In 1972, the tiny Himalayan nation of Bhutan opted to base its policy-making on indicators of 'gross national happiness', with King Jigme Singye Wangchuck declaring that this measure was more important than more conventional indicators such as gross domestic product (GDP). Today, after three decades and the biggest financial crisis since the Great Depression, his remarks seem prescient. A consensus among economists and policy-makers is growing that governments' reliance on GDP as the main proxy for social well-being and progress is leading the world in wrong and unsustainable directions.

As a measure of a country's overall economic activity, GDP is well-defined and fairly easy to calculate: it is simply the market value of all goods and services produced within a country's borders during a given year. It gives countries a convenient way to monitor their economic growth and their standing relative to other nations, and it correlates reasonably well with some measures of living standards.

But its simplicity has given GDP an outsized influence on many governments' economic decisions. The pursuit of economic growth as defined by an ever-rising GDP has become such a political imperative that any policy threatening to slow that rise has little chance of being adopted.

Yet GDP is known to be flawed as an indicator. For example, a developing country can accelerate its GDP growth by over-logging its forests, even though this could destroy a sustainable resource and carbon sink that would be far more valuable over time. A similar problem rears its head for the construction of environmentally destructive dams, power plants and industries. The focus on GDP growth can make it hard for local politicians to take pollution and other long-term threats seriously.

Health-care spending, which is included in GDP, highlights another issue. The United States, which spends far more on health care per capita with poorer results than, say, France, gets a correspondingly huge GDP boost for being inefficient. GDP makes no distinction between productive investment and profligate waste. When the supposedly strong GDP growth in countries such as the United States and Britain collapsed during the recent financial crisis, much of the measured growth turned out to be a mirage, calculated from overvalued prices during the housing bubble and the trading of obscure financial derivatives.

“What we measure affects what we do. If we have the wrong measures, we will strive for the wrong things,” says economist Joseph Stiglitz of Columbia University in New York. Stiglitz, a Nobel laureate and former chief economist at the World Bank, chaired the Commission on the Measurement of Economic Performance and Social Progress, a panel of economists convened by the French government to look for better measures. Its report, released last September, recommends that indicators should be expanded beyond GDP to include those that reflect quality of life, sustainable development and the environment (see

Obtaining widespread agreement on such indicators will be a challenge, as it will inevitably involve assessing intangible factors and subjective measures. Thanks to the financial crisis, that task is now getting some serious political attention. The European Commission last year launched its 'Beyond GDP' initiative ( and the Organisation for Economic Co-operation and Development (OECD) is hosting 'The Global Project on Measuring the Progress of Societies'. The OECD's project brings together many of the international and national organizations that collect data and statistics to explore new indicators that could capture factors such as the state of ecosystems, good governance, human rights, cultural heritage and pollution (see

Moving away from GDP represents a significant political challenge. For some industries and nations, the mirage of GDP growth is just fine and it is not in their interests to have a truer picture of social well-being and progress. But it is in ours.