What is the best way to measure a country’s financial health? For the
past 50 years, mainstream economics has assumed that the increase in goods
and services produced domestically (gross domestic product, or GDP) and
national income (gross national product, or GNP), are adequate yardsticks.
The World Bank uses per capita GNP as its main criterion for classifying
national economies , and a global industry has developed around predicting
quarterly GNP and GDP changes: governments watch their rises and dips with
But is this the most useful approach? In the words of Robert Repetto,
chief economist at the World Resources Institute (WRI) in Washington, ‘a
country could exhaust its mineral resources, cut down its forests, pollute
its aquifers and hunt its wildlife and fisheries to extinction without
affecting its measured national income.’ Environmental degradation can
actually boost GNP growth: if a company strip mines foreign quarries, the
revenue it repatriates contributes to its country’s GNP. The cost of cleaning
up the oil and toxins from the Shetland oil spill will actually boost GDP.
Even if there were no cleanup, GDP might eventually rise – by the public
spending more on medicines to treat any illness caused by the toxins.
So GDP figures are poor measures of economic welfare. But designing
suitable indicators and collecting information to measure true economic
welfare – the services that money can supply, rather than money itself –
is a huge problem. The most widely respected indicator is the UN Development
Programme’s human development index (HDI), calculated annually since 1990.
The HDI integrates a wide range of welfare statistics such as life expectancy,
educational attainment, GDP (reduced by