Changing the Way We Measure Our Economy

By Darcy Sawatzki, M.A.

GDP, a.k.a Gross Domestic Product: the granddaddy of all economic indicators.

Since it was devised in the 1930s by economist Simon Kuznets, the concept of the GDP has weathered its fair share of criticism. In fact, Kuznets himself, who was awarded the Nobel Prize in economics for his illustrious work, talked openly about the limits of the GDP as an indicator of the economic health of a country.

One of Kuznet’s main hesitations with using GDP out of context was that while it does a great job showing how much money is flowing through the economy, it fails to account for what money is flowing where. You could take that concept a step further and argue that the GDP’s real shortcoming is that while it accounts for widgets made and sold, it doesn’t account for the people actually making and selling those widgets.

Put another way, GDP doesn’t take into account the health of our economy when it comes to human capacity development. It was easy in the 1930s and 1940s to simply track the number of widgets sold, but our new knowledge economy has changed the game. We’re not simply producing widgets or building railroads and skyscrapers.

New tools like “Social Wealth Economic Indicators” (SWEIs) are helping us measure how our economy is performing not just based on income and output, but on real determining factors that affect how well we do business. These range from levels of education and health to gender and racial equity to access to early childhood education and support for care work (primarily performed by women and historically unmeasured in our economy for this very reason).

SWEIs help us understand not only the state of our country’s human capital, but the factors required to maintain, develop, and grow it. They help us understand how investing in that human capital can yield greater economic results and make our economy more robust. The Center for Partnership Studies calls this the “Caring Economy.”

For decades, economic policy has focused on increasing our ability to make and produce more widgets, largely ignoring the very people who make those widgets and the promise of their capacity to make us all more effective contributors to the economy. SWEIs are designed to do exactly that—examine and explore how small investments in human capital can yield great returns for our economy.

For example, a Rutgers study shows that women who return to work after a paid maternity leave have a 39 percent lower likelihood of receiving public assistance and a 40 percent lower likelihood of food stamp receipt in the year following the child’s birth compared to those who return to work and take no leave at all.

An early 2000s study about human capital showed that firms offering paid parental leave had 2.5 percent higher profits than those that did not.

It’s time we measured ourselves not just on how well we produce things, but how well our society supports and equips the people who produce those things. In our changing global economy, that’s not only smart business, it’s essential for the survival of our economy.