For many years - and particularly since the onset of the global recession - Canadians and people around the world have been bombarded with news about the gross domestic product. Numbers have been issued and then updated. Predictions have been made and then revised. So powerful and predominant has GDP become, that the New York Times referred to it as "a celebrity among statistics, a giant calculator strutting about adding up every bit of paid activity ..."
But what is GDP? What does it tell us about how well or poorly we are doing as a society? More important, what does it leave out? And what are the consequences of this omission?
GDP is simply the value of all goods and services produced in a country in a given year. It was first introduced in the U.S. during the Great Depression as a way of measuring how much and how quickly the U.S. economy was shrinking. Over time, GDP has emerged as a surrogate for wellbeing, something it was never designed to be. Even the "father of the GDP," Nobel laureate Simon Kuznets, recognized that "the welfare of a nation can scarcely be inferred from a measurement of national income as defined by the GDP."
GDP makes no distinction between economic activities that are good for our wellbeing and those that are harmful. Spending on tobacco, natural and human-made disasters, crime and accidents, all make GDP go up. Conversely, the value of unpaid housework, child care, volunteer work and leisure time are not included in GDP because they take place outside of the formal marketplace. Nor are subtractions made for activities that heat up our planet, pollute our air and waterways or destroy farmlands, wetlands and old-growth forests. The notion of sustainability - ensuring that precious resources are preserved for future generations - doesn't enter the equation.
Perhaps the most eloquent summation of the limitations of GDP was expressed more than 40 years ago by senator Robert Kennedy, who noted that GDP "measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile."
Yet, GDP continues to exert great influence. Why? Because indicators are powerful. They often influence the policy agendas and decisions of governments. As Canadian-born, economic giant John Kenneth Galbraith put it, "if you don't count it, it doesn't count."
Thus, in recent years, we have seen a resurgence of interest in indicators, and the birth of a strong global movement favouring new, more comprehensive and transparent measures of societal progress. The goal is to inform and promote policy decisions that are based on solid evidence, and that will improve the quality of life for all people. The aim is not to replace GDP, but to offer a more holistic view of wellbeing.
Canada has very much been a leader in this effort. Today is the launch of the Institute of Wellbeing and the introduction of its signature project, the Canadian Index of Wellbeing (CIW). The institute is independent, non-partisan and guided by an advisory board of Canadian and international experts. The institute is affiliated with the University of Waterloo and we look forward to this exciting new research partnership that will further validate our efforts.
The index is rooted in Canadian values. It will report on our country's progress - or lack of it - both overall and in eight specific areas that really matter to our quality of life: our standard of living; our health; the quality of our environment; our education and skill levels; the way we use our time; the vitality of our communities; our participation in the democratic process; and the state of our arts, culture and recreation. Beneficial activities will be treated as assets and harmful ones as deficits.
Today the institute released its first report, summarizing research findings in the three areas of Living Standards, Healthy Populations and Community Vitality. We noted that during so-called economic good times, Canadian workers failed to reap their share of the benefits of productivity growth, with hourly wages rising at only half of the rate of GDP.
We also reported that while Canadians are living longer, they are not living better. The decline in the portion of the population that considers itself in excellent or very good health is most marked among Canadian teenagers. Whereas more than 80 per cent of 12- to 19-year-olds reported excellent or very good health in 1998, only 67 per cent did so in 2005. On a more positive note, Canadians are well-equipped to deal with current and future challenges because we live in resilient communities built around connectedness, safety and compassion for others.
Over the course of the next year, the institute will release the results of research in the five other areas of wellbeing. Our goal is to be able to convert all eight areas into a composite index, including a single number that will provide a quick snapshot of how Canadians are really doing.
The CIW will connect the dots between public policy decisions and Canadians' quality of life. It will promote a new understanding of wellbeing and a dialogue that reshapes the way we talk about wellbeing and public policy issues. It will encourage policy-makers to make evidence-based decisions that respond to the values and needs of Canadians. In that respect, it will be a true nation-building project.