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Commission on the Measurement of Economic Performance and Social Progress

DRAFT SUMMARY

By Joseph Stiglitz | Commission on the Measurement of Economic Performance and Social Progress | June 2, 2009

CREDIT: Speaker Pelosi (CC).

INTRODUCTION

Our statistical apparatus, which may have served us well in a not too distant past, is in need of serious revisions.

The creation of the [International Commission on the Measurement of Economic Performance and Social Progress] is reflecting this concern. Currently, the most widely used metric is GDP (gross domestic product.) [The Commission's] aim is to identify the limits of GDP as an indicator of economic performance and social progress, to consider additional information required for the production of more relevant indicators, to discuss how to present this information in an appropriate way, and to assess the feasibility of alternative measurement tools.

Indeed, for a long time there have been increasing concerns about the adequacy of current measures of economic performance, in particular those based on GDP figures. Moreover, there are even broader concerns about the relevance of these figures as measures of societal well-being. The inadequacies of these figures from the perspective of sustainability—economic, environmental, and social sustainability—have been of particular concern.

One outcome of the Commission's work will be suggestions for alternative indicators which may provide a better description of economic performance and social progress. Taking stock of similar work conducted in the past, the Commission will be cautious about the number of indicators proposed. Here, as elsewhere in economics, there are trade-offs: a larger number of indicators may better reflect the diversity of issues and individual situations, but an excessively large number may provide a confused picture of the overall situation. On the other hand, a single figure mixing a large number of socio-economic phenomena provides an inadequate basis for appropriate policy measures.

Any statistical indicator has to aggregate variables that are, in some sense, incommensurate. In estimating GDP, we add up apples and oranges; and we aggregate them together using relative prices. If an orange sells for twice the price of an apple, then each orange is counted as two apples. The justification of this is that in competitive markets, relative prices reflect marginal relative valuations. An orange is valued by all consumers as "worth" twice as much as an apple. While even in market transactions, this assumption may be questioned (for instance, when markets are imperfect), when moving beyond GDP to areas where there are limited or no market transactions, the relevance of a monetary metrics becomes more questionable. The choice of alternative metrics has to be assessed both from a conceptual and practical point of view.

To organize its work, the Commission selected three main directions of study which correspond to three of the already identified main causes of divergences between perceptions and measures. (i) Classical GDP issues. Limits of GDP as an indicator of socio-economic progress or economic performance can be addressed by investigating possible extensions or modifications of the current conceptual framework; (ii) Quality of life. This direction of study is approaching the measurement of social progress from a broader perspectives on well-being, taking also into account metrics derived from asking people about how they themselves feel; (iii) Sustainable development and environment. As noted above, one of the biggest concerns about current measures of economic performance and social progress is related to sustainability and one of the areas where sustainability is most questioned is the environment.

The present Draft Summary is accordingly structured into three summary chapters based on the work of the three sub-groups created by the Commission on the occasion of its first plenary meeting:

  • Classical GDP issues
  • Quality of life
  • Sustainable development and environment

Download: Commission on the Measurement of Economic Performance and Social Progress (PDF, 486.63 K)

Read More: Development, Economy, Environment, Governance, Poverty, Global

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