The trouble with measuring an economy

Oil spills, deforestation and divorce are all good for GDP, so why is it still the yardstick we use to measure an economy? The Prime Minister of Norway and leading economists explain the debate.

Some of the things that are good for GDP,

but terrible for us,

are, for example, hurricanes
and other natural disasters,

wars, drug trafficking, and cybercrime.

Many of those things
require police services

or other dedicated services
in order to protect,

and this is what makes GPD go up.

[GDP or Gross Domestic Product

is the yardstick we use
to measure an economy.]

It measures all the activity that goes on
in the economy in a single year.

You can measure it either by adding up
everything people spend,

all of the incomes

or all of the outputs in the economy,

like measuring the height of a mountain

or the depth of a river.

But it's not a natural object at all.

It's an analitical construct.

But, of course, that's the kind
of arbitrary definition,

and lots of judgments were involved.

And I think it would be really helpful

if people could get their head
around the uncertainty

that's involved in measuring GDP.

[GDP is powerful.

It can swing elections

and seal how much a country can borrow.]

[But economists are questioning
how useful it is today.]

The term dates back
to the Second World War,

when the need was to understand

what resources the war economy needed,
and what consumption sacrifices.

Citizens were going to have to make
to enable that to happen.

So a whole set of national statistics
now dates from the 1940s.

[GDP counts things like deforestation
and divorce lawyers,

but overlooks some vital assets.]

It leaves out some important things.

It leaves out the environmental
cost of economic growth,

and it leaves out the value of unpaid work
that people do in their homes.

And it also doesn't pay any attention

to the national
balance sheet, if you'd like,

to the assets that we use to enjoy
today's income and consumption.

So if we really care about sustainability,

a very important thing

is to start measuring
all of those assets properly as well.

[So what can we do differently?]

[One alternative approach
is to focus on "inclusive growth."]

[That's the world economic
forum's framework for growth

that benefits society as a whole
and will last into the future.]

[Norway is the world leader
in the 2018 index.]

It's about equal opportunities for women,

and it's about having
a public finance system

of education and of healthcare

which also makes services accessible.

[Norway uses its historical oil wealth
to fund public services

and the transition to clean energy.]

[Over 98% of its energy now comes
from renewable sources.]

[Norway also has one of the smallest
rich-poor gaps in the world.]

[Cleaners and construction workers
are paid a minimum of $21 an hour.]

I believe that your history
and your culture

does affect how a society is run.

All countries can work
towards more inclusiveness

but understanding
how their country is functioning.

I think we have been benefited
by a quite poor society

newly becoming richer per being rich

after we have established
strong institutions.

One of the things we have
is a large NGO sector

with a lot of voluntary work,

which is where most of them
wishes to live their lives

in activity without us.

And I think that makes
very close bonds between people.

[While economic growth

has lifted hundreds of millions
of people out of poverty

in the last 30 years,

GDP has failed to capture

some of the biggest
challenges of our times,

from inequality to climate change.]

[So what hope will it have
for the economy of the future?]

[Should we say RIP, GDP?]

There's a really great appetite
at the moment to go beyond GDP

and get a better understanding
of economic progress.

This is partially being driven
by all the digital change

that we see happening in the economy.

We need to track what that's doing,

which is both, you know, very good

because of the innovations
that we're able to use,

but somewhat worrying

if it means that there's going to be
disruption to jobs as well.

So we certainly want to track that.

And I think that's the project
for the next few years

for researchers and policymakers

to have that conversation about move on

to go beyond GDP for a better
measure of economic progress,

but we all began to go to.