Data-driven prosperity: the shift from GDP to multidimensional wellbeing indices

Nikolaos Tzivanakis

27 November 2023

The financial crisis highlighted the shortcomings of traditional measures of a country's prosperity. The Stiglitz-Sen-Fitoussi Commission played a pivotal role as it emphasised the significance of comprehensive assessments beyond simple economic transactions. It rekindled interest in including additional indicators such as environmental sustainability, social equality, health, and total well-being.

This shift in perspective reflected a better awareness of actual progress and prompted reconsidering how we construct policies and set societal goals. It emphasised that true progress requires a multidimensional assessment of wellbeing that includes more than just economic activities.

GDP has long been used to assess economic health, but its limitations are well known. Distinguished economists such as Marshall and Hayek and GDP's creator, Simon Kuznets, have criticised its narrow scope. While GDP is a valuable economic indicator, it only provides a snapshot of economic transactions, ignoring critical factors such as environmental impact, social welfare, and personal well-being. This insight is central to the 'Beyond GDP' initiative, which advocates for a broader view of national progress. We must shift away from solely counting economic transactions to broader measures reflecting quality of life.

The introduction of new technologies has brought new data and novel estimation methods, resulting in the development of several new indices that address the limitations of GDP. For example, the United Nations Human Development Index (HDI) and the OECD's Better Life Index provide a more nuanced perspective than GDP by incorporating life expectancy, education, income and life satisfaction data to encompass social and individual wellbeing. This shift reflects a growing recognition of the importance of gaining a more comprehensive understanding of economic performance and social progress.

The Citizen Prosperity Index puts the Institute for Global Prosperity (IGP) at UCL at the forefront of this data-driven evolution. We are redefining prosperity by expanding it beyond the narrow limits of traditional economic indicators to include data that reflect real-world community experiences and aspirations.

Our Citizen Prosperity Index measures prosperity across multiple dimensions, such as income and job stability, social relationships, housing, environmental quality, and health. This tool makes a strong case for more inclusive and detailed policymaking based on thorough data analysis.

Fuelled by data, this expanded view of wellbeing and prosperity is also the focus of the new book "Towards an Integrated Science of Wellbeing," edited by Prof Elizabeth Rieger, and Prof Paul Dugdale and Prof Robert Costanza and Dr Ida Kubiszewski, who both teach at the IGP. The book combines interdisciplinary research by lead experts to highlight the importance of diverse data in improving societal wellbeing. It challenges traditional economic-centric viewpoints and emphasises the significance of data-rich frameworks in assessing wellbeing.

The 'Beyond GDP' agenda marked a revolution in measuring social progress. Instruments such as the IGP's Citizen Prosperity Index and findings from "Towards an Integrated Science of Wellbeing" are paving the way in this direction. They emphasise the importance of creating tools that capture the different components of lived experiences and designing policies informed by such measures.

Adopting a more inclusive approach to measuring prosperity is critical in this data-driven journey. It ensures that our policies and practises are deeply informed and aligned with our lives’ complex realities rather than superficial assessments. We pave the way for a more inclusive and prosperous future by prioritising comprehensive, multi-faceted data - a future in which every data point tells a part of our collective story.

About Nikolaos Tzivanakis

Nikolaos is a Senior Research Fellow at the IGP and Head of the Data team, and currently developing the Citizen Prosperity Index in London and Dar es Salaam.