Globally, economic welfare has not been improving since 1978 say researchers in a new paper published in the journal Ecological Economics.

The researchers have estimated a global Genuine Progress Indicator (GPI) which they say is a far better indicator of economic welfare than Gross Domestic Product (GDP).

While GDP has been steadily increasing, GPI begins to decrease for most countries in the mid- to late 1970s, signifying rising inequality of income and increasing costs associated with ‘growth’.

GDP has mistakenly become a broader measure of welfare and is no longer an appropriate national policy goal, says the study. GDP really only measures one limited aspect of the economy: marketed economic activity.

GPI is designed to measure the economic welfare generated by economic activity. It separates activities that diminish welfare (such as pollution and crime) from those that enhance it (such as volunteering and household work). By recognizing that societal well-being or welfare depends on the underlying stocks of natural, human, built and social capital, the authors say GPI better approximates sustainable economic welfare.

Led by researchers from the Australian National University, the study compares GDP/ capita with GPI/capita for 17 countries over five continents: Europe, North America, South America, Oceania and Asia; representing 53 per cent of the global population. GPI is also compared with several other well-known indicators such as Ecological Footprint, Biocapacity, Life Satisfaction, Human Development Index and the Gini coefficient.

By synthesizing country estimates for GPI, the researchers were able to derive a global GPI estimate from 1950 to 2005. It clearly shows a difference between GDP and GPI after about 1978.

From around 1950 to 1975 there is a general trend where the GPI/capita for the majority of countries is increasing. This is attributed to rebuilding efforts after World War II when consumption and built capital were the limiting factors for improving well-being in many countries and environmental externalities had not yet become significant.

Around the mid to late 1970s, GPI/capita begins to level off, showing that the external costs of economic growth, such as rising income inequality and increasing external environmental costs, have outweighed the benefits. GDP/capita however still increases over this period.

The study found that globally, GPI/capita does not increase beyond a GDP/capita of around $6,500/capita.

The authors recommend that to achieve a sustainable and desirable future, there needs to be a rapid shift in policy focus away from maximizing production and consumption towards improving general well-being. This shift will require far greater attention be paid to environmental protection, full employment, social equity, better product quality and durability, and greater resource use efficiency.

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Kubiszewski, I.,Costanza, R., Franco, C., Lawn, P.,Talberth, J., Jackson, T., Aylmer, C. (2013) Beyond GDP: Measuring and achieving global genuine progress. Ecological Economics 93: 57-68.