Inclusive Growth: it’s time to measure what we value

In a speech at the University of Kansas in 1968 Bobby Kennedy famously declared that GDP measures everything ‘except that which makes life worthwhile.’ Yet, more than half a century on, GDP’s prominence in assessments of national progress remains unchallenged. 

Kennedy’s critique focused on the inability of GDP to capture life’s more intangible qualities: ‘It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country’. However, even as a measure of economic progress GDP falls short. Its failings in this regard are well known – it’s a narrow, point in time measure of economic activity, unable to highlight distributional inequalities or describe future capabilities.  

The use of a measure of economic output as an indicator of economic progress operates under the false premise that bigger is always better. It is indicative of a prevailing economic model that makes the quantity of growth the overriding priority. Inclusive growth, in contrast, focuses on the quality of growth, assessing how the ability to contribute to and benefit from growth is distributed – socially and spatially.  

Shifting our economic model towards inclusive growth requires changing how we define and measure economic success. The dominance of GDP in economic measurement inhibits our ability to hold political leaders and economic decision makers accountable for achieving inclusive growth. A better metric is needed, not just to make more useful assessments of economic performance, but to shift our economic paradigm away from growth at all costs and towards delivering broad based prosperity. 

This is why the Centre for Progressive Policy has partnered with the APPG on Inclusive Growth to develop a new set of metrics underpinned by a broader understanding of economic progress. With the support of a group of leading experts, we are currently developing three inclusive growth indices at the country, community and company level to focus debate and drive policy change forward. The three indices build on other key ‘beyond GDP’ work programmes, including the Stiglitz-Sen-Fitoussi Commission, the OECD Better Lives Initiative and the World Bank Poverty and Shared Prosperity series. 

We are starting with country and community indices, which aim to measure people’s ability to contribute to and benefit from growth at the national and local levels respectively. Doing so throws up multiple challenges and trade-offs. For example, while the use of a basket of indicators offers a fuller picture of economic progress, a key lesson from the success of GDP is that public debate can be more easily focused around a single figure. Yet combining different indicators into a single metric requires judgements as to the relative importance of each to inclusive growth. For example, is a 10% increase in employment of equivalent value to a 10% reduction in inequality? In addition, the availability and timeliness of data places significant constraints on what the indices are able to reflect. Finding comparable, statistically significant data at the local, national and international level remains a key challenge, despite recent improvements. 

In response, we are developing measures at country and community level that will initially look at life expectancy, leisure, consumption, inequality and unemployment. The index combines these factors into a single inclusive growth figure using a method rooted in economics and empirical evidence. The methodology was developed by Stanford University Economists, Charles Jones and Peter Klenow, and has been used by both the OECD and IMF. This coherence and credibility will be important in terms of the measure’s ability to influence economic policymakers. The approach will also produce practical policy implications with real-world impact. Later in the year we will develop a measure of inclusive growth at the company level, which – despite bringing its own unique challenges – will be in keeping with the ethos of the country and community measures.  

The challenges outlined here mean that a ‘perfect’ measure of inclusive growth does not exist. However, by navigating the trade-offs effectively, measures of inclusive growth that add broader insight into the nature and quality of growth are possible. What’s more, by provoking debate, the development of the three indices will provide an important opportunity to rethink concepts of economic progress and refocus the policy agenda accordingly. While the indices perhaps won’t quite capture the rhetorical heights of Bobby Kennedy, they will take us a step closer to achieving what really matters in our economy.

Andy Norman is a Research Analyst at the Centre for Progressive Policy