GDP Sustainable Growth – An Inadequate Framework For Measuring The Health Of An Economy


Standard Gross Domestic Product (GDP) only considers the sum of goods and services produced by a country. As a consequence, even expenditures associated with oil spills and the consumption of alcohol and cigarettes add to GDP growth, but cannot reasonably be said to increase societal welfare. However, GDP has become exactly that: a commonly used measurement for the progress of a state’s welfare. This was eloquently noted by Mark Anielski.

“The ideal economic or GDP hero is a chain-smoking terminal cancer patient going through an expensive divorce whose car is totaled in a 20-car pileup, while munching on fast-take-out-food and chatting on a cell phone. All add to GDP growth. The GDP villain is non-smoking, eats home-cooked wholesome meals and cycles to work.”

In fact, GDP, the measurement which was created by economists Simon Kuznet and John M. Keynes, was never meant to be a measure of welfare, as pointed out by Simon Kuznet himself. : “the welfare of a nation can scarcely be inferred from a measurement of national income as defined by the GDP…goals for ‘more’ growth should specify of what and for what.”

The most dangerous flaw when only using GDP to measure how well an economy is doing is the fact that it does not take into account the environmental impacts such as greenhouse gas emissions associated with the production of the goods and services that add to GDP growth.

A new economic paradigm

A new measurement system should be based on well-established national accounting systems, such as GDP, and then adjusted to include the harvest and extraction of natural resources, as well as the damage from air-pollution and greenhouse gas emissions. This was discussed in detail in an earlier article on measuring natural capital.

The World Bank has calculated the costs to natural capital for 20 years already. They estimate the costs of particulate air-pollution in the U.S. alone amounted to $16,308,864,412 (current US$) in 2007.

A new system needs to properly distinguish between economic and natural capital. A framework for growth that only considers the aggregate of economic and natural capital will not meet the criteria of strong sustainability, and arguably, pure economic growth should never be sufficient to offset the decrease in natural capital.

Just consider the current situation of fast-growing economies like China that seem to be doing well on paper due to their enormous economic growth, yet pollute to the extent that citizens in major cities go to the countryside on the weekends just to breathe freely. Not to mention their contribution to global greenhouse gas emissions and, by that, climate change.

Apart from the ethical aspect of polluting to this extent, the social costs of millions of people in need of health care will be, and is, a considerable burden on the economy.

Introducing a new framework and a new goal for governments and businesses to strive for will incentivize a new kind of growth that values clean air and water, functioning ecosystems, and sustainable management of natural resources.

Internalizing the costs of producing the things we consume will be an important step towards correcting the market failure that is currently turning irreplaceable natural resources and ecosystem services into cash.

What are your thoughts?

About the Author Carl Frederik Kontny

Carl Frederik Kontny holds a BSc. in environmental science, policy, and management from the University of Bergen and a BSc. in economics from the University of Oslo. While originally from Oslo, he has lived both in Minnesota and in London before returning closer to home to attend a MSc. in energy economics at NMBU, just outside of his hometown. Carl Frederik has a special interest in energy policy and ways to effectively integrate the value of natural, social, and human capital when measuring economic growth and prosperity.

Leave a Comment:

Raffaele says December 7, 2012

I agree with the postulation of the author taking GDP for what it is – a measurement of transactions with no regard of their characteristics. To judge over the welfare of a country, one needs assign an “socio/eco-weight” to different transaction-types. Hence spendings on tabacco and alcohol would count less or even negatively and investments in renewable energy would count more due to a heigher weight, and so forth!

Judy says December 7, 2012

I find intriguing that natural capital is often discussed as a counterweight to purely economic concerns with no explicit accounting for human welfare/ community well-being. I am guessing that those who live where social inequities are more visible or who are themselves disproportionately impacted by environmental degradation or market excesses are more likely to factor people’s lived reality into measures of a healthy economy. If you think I’m off base, do let me know.

    Carl Frederik Kontny says December 7, 2012

    You make a very good point. Social capital, including things like safety and security, personal freedom, and equity, is an important factor in measuring the health of an economy, and the wellbeing of a country. I refer again to the Legatum Prosperity Index (, where this things are incorporated. The trouble with social capital, and indeed natural and human capital, is that it is hard to quantify. Not having a monetary value does not mean it should be counted as zero, and this is key. Thank you!

CarlF says December 7, 2012

Thank you for your thoughtful response. There has been several attempts to make a universal indicator that is weighted for social, natural, and human capital. They do indeed treat expenditure on education as a positive investment in human capital, while pollution, extraction of natural resources and other obvious negative actions are subtracted from the growth indicator, rather than adding to it. The World Bank’s Adjusted Net Savings , might create a solid foundation for such a measurement, and the Legatum Institute ( has done exciting work on prosperity indicators.

Elizabeth says December 7, 2012

Really well said, Mr. Kontny. I really hope countries such as the United States will start taking ideas like this into consideration before it’s too late.

    Carl Frederik Kontny says December 7, 2012

    Thank you Elizabeth!
    From experience, I know that there is a lot of exciting things going on at the local level in the US, which gives me hope. And you, being a recent graduate from the University of Minnesota, will play an important role in this movement and force a reconsideration of the economic goals governments and business strive for today.

Bernard Ferret says December 8, 2012

Well said Carl!
I would add 2 measures: “general happiness” and “general health” of a country. It’s difficult to measure, but I would suggest 2 things: the amount per capita (or % of GDP) spent on leisure activities. And the percentage of population using preventive health services. And then the % per capita of the part of total healthcare expenditures used for preventive services.

    Carl Frederik Kontny says December 12, 2012

    Thank you, Bernard!
    I like the suggestions you make, health and happiness is what all the alternative measurements to GDP seem to focus on, along with degradation of natural resources and ecosystems. How would you integrate “general health” and “general happiness” in a single measurement to replace GDP?

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