Gross domestic product (GDP) is the main metric used to measure a country’s economic performance. However, this indicator has significant limitations and sometimes does not reflect people’s real well-being. To analyse the economy in terms of actual economic and social well-being, several agencies have proposed alternatives that can help guide public policies towards more sustainable economies that offer a better quality of life.

GDP represents the total value of all goods and services produced in a country over a given period, and has been established as the primary method of measuring a country’s economic success since the 1950s. It is generally calculated every quarter, but the annual GDP is the yardstick used to measure an economy’s size and make comparisons between countries.

There are many ways of calculating GDP, but the method most commonly used by central banks and national statistical institutes measures three main components: consumption, investment and government spending, plus the difference between exports and imports. This is useful for getting an overview of economic activity, but it has some important limitations.

On the one hand, it does not show how wealth is distributed within a country, nor does it consider social welfare. Therefore, it does not reflect the inequality that can be caused by concentrated wealth and does not take into account factors such as health, education, security, or the quality of life of the population.

On the other hand, it does not measure sustainability or the negative environmental impact of some economic activities, nor does it take into account the informal economy and unpaid domestic work, which account for a large part of economic activity in many countries.

To address these limitations, several alternatives have been developed that go beyond the dominant economic paradigm to analyse the economy and present a more realistic picture in terms of the economic and social well-being of the population as a whole.

Measuring a more humane economy

Various local and international organisations argue that it is necessary to adopt a reflective attitude towards the regulations that determine the models and indicators used to analyse economic growth to improve the reliability of the information used in decision-making. To this end, many alternative proposals for measuring quality of life have emerged.

• Human Development Index (HDI). Created by the United Nations, it combines economic indicators, such as per capita income adjusted for purchasing power parity, with other health variables such as life expectancy and education. This provides a more holistic view of human development that facilitates the analysis of differences in quality of life between countries.
• Genuine Progress Index (GPI). Similar to the HDI, it takes into account factors such as wealth distribution, environmental degradation and unpaid work, but undercounts the costs of environmental degradation and loss of natural resources, income inequality, external debt and crime.
• Index of Sustainable Economic Well-being (ISEW). Similar to the GPI, the sustainable economic well-being index values unpaid domestic work and takes into account environmental degradation, income inequality and expenditures related to crime and unemployment to account for factors that are not measured in GDP.
• Gross National Happiness Index (GNI). Developed in Bhutan, the GNI index emphasises the importance of emotional and social well-being. It is based on nine factors to measure the prosperity of the population: psychological well-being, health, education, time use, cultural diversity, good governance, community vitality, ecology, and standard of living.

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