Economic Growth and Wellbeing “Not Equal”, Study Finds

By Farangis Abdurazokzoda Reprint | | Print |

WASHINGTON, Apr 4 2014 (IPS) - The United States ranks among the highest in the world in gross domestic product (GDP) per capita, but only 16th among 132 countries in terms of social progress and environmental performance, according to a new index released Wednesday.

New Zealand, Switzerland, Iceland, the Netherlands and Norway topped the Social Progress Index (SPI), compiled by a U.S. nonprofit group called the Social Progress Imperative. Researchers say the results highlight an important discrepancy between economic growth and wellbeing.

“The United States is consistently under-performing across a wide range of indicators – often significantly below expectations – despite enjoying the second highest per capita GDP in the world,” Michael Green, executive director of the Social Progress Imperative, said Wednesday in unveiling the new index.

“The Social Progress Index highlights the scale of the challenges faced by the United States’ schools and health care systems.”

Proponents say the index offers a new way to gauge national wellbeing, including as an alternative or complement to the long-used gross domestic product (GDP), a purely economic metric.

“Until now, the assumption has been that there is a direct relationship between economic growth and wellbeing,” one of the index’s lead creators, Harvard Business School Professor Michael E. Porter, said Wednesday.

“However, the Social Progress Index finds that all economic growth is not equal. While higher GDP per capita is correlated with social progress, the connection is far from automatic.”

Friday marks the 80th anniversary of the formal idea of GDP, first presented to the U.S. Congress by economist Simon Kuznets as a measure of economic progress. Yet even then, Kuznets cautioned lawmakers not to use GDP as a measure of a nation’s wellbeing, which critics have echoed for years.

“GDP is an imperfect measure of a nation’s progress, as it over-measures expenditures on enterprises and defence, while overlooking important aspects of wellbeing such as home production,” Carol Graham, a researcher on poverty and inequality at the Brookings Institution, a Washington think tank, told IPS. “SPI, on the other hand, like any wellbeing index, contributes to what GDP measures and is better targeted at measuring quality of life.”

Others suggest that the metrics offered by the new index could be more in tune with recent social upheaval in the United States and elsewhere.

“SPI reflects the changes brought by the Occupy [Wall Street] movement that target the importance of the access to essential services, which are building blocks of a decent society,” Emira Woods, co-director of Foreign Policy in Focus at the Institute for Policy Studies, another Washington think tank, told IPS.

Still, others warn against attempting to supplant GDP completely.

“The Social Progress Index represents an ambitious, sophisticated effort to provide societies with a robust empirical basis for seeing how their national conditions stack up against their desires and against their peers,” said Marc Levy, of Columbia University’s Earth Institute.

“Yet the tendency to ‘GDP envy’ is largely misplaced. GDP as an indicator has much less clout than the sustainability crowd tends to assume.”

Mutually reinforcing

Using 12 variables assigned a score of zero to 100, the index is designed to measure a country’s social progress and environmental performance over the past decade.

Each of the variables is categorized under three dimensions, referred to as basic human needs, foundations of wellbeing and opportunity. Basic needs include nutrition and medical care, water and sanitation, shelter, and personal safety.

Wellbeing is assessed by access to both basic knowledge and to information and communications, health and wellness, ecosystem sustainability. Finally, opportunity is divided into personal rights, personal freedom and choice, tolerance and inclusion, and access to advanced education.

“Because the Social Progress Index measures comprehensive social outcomes directly, separately from economic indicators, it allows us – for the first time – to examine the relationship between economic and social progress,” Harvard’s Porter says.

The measures used by the SPI are designed to recognise the importance of inclusive growth and shared prosperity. The index’s creators say they hope policymakers can use this tool to develop and implement relevant policies in a more efficient, holistic and egalitarian manner.

Ultimately, the findings suggest that higher economic growth results in social and environmental challenges as well as benefits. “Economic progress is not equally distributed within countries and neither is social progress,” the report states, and economic performance alone is not enough to explain a nation’s overall wellbeing.

Despite being the world’s largest economies, for instance, the United States shows weakness in basic human needs. Compared to other wealthy countries, the country does particularly poorly in terms of personal safety (in which it ranked 31st) and what’s referred to as “foundations of wellbeing” (36th), especially in access to adult literacy, primary and secondary school enrolment, and gender parity.

Most notably, the health and wellness subcategory put the United States down to 70th in the world. Still, the country tops the list in access to advanced education, with the highest number of globally ranked universities and years of tertiary schooling.

This is not to say that the study doesn’t suggest a strong correlation between GDP per capita and social progress. For example, New Zealand – with a GDP per capita of 25,875 dollars – ranks higher than Chad, which holds the lowest rank in the index, with 1,870 dollars per capita income.

However, SPI scores that measure social progress do not necessarily go hand in hand with GDP per capita. While at lower income levels, higher GDP per capita shows stronger social performance, this trend does not apply to countries with higher income levels.

Thus, among high-income countries, Russia (80) performs much worse than Uruguay (26) on the SPI. In the middle-income group, Jamaica (43) ranks much higher than China (90).

In lower-income groups, Ghana (96) does better than Nigeria (123). Likewise, Malawi (109) performs better than Togo (122).

The SPI index of oil-rich countries, including Saudi Arabia (65), Kuwait (40), and Angola (127), was also lower than expected relative to their GDP per capita. Interestingly, countries like Malawi (109), New Zealand (1) and the Philippines (56) performed much better than expected, based on their GDP.

It is also possible that “economic progress and social progress reinforce each other,” the report concludes, noting that future such work needs to understand “the mutual interdependence between economic and social performance.”