from our infrastructure choices and public investment decisions through to our inward investment strategies has become a narrow numbers game: evaluated against GVA uplift or numbers of jobs created, but not on the quality and inclusiveness of the output and employment. It is little wonder, then, that state investment too often reinforces inequality instead of tackling it. 

So what can we do about it? Most crucially, we need genuine parity between GDP and other important, distributional indicators. This is why we argue that the quarterly GDP statistics should be published alongside other measures such as mean and median wage growth and employment statistics, as part of the same release. GDP should no longer be seen as the gold standard for health-checking our economy.

Similarly, rather than making public investment decisions on the basis of GVA impact, they should explicitly be made according the wider “quality GVA” they create. The same should apply to the money being channelled through devolution deals and any post-Brexit substitute programmes for EU funds. Clearly, this also means we will need to collect granular statistics (regional, neighbourhood and below) much more thoroughly and comprehensively and increasingly – with technological and data advances – in real time. 

Our towns and cities must also show leadership in mainstreaming new ways of measuring and evaluating economic success. Through the course of our Commission we encountered examples of this happening already: from Glasgow’s tools to “poverty proof” its budgets and policies through to Greater Manchester and other city regions’ work on tracking inclusive growth and ensuring investment decisions can support “quality job” creation. As the Commission argues in its final report, places should tailor what they measure to suit local circumstances and the priorities set by their citizens.

Examples of the type of data that local leaders could draw on to track inclusive growth. Click to expand. Source: RSA Inclusive Growth Commission (2017).

Internationally, cities are spearheading real innovation in redefining economic success and how to measure and track it. They have the potential to develop 21st century tools for measuring what counts, helped by advancements in big data and machine learning (which can, for example, enable real-time tracking of social outcomes without the lag of conventional public data).

So what might this new approach to measurement and application of economic statistics achieve? At the very least, it would force us to have a different sort of conversation about growth. Importantly, this would not be confined to temporary debates that follow crises. The publication of quarterly inclusive growth statistics would keep the agenda live and mainstream.

It would also ensure that as a society the criteria through which we judge ourselves (and our politicians, public services and businesses) have a real connection to the lived experiences of people. Decision-making could potentially be radically transformed, as could the trust between policymakers and citizens. It could reconnect people to their communities, economy and democracies.

In 2008 we let a huge social moment slip. Despite the Great Recession ripping to shreds our core economic dogmas, we reverted to type in the period that followed. We cannot afford to do the same again in our current social moment. We must begin to measure what counts. 

Atif Shafique is Lead Researcher for the RSA Inclusive Growth Commission. You can find him on Twitter @Atif_Shafique.

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The smartphone app placing virtual statues of women on the map

A virtual Edith Wharton in Central Park, New York City. Image: The Whole Story Project.

If you’re a woman, then in order for you to be immortalised in stone, bronze or whatever once you’ve shuffled off this mortal coil, you should either have royal blood or be willing to be sculpted naked. That is the rule of thumb.

A statue that actually celebrates a woman’s achievements is a rare sight. Writing in the New Statesman last year, equality campaigner Caroline Criado-Perez found that out of 925 statues in Britain, as listed by the Public Monuments and Sculpture Association, only 158 are of solo women. Of these, 46 are of royalty, including 29 of Queen Victoria. Fourteen depict the Virgin Mary.

There are signs of change, albeit slow. The suffragist Millicent Fawcett is set to be honoured with a statue in Parliament Square, where currently all 11 of the statues are of men. (They include Nelson Mandela and a nine-foot Gandhi.) The monument is to be unveiled next year to celebrate the centenary of British women receiving the right to vote.

Elsewhere, the late comedian Victoria Wood is being honoured with a statue that’ll be erected in Bury, Greater Manchester. In the Moss Side area of the city, a statue of Emmeline Pankhurst will be unveiled in 2019. Unlike the Fawcett one, neither of these is expected to receive public money, relying on crowdfunding and other sources instead.

So how many more statues of women, regardless of how they’re funded, would we need to build in order to reduce the gender gap? Well, according to Jonathan Jones, art critic at the Guardian, the magic number is: zero.

Jones’s argument, back in March, was that building statues doesn’t advance feminism, but simply traps us in the past. He wrote:

Statues don’t hold public memory. They politely bury it. These well-meaning images melt into the background scenery of our lives.

Whether this is empirically true is questionable, but it’s true that we tend not to erect them as often as we used to anyway. This is partly because there is less space available for such monuments – a noticeable disadvantage cities of the present have compared to those of the past. In order to reduce the imbalance, statues of men would probably have to be removed; many would no doubt be okay with that, but it would mean erasing history.

One partial answer to the problem is augmented reality. It can’t close the gender gap, but it could shine a spotlight on it.

To that end, an advertising agency in New York launched an app at the beginning of May. The Whole Story allows users to place virtual statues of women on a map; other uses can then view and find out more about the individuals depicted at their real-world locations, using their smartphone cameras.


Currently, users have to upload their own virtual statues using 3D-modelling software. But going forward, the project aims for an open collaboration between designers, developers and organisations, which it hopes will lead to more people getting involved.

Contributions submitted so far include a few dozen in New York, several in Washington and one of Jane Austen in Hyde Park. There are others in Italy and the Czech Republic.

Okay, it’s an app created by a marketing firm, but there are legitimate arguments for it. First, the agency’s chief creative office has herself said that it’s important to address the gender imbalance in a visual way in order to inspire current and future generations: you can’t be what you can’t see, as the saying going.

Second, if the physical presence of statues really is diminishing and they don’t hold public memory, as Jones argues, then smartphones could bridge the gap. We live our lives through our devices, capturing, snapping and storing moments, only to forget about them but then return to and share them at a later date. These memories may melt away, but they’ll always be there, backed up to the cloud even. If smartphones can be used to capture and share the message that a gender imbalance exists then that’s arguably a positive thing.  

Third, with the success of Pokemon Go, augmented reality has shown that it can encourage us to explore public spaces and heighten our appreciation for architectural landmarks. It can also prove useful as a tool for learning about historical monuments.

Of course no app will replace statues altogether. But at the very least it could highlight the fact that women’s achievements are more than just sitting on a throne or giving birth to the son of God.

Rich McEachran tweets as @richmceachran.

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