Northern Alternative: Beyond GDP in Canada

A new report from the Centre for the Study of Living Standards looks at economic well-being in Canada and the Provinces over a nearly 30-year period. Instead of using Gross Domestic Product to determine economic well-being, however, the new report uses a different indicator called the Index of Economic Well-Being (IEWB). The Index looks at four variables when determining economic well-being:

  • Per capita consumption.
  • Per-capita wealth.
  • Economic equality through income distribution, including the intensity of poverty (incidence and depth) and the inequality of income.
  • Economic security from job loss and unemployment, illness, family breakup, and poverty in old age.

These variables reflect economic well-being in both the present and the future and account for average access to economic resources and the distribution of this access among the population. Additionally, the Index provides weights for each of the four variables so the value individuals place on each variable is reflected. In other words, the Index reflects both the objective data of the variable, as well as its relative importance to the respondent.

The results of the study show that, overall, economic well-being rose in Canada between 1981 and 2010 and that the increase has been driven by a dramatic increase in per-capita consumption and wealth. Compared to GDP growth, however, economic well-being has lagged. The gap reflects negative trends in the other variables in the IEWB, primarily inequality and insecurity, which brings down the overall level of economic well-being:

The difference between the two measures illustrates the incompleteness of GDP and the need for a more comprehensive approach that balances conventional income measures with other aspects of welfare.Other alternative frameworks push forward towards a more complete picture of the economy.

The state of Maryland, for example, uses a Genuine Progress Indicator (GPI) to measure sustainable economic growth. The GPI takes into account numerous positives, including the value of production in the home and community volunteering, as well as numerous negatives, including environmental degradation and the social costs of crime and divorce. The net results, as seen below, reveal a gap between Maryland’s Gross State Product and the GPI, suggesting that the purely economic gains do not translate into similar gains in economic well-being and sustainability for the people of Maryland.

 A GPI study of the national economy shows continual and steady GDP growth since 1950, contrasted with virtually no growth in the GPI after the mid-1970s:  

This trend is likely to continue, as GDP measures indicated growth starting in the third quarter of 2009, while unemployment levels have remained above 9 percent and the poverty rate has increased, reaching its highest level since 1993. Such discrepancies reflect the failure of GDP to accurately measure economic well-being. Developing and increasingly the visibility of alternative metrics and accounting frameworks like the IEWB and the GPI, provides policy makers with better tools for gauging the needs of the people and communities they represent. Governments should be pushed to adopt and utilize the new metrics for policy development.