For a small but growing network of countries, the world’s measure of economic health, the gross domestic product, seems no longer fit for purpose.
Finland, Iceland, Scotland, Wales and New Zealand are members of the Welfare Economy Governments partnership, led mostly by women leaders. Expected to expand in the coming months, the coalition aims to transform economies around the world by 2040 in ways that deliver shared prosperity for people and the planet.
This means abandoning the idea that percentage change in gross domestic product is a good indicator of progress and instead reshaping economic policy to deliver quality of life for all people in harmony with the environment.
“The need for a new economic model has never been clearer,” Scottish Minister Nicola Sturgeon told CNBC.
“Building a welfare economy is always a huge challenge for any country, and the current crises we face make it even harder – but it also highlights why we urgently need to make this transformation,” Sturgeon said. “We’ve made progress over the last five years, but we still have a lot of work to do.“
How important is GDP?
Former US Senator Robert F. Kennedy once said that a country’s GDP measures everything “except what makes life worthwhile.”
Critics of GDP, which represents the total value of goods and services over a given time period, argue that the indicator is misleading as it measures the “good, bad and ugly” aspects of economic activity and label them all good.
For example, GDP does not take into account unpaid work, nor does it distinguish between economic activities that contribute positively or negatively to the health and well-being of people and the natural environment.
UN Secretary-General Antonio Guterres recently joined the chorus of voices calling for GDP to be deprecated as the world’s economic growth indicator and for policymakers to shift to a circular economy instead.
This refers to an economic system that moves away from the current “buy, make, throw” model of the world, based on the reuse and repair of materials to extend the life cycle of products as much as possible.
Speaking at a major international environmental meeting in early June, Guterres said: “We must change course and end our senseless, suicidal war against nature. Let’s not forget that when we destroy a forest, we create GDP. When we overfish, we create GDP. GDP is the measure of wealth in the world’s current situation. It’s not a way.”