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Goodbye GDP?

September 15, 2009

French President Nicolas Sarkozy has urged the international community to use new ways to measure economic prosperity with more emphasis on the environment and a nation's social well-being.

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French President Nicoloas Sarkozy
Sarkozy wants a new definition of prosperityImage: AP

A panel of experts, set up by Sarkozy to work on a set of proposals for a new system to measure economic growth, presented its findings in Paris on Monday ahead of next week's G-20 summit in the United States.

The new report, chaired by the American Nobel Prize-winning economist Joseph Stiglitz, has recommended a shift away from using Gross Domestic Product, or GDP, as the sole focus for gauging prosperity.

GDP measures a country's total output of goods and services at market prices. It has often been criticized as an overly narrow indicator that ignores wider factors, such as environmental degradation, people's health, workplace safety, job security, vacation time and a population's general degree of happiness.

Economist Joseph Stiglitz
Stiglitz views GDP as outdatedImage: AP

Many view GDP as an antiquated standard

Stiglitz stressed that there was "no single indicator that can capture something as complex as our society. But because what we choose to measure and how we construct our measures can have such an important role in the decisions that are made, it is important that there be an open and public discussion of our system of metrics."

OECD Secretary General Angel Gurria seconded those notions and said "economic resources are not all that matter in people's lives. We need better measures of people's expectations and levels of satisfaction."

OECD chief Angel Gurria
Economic resources are not all that matter, says OECD's GurriaImage: picture-alliance/ dpa

One of a number of problems is that ultimately harmful economic activity actually raises a nation's GDP. A country that cuts down all its trees and sells the wood increases its gross domestic product, but over the long term it is destroying its natural resources to the detriment of its citizens and the environment.

Until now, this has never been measured. The same is true for wasting energy.

Sarkozy said his intention was "to put this report on the agenda of all international meetings, and to fight for all international organizations to modify their statistical systems based on the recommendations of the commission."

The French president has been one of the most vocal critics calling for an overhaul of the global economic system. He has repeatedly demanded tighter controls for financial markets and an end to the big bonuses which have been blamed for the excessive risk-taking that led to the global economic crisis.

"For years, we have been telling people that their living standards are getting better, while at the same time their lives were growing more difficult," Sarkozy said. "We must understand the people who have lost their homes, their jobs and some of their pensions in the wake of the financial crisis and who feel they have been cheated, although it is not their fault."

'Wrong measurement or wrong numbers'

Children swimming in a garbage-strewn river
Quality of life is more than just economic outputImage: AP

Professor Jean-Paul Fitoussi, one of the 37 economic experts who worked on the Stiglitz report, summed up the problem with the GDP measurement, saying that "when numbers tell us we are doing well, while people feel the floor collapsing under their feet, then either the measurement standard is wrong, or we are using the wrong numbers."

This is why Sarkozy wants to see the recommendations made by the economic panel implemented in France immediately and put on the G-20 agenda.

All economic data in future would be weighted according to environmental and social welfare criteria. The production of goods and services would no longer be the standard for measuring a country's well-being, but would include the development of personal and family incomes, the state of roads and other infrastructure, energy use, public safety, education, and the overall quality of life.

gb/AP/AFP/Reuters
Editor: Nancy Isenson