GDP, or gross domestic product, has been the gold standard for measuring a nation’s economic success—and its citizens’ quality of life—for the past 85 years. Presidents and prime ministers depend on a growing GDP to stay in office. Markets move on its every tick up or down.
And yet economists and policy wonks argue often that GDP doesn’t give us the full picture of a country’s financial performance, let alone the wellbeing of its people. Data scientists at the research firm L’Atelier, a subsidiary of the French banking giant BNP Paribas, are the latest to join the chorus. Last week, L’Atelier introduced a new economic-performance metric that they believe identifies which OECD countries are doing the best job of both creating national wealth and ensuring the conditions for social mobility—and which are falling short.
L’Atelier calls its new metric the Sustainable Economic Barometer. As the name suggests, the barometer attempts to measure not just economic performance, but economic sustainability. It does that by crunching traditional economic performance metrics (including the unemployment rate, GDP, and the national debt burden) and then benchmarking those figures against rising costs of living (e.g. Healthcare, housing, schooling and childcare) to arrive at a nation’s sustainability score.
The countries that score the highest on the sustainable economic barometer are those that effectively spread their economic success around—in other words, a nation that, L’Atelier says, “delivers its surplus wealth to its population in the form of higher wages, lower costs and upward social mobility.” The upshot: if you’re a recent university graduate with a mountain of student-loan debt and are currently priced out of the housing market, there’s a decent chance your country earns a low economic sustainability score from L’Altelier.
“Weighs down on people’s sense of hope”
John Egan, L’Atelier’s CEO, told Coins2Day it developed the metric to show which countries have a rich/poor gap that is widening to a point that it threatens the stability of “democratic systems and the capitalist systems,” and where this gulf “weighs down on people’s sense of hope and potential prosperity in the future.” Traditional economic performance frameworks do not adequately capture the fact that, in many of the world’s biggest economies, social mobility is in steep decline, particularly for young adults, as the cost of living everywhere skyrockets and wages fail to keep up, he says.
“Many economies are experiencing GDP per capita growth that is detached from cost of living and income. Upward mobility is limited, almost exclusively, to those who own assets,” says Egan. “New asset-owning economic classes have been created that see the wealthiest in society becoming richer whilst producing less real value in society. The world has changed and so it’s vital that the ways we view and measure our economies change also.”
L’Atelier’s global rankings
L’Atelier’s barometer does not pull any punches.
Atop the ranking are Luxembourg, Norway, and Sweden. The bottom three countries are Lithuania, United Kingdom, and Latvia. The United States lands near the bottom, in 31st place among 36 countries.
A deeper dive into the numbers shows why the United States and Britain—the countries with the highest and fifth highest GDP in the world, respectively—score so poorly. In both countries, more than half of a citizen's annual average wage is spent on just three household budget items: childcare, housing, and healthcare.
Meanwhile, in traditionally high-social-safety-net countries such as Sweden and Germany, a paycheck goes much further, the L'Atelier researchers found.
Egan said his research firm was motivated to create an alternative measure for economic performance after years researching the impact of how rising inequality and reduced social mobility in the world's biggest economies led to increased civil unrest, and even protest movements such as France's yellow vest movement. In their research-panel interviews, they found large swathes of the population who sympathized with the movements. These same people said they felt economically disaffected and disenfranchised. If whole generations feel as if there is no way to climb the social ladder, "that's really dangerous to a society," Egan added.
Incidentally, L'Atelier researchers also found a similar sense of disaffection among young people who'd decided to go all-in investing in crypto currencies and other digital assets like NFTs. They told L'Atelier they felt that investing in such risk-assets offered a clearer path to getting ahead economically than pursuing a traditional career path.
Rethinking GDP
L'Atelier is hardly the first group to call for a complete rethink of GDP.
A reminder: GDP is a shorthand for the sum total of a nation’s economic output. Every haircut we pay for, every fighter jet the military buys, every public school teacher’s salary—it all gets counted up to arrive at GDP. By the end of 2021, the United States GDP was running at a tick under $24 trillion. Conventional wisdom holds that should the number grow from one year to the next, the party in power stands a decent chance of holding onto that power.
As impressive and as simple as that formula sounds, GDP has long had its detractors. Critics feel GDP inaccurately gauges national prosperity, and it fails to measure what individuals truly hold dear: good health, happiness, and peace. In 1968, Sen. Robert Kennedy famously proclaimed, that GDP "counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage… it measures everything in short, except that which makes life worthwhile.” When Kennedy said that, U.S. GDP was a mere $800 billion, or roughly the value of U.S. Economic output currently generated every two weeks. A few years later, the king of Bhutan, Jigme Singye Wangchuck, said he wanted his reign to be measured on gross national happiness. Spoiler: The measure didn’t quite take off.
In the 1990s, the United Nations launched the Human Development Index to measure gains in education, gender equality, and life expectancy. HDI metrics are commonly used by NGOs and activists to benchmark progress made in achieving human development goals on a national level. And, in 2015, the Sustainable Development Goals were adopted by the U.N. To prod the world's countries to work towards making the planet a safer and more equitable place for all inhabitants.
Egan said he hopes L'Atelier's barometer will become a similarly valuable metric that gets policymakers and economists to rethink what a nation's economic success should looks like. He says the early feedback from economists is encouraging. But, he added, the most rewarding response to the launch of the barometer has come from ordinary people whom they've shared their findings with.
"People felt like it vindicated their position," Egan said, "and that was interesting to see."
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