Gross Domestic Product (GDP) is an economic metric created for a bygone age. In a world where up to 80% of production from advanced economies comes from services and not manufacturing, GDP is incapable of properly measuring performance.
Organisations are slowly growing wise to the problems of GDP-based results. In 2019, the Organization for Economic Cooperation and Development (OECD) admitted that GDP couldn’t account for 40% of its 2030 Sustainable Development Goals (SDGs) metrics.
One of the replacement frontrunners is economic wellbeing. Instead of a single overarching metric, economic wellbeing looks at several to determine a citizenry’s quality of life.
In 2019, the OECD’s Secretary-General defined economic wellbeing as the ‘capacity to create a virtuous circle in which citizens’ well-being drives economic prosperity, stability and resilience, and vice-versa’.
While there is no standard method of calculating economic wellbeing, the OECD’s approach seems to be in the lead. For example, it’s repeatedly cited by the Australian Bureau of Statistics (ABS), and New Zealand embedded ‘wellbeing indicators’ in its 2019 budget process. Currently, the OECD index looks at 11 key indicators: housing, income, jobs, community, education, environment, civic engagement, health, life satisfaction, safety and work-life balance.
GDP has been challenging to replace, primarily due to its universal acceptance. The OECD has been working towards a better model since the 1970s. Though its economic wellbeing index remains in development, investors should keep it in mind and take GDP results with a grain of salt.