Madelaine Drohan is an award-winning author and journalist who has covered business, economics and politics in Canada, Europe and Africa. She is currently the Ottawa correspondent for The Economist. She spent eight years in London as the European correspondent for the Globe and Mail, a beat that gradually extended as far north as Siberia and as far south as southern Africa. Before that, she covered Parliament Hill for eight years for the Canadian Press, Maclean's magazine, the Financial Post and the Globe and Mail. She was awarded a Reuters Fellowship at Oxford University in 1998, the Hyman Solomon Award for Excellence in Public Policy Journalism in 2001 and was a 2004-2005 Media Fellow at the Chumir Foundation for Ethics in Leadership.

When gross domestic product was first thought up in the 1930s as a measure of an economy based on the value of all the goods and services produced, it was greeted as a wonder tool. Having stumbled through the Great Depression without any reliable signposts, politicians and policymakers were ecstatic to have a reliable gauge of what was happening in the economy. But even as the accolades poured in, one of its inventors, Stanley Kuznets, warned that his tool had limits.

"The welfare of a nation can scarcely be inferred from a measure of national income," he told the U.S. Congress.

In the seven decades since, politicians have forgotten that warning. Too often these days, gross domestic product (GDP) is equated with national well-being. When it goes up, we are told the nation is on a roll. When it goes down, doom is predicted. Increased economic growth, as measured by GDP, is seen not just as a commendable goal, but as the only result that matters. As former Quebec premier Lucien Bouchard found out earlier this month, not everyone agrees.

Bouchard said Quebecers should be more like their counterparts in Ontario and the U.S. and work longer so that they can create more wealth. The ensuing uproar was instructive. Labour leaders were outraged at the suggestion Quebecers were lazy. Representatives of the unemployed said the comments were insulting. Others defended Quebecers, saying they worked fewer hours because they wanted a better balance between work and family.

GDP has its limits

Which brings us back to gross domestic product and its limits. If Quebecers did work longer hours and produced more goods and services, then GDP would go up because such an increase in output can be measured. Quebecers would be wealthier, but would they be better off? They might not think so if they felt more stressed, had less time with their friends and families, and had to cut down on hobbies and sports activities. But none of those things has a dollar value, and so cannot be included in GDP.

Somewhat perversely, things that society might decide are wrong, such as clear-cutting a whole province, or paving over a wilderness, will boost GDP, because the short-term gains in jobs and production are measured, whereas not being able to enjoy the wilderness any more is not. Hurricane Katrina was good for US GDP because it sparked a flurry of reconstruction in the affected area. It’s doubtful whether anyone would think that it contributed to national well-being.

The point is that GDP is good at what it does, which is to measure the value of goods and services produced. But it should not be mistaken as a barometer of progress. For that we need other tools.

And here we get into problems because those tools are a work in progress. Determining the well-being of a society is tricky because it means coming to grips with things that are not easily measured. While you can work out ways to measure health and education levels, it’s more difficult to judge things like community interaction, tolerance or happiness. This does not mean that people have not tried.

NASA kickstarted work

Back in the 1960s, NASA kickstarted U.S. research into social indicators because it wanted to know what impact its space program might have on society and realized it had no way of gauging that.

The Organization for Economic Cooperation and Development, the rich countries’ club based in Paris, joined the effort in the 1970s, but then dropped out in the 1980s when Reaganism and Thatcherism were in vogue and the economy was all that mattered.

The environmental movement in the 1970s, 1980s and 1990s helped pull the focus back towards the importance of things that could not be easily measured, such as the long-term costs to society of environmental damage.

In the last decade, there has been an explosion of work as researchers try to develop measures of well-being that encompass not just the economy, but also society and the environment as well.

Here in Canada, a group in Nova Scotia has been working on something called the Genuine Progress Indicator, originally developed in San Francisco, since 1997. In Ottawa, the Centre for the Study of Living Standards produced the Index of Economic Well-being in 1998. And in Toronto, the Atkinson Foundation is supporting work on the Canadian Index of Well-being. Parts of it are currently being field tested with business, social, academic and political groups across the country. Its backers want to make sure that the tool they produce is useful.

The OECD in Paris is pulling much of this work together and attempting to produce an index, based on the Canadian Index of Well-being, that all of its member countries can use. The idea is not to replace GDP, but to have another tool that will give a broader reading of the health of a society.

It will be hard to wean politicians off of their dependence on GDP figures. But in the end, these other tools will provide useful information to politicians and policymakers on how people are faring that they cannot get by just looking at GDP. And who knows? When an index that measures more than just wealth is used, Quebecers might well come out on top.