Simon Kuznets’ legacy includes more than GDP

Our CEO Michael Green recently talked to a group in London about Nobel Prize winner Simon Kuznets, born today 117 years ago. He made a significant contribution to our understanding of economic development and built the foundation for GDP metrics. He also gave an early indication that economic progress would not be possible without social progress.

 

“Simon Kuznets’ innovation gave policymakers regular, reliable estimates of what the US economy was producing. Armed with this information, eventually, the US government found its way out of the Great Depression. This idea spread around the world, and GDP became the key measure of progress for more than 50 years. 

And it’s had a huge impact: Trillions of dollars move around our planet based on whether countries are going up or down in terms of their GDP. And politicians campaign on whether GDP is going up or down. …

But Kuznets knew national income alone couldn’t adequately measure the wellbeing of society. GDP is blind to the environmental constraints our planet is running up against. It has nothing to say about fairness or justice. And GDP counts bombs and prisons as progress. It’s a hugely flawed measure. The economic crisis, Arab spring and rise of populism illustrate that while economic numbers are climbing something else can be happening within a society.

The Social Progress Index is a different way of looking at the progress of our world, a more sustainable and inclusive way to measure and develop our world. It’s based entirely on social and environmental indicators. Separating out these metrics allows us to understand them independently and directly. Then we can understand the true relationship between economic and social progress.” Just as Kuznets advised was important in his original report on national income in 1934.

Read more about this history and the need for complementary measures to GDP on the World Economic Forum blog.