The objective of this article is to demonstrate the need to abandon the calculation of GDP (Gross Domestic Product) that computes all the financial movements of a country or region whether or not they are beneficial to the population, a fact that imposes the need for their replacement by another economic indicator.

1. 1
ALTERNATIVES TO GDP TO MEASURE ECONOMIC AND SOCIAL
PROGRESS
Fernando Alcoforado*
The objective of this article is to demonstrate the need to abandon the calculation of
GDP (Gross Domestic Product) that computes all the financial movements of a country
or region whether or not they are beneficial to the population, a fact that imposes the
need for their replacement by another economic indicator. This substitution is justified
because it has been demonstrated that the rise of GDP in several countries shows no
correlation with economic progress and the increase of the nation's social welfare, quite
the opposite. Until recently, there was a widespread belief that the world was getting
better and better. An increasingly unstable global economy, the growing inequalities
and pressing challenges of climate change have begun to destroy this belief.
Recent research shows that the majority of the population in the United States and
Europe no longer believed that life was improving. One cause of these interconnected
crises is the stubborn prioritization of economic growth as the central objective of
government, overcoming all other goals. People vote for political parties that perceive
themselves to be better able to provide a strong economy, and policymakers prioritize
policies that increase GDP as a result. This led to a short-term outlook, deteriorating
social conditions and paralysis over the actions needed to avoid climate change.
In fact, GDP growth alone does not mean a better life for all. It does not reflect
inequalities in material conditions among people in a country. It does not properly value
the things that really matter to people, such as social relationships, health, or how they
spend their free time. And crucially, ever-increasing economic growth is incompatible
with the planetary boundaries we face.
1. The emergence of GDP as a measure of economic progress
The concept of GDP came in the 1930s. It was the time of the Great Depression in the
United States after the world crisis of 1929. The current concept of GDP was conceived
by economist Simon Kuznets in 1934. Economist Simon Kuznets wanted to find a way
to measure the economy within the effort to find solutions to the crisis. He began by
trying to measure what was really productive in one significant respect: what really
brought well-being to society. Until then, many statistics had been created. They
showed, for example, how many miles of railroads there were, the amount of iron
produced, the consumption of electricity, etc., but no one had tried to put all of them
together.
Since the 1930s and especially after the Bretton Woods Conference, officially known as
the United Nations Monetary and Financial Conference, a meeting of delegates from 44
nations that met from July 1 to 22, 1944, GDP was adopted as the standard for
measuring and managing the size of a country's economy. The modern method of
measuring the performance of the various sectors of the economy was proposed by the
late British economist Richard Stone. He formulated the principles of GDP calculation
in the 1940s. Because it is based on a simple accounting identity, GDP can be calculated
from production data, expenditure, or income. Therefore, it provides governments with

2. 2
a tool to move the main levers of the economy, but also a measure of success that,
because of their widespread use, allows governments to compare policies.
However, GDP does not measure everything by ignoring the relationship between
economic growth and income inequality. Simon Kuznets was not too proud of what he
had helped to create. He did not agree with the GDP that turned out to be very different
from his original intention, that is, his measure of economic well-being became a
measure of activity in the economy. The difference is that there are many things that are
good for the economy and that are not good for society. For example, if there are more
crimes, it pays more to lawyers and the police, and that counts in GDP. Government
spending on wars contribute to GDP growth. Nevertheless, GDP came to stay and
became the main way of measuring economic activity after World War II.
2. The GDP in question
Criticism against GDP arises after observing that while GDP has grown on average in
most developed countries in the last decade, real wages have declined because most of
the gains of large economies have paid for capital rather than labor. The productivity
gains and technological innovations of recent times have not necessarily translated into
more prosperity for the whole population; competitiveness has come at the expense of
income inequality, which shows that growth is not associated with justice and
satisfaction with life. As a result, national governments and international organizations
have begun to look for alternatives for measuring economic and social progress.
During the 2017 World Government Summit held in Dubai, this issue was discussed in
depth. The consensus reached is that economic policies need to seek new and more
ambitious goals, related not only to people's income and the country's productivity, but
also to the satisfaction of life and the achievement of happiness. The effectiveness of
GDP as a measure of social progress was called into question when it came to the
conclusion that countries seeking to raise GDP take initiatives that may diminish the
future well-being of societies. What to do with GDP that has been used as a measure of
progress?
Currently, GDP is widely used by policymakers, economists, international agencies and
the media as the primary indicator of a nation's health and economic well-being.
However, GDP was never earmarked for this role. It is just a gross count of products
and services bought and sold, with no distinction between transactions that increase
welfare and those that decrease. Instead of separating costs of benefits and productive
activities from destructive activities, GDP assumes that every monetary transaction
increases welfare, by definition.
The crucial economic functions performed in domestic activities and voluntary work are
entirely ignored in the calculation of GDP. The contributions of the natural habitat to
providing the resources that support us are also not recognized. As a result, GDP not
only masks the collapse of social structure and natural habitat. Even worse, because it
actually portrays this collapse as economic gain. GDP treats crime, divorce, natural
disasters and wars as economic gains. As GDP registers all monetary transactions as
positive, the costs of social decay, natural disasters and wars are counted as an
economic advance. Crime adds billions of dollars to GDP due to the need for prisons

3. 3
and other security measures, increased police protection, property damage, medical
costs and arms spending.
GDP ignores the non-mercantile economy of the home and community. The essential
functions of child care, the elderly, domestic work and voluntary community work are
completely ignored in GDP. GDP also adds to the cost of prisons, social services,
dependency and psychological counseling that arise in the non-commercial area. GDP
violates basic accounting principles and common sense, treating the exhaustion of
natural resources as income and not as depreciation of an asset. As a result, the more a
nation depletes its natural resources, the more GDP increases. GDP increases with
polluting activities and then with cleanings. The superficial cleaning of toxic sites is
expected to cost hundreds of billions of dollars over the next thirty years, increasing
GDP. Given that GDP added for the first time the economic activity that generated this
waste, it creates the illusion that pollution is a double benefit to the economy. GDP
ignores the disadvantages of living indebted to foreign assets. In recent years,
consumers and governments have increased their spending by borrowing overseas. This
temporarily increases GDP, but the need to repay this debt becomes an increasing
burden on a national economy.
Professor Ladislau Dowbor questions the fact that the GDP only calculates the volume
of economic activities without considering whether they are useful or harmful, measure
the flow of means, not the attainment of ends and not take into account the reduction of
inventories of natural goods of the planet. Dowbor argues that when a country explores
its oil, this is presented as economic efficiency because it raises GDP. The term "oil
producers" is interesting because no one has ever produced oil: it is a stock of natural
goods, and its extraction, if it gives rise to activities important to humanity, is positive;
but we must always take into account that we are reducing the stock of natural goods
that we will deliver to our children (Dowbor, Ladislau, Além do PIB: medir o que
importa e de forma compreensível (Beyond GDP: measuring what matters in an
understandable way). Available on the website <https://dowbor.org/2019/02/dowbor-l-
alem-do-pib-medir-o-que-importa-e-de-forma-compreensivel-2019-14p.html/>].
The per capita GDP that has been used as a measure of social progress is the object of
criticism by many researchers who have tried to propose new indicators of social
welfare. Not only reflecting economic aspects, the Human Development Index (HDI)
developed by Amartya Sen and Mahbub ul Haq emerged in 1990 as a new proposal for
measuring social progress. Based on a small number of dimensions, the HDI stands out
for its easy interpretation, which is a relevant factor for transparency and simplicity in
the transmission of results to a broad and diverse public. However, similar to GDP per
capita, the HDI has several limitations because it does not consider the regional
particularities, in addition to not establishing criteria for the weighting assigned to each
of its components.
3. Alternatives to GDP replacement
3.1- GPI - Genuine Progress Indicator
The GPI considers the welfare and environment parameters using the same
methodology of calculation of the GDP, but, unlike this, it subtracts costs due to factors
such as crime, pollution, environmental degradation and compromise of natural

4. 4
resources and systems, for example. On the other hand, items such as domestic work
and voluntary work (SUSTAINABILITY, The Genuine Progress Indicator. Available
on the website <http://www.sustainwellbeing.net/gpi.html>) are added to the
calculation. The GPI is based on the concept of sustainable income, presented by
economist John Hicks. Sustainable income is the amount that a person or an economy
can consume over a period without decreasing consumption during the next period.
Likewise, the GPI describes the welfare state in society, taking into account the ability
to maintain well-being at least at the same level in the future.
The Genuine Progress Indicator (GPI) is an alternative measure of the economic well-
being of a nation. The GPI extends the conventional accounting framework to include
the economic contributions of family and community environments and natural habitat
along with conventionally measured economic output. The GPI takes into account more
than twenty aspects of our economic lives that GDP ignores. It includes estimates of the
economic contribution of numerous social and environmental factors that GDP rejects
with an implicit and arbitrary value of zero. It also differentiates economic transactions
that contribute to well-being and those that decrease. The GPI then integrates these
factors into a composite measure so that the benefits of economic activity can be
weighted against costs.
Figure 1 shows the discrepancy between the GDP (Gross Domestic Product) and the
GPI (Genuine Progress Indicator) of the United States from 1950 to 2002:
Figure 1 - GDP AND GPI OF THE UNITED STATES FROM 1950 TO 2002
Source: COSTANZA, Robert et all. Building a Sustainable and Desirable Economy-in-Society-in-Nature.
Available on the website
<https://sustainabledevelopment.un.org/content/documents/Building_a_Sustainable_and_Desirable_Econ
omy-in-Society-in-Nature.pdf>
Figure 1 shows the discrepancy between GDP and GPI. Instead of GDP growth, what is
observed is the stagnation of the economy pointed out by GPI especially from 1975 to
2002.
3.2- EWBI - Economic Well-Being Index

5. 5
Economic well-being depends on a wide range of variables, which can be grouped into
four dimensions: 1) personal consumption flows; 2) stocks of wealth; 3) income
distribution; and, 4) economic security. The level of economic well-being is not only
subject to individual satisfaction and the present moment, but also to the satisfaction of
all society and its future economic security. Concern for collective well-being makes
individuals value policies that aim to distribute income and sustainability, mainly due to
their great effect on society as a whole [Vidigal, Cláudia et all. Índice de bem-estar
econômico: uma proposta para os estados brasileiros (Economic well-being index: a
proposal for the Brazilian states). Available on the website
<https://seer.ufrgs.br/AnaliseEconomica/article/view/43547/45686>].
The proposed EWBI index is composed of four distinct dimensions: 1) "Consumption
Flows", obtained by indicators of private consumption and public consumption; 2)
"Real Wealth - Intergenerational Legacy", resulting from physical capital, human
capital, research and development expenditures and public debt; 3) "Equity",
constructed from the Gini Index and the FGT Index; and, 4) "Economic Security",
consisting of indicators of unemployment risk, financial risk associated with the disease,
risk of poverty in old age and risk of violence.
The variables considered in the construction of the Economic Well-Being Index
(EWBI) are as follows: 1) Consumption Flows (Private Consumption and Public
Consumption); 2) Real Wealth - Intergenerational Legacy (Gross fixed capital
formation per capita, Public expenditure per capita with education, Private expenditure
per capita with education, Research and development expenditure, Public expenditure
per capita with research and development, Public debt and Net debt real per capita); 3)
Equity (Income inequality and Intensity of poverty); and, 4) Economic Security
(Unemployment risk, Unemployment rate, Financial risk associated with the disease,
Risk of poverty in old age and Risk of Violence).
The "Consumption Flows" dimension is probably the clearest influence on the
economic well-being of individuals and their families. Several important factors have
not been incorporated into the index, including leisure time, informal economy, labor
costs, and consumption of health-damaging products or illegal products that lead to
crime. The "Real Wealth - Intergenerational Legacy" dimension, which includes
physical and human capital, research and development expenditures and public debt,
seeks to measure the legacy that current society will transfer to future generations. It
should be noted that this last variable came into the EWBI's account as something evil
to economic well-being. The amount of capital accumulated can serve as the productive
structure of a future society.
Indicators of income inequality and poverty intensity were used to measure the "Equity"
dimension. High levels of poverty, as well as unequal income distribution, are
considered to be detrimental elements to the economic well-being of a society, since
they cause deprivations in consumption and capital accumulation of families. In order to
measure inequality of income distribution, the Gini Index is used, one of the main
indicators for this purpose. The poverty intensity is obtained from the Foster Index,
Greer and Thorbecke (FGT). The "Economic Security" dimension is measured by the
risk of unemployment, financial risk associated with the disease, risk of poverty in old
age and risk of violence. The economic problems that occur as a result of

6. 6
unemployment, disease, poverty and violence reduce the well-being of individuals not
only in the present moment, but also bring uncertainties about the future standard of
living. In the EWBI calculation, the Min-Max Linearization Technique is used.
The EWBI is an alternative indicator of economic well-being, especially per capita
GDP, which ignores relevant factors regarding access to economic resources. The
EWBI is a relevant indicator to subsidize the implementation and monitoring of public
policies. The EWBI presents itself as an index capable of measuring more adequately
the economic well-being of a society than GDP per capita. Vidigal et all shows the use
of the EWBI in the construction of an Index of Economic Well-Being (EWBI) for the
Brazilian states in the years of 2002 and 2008, as well as comparing them among the
states [Vidigal, Cláudia et all. Bem-estar econômico: aplicação de indicador sintético
para os estados brasileiros (Economic well-being: application of a synthetic indicator
for the Brazilian states). Available on the website
<http://www.anpec.org.br/sul/2013/submissao/files_I/i2-
e6e1eaa19f84c73d5c49529fdb2e4ffb.pdf>].
The IBEE calculation for the Brazilian states, regardless of the weighting used, showed
that Santa Catarina is the Brazilian state that presents the greatest economic welfare in
relation to the others. This state is endowed with good indicators for the four
dimensions of the index, which gives its inhabitants good economic conditions and
quality of life. It was observed that, together with Santa Catarina, the states of São
Paulo, Rio Grande do Sul and Paraná, presented high IBEEs in 2002 and 2008. It was
also verified that the state with the worst economic welfare indexes for any weighting
structure and in all the years studied was Alagoas.
3.3- HPI- Happy Planet Index
The Happy Planet Index (HPI) measures the capacity of each country to provide
sustainable well-being to its citizens. It was introduced by the New Economics
Foundation, a British environmental nongovernmental organization in July 2006. HPI is
not a way of quantifying which countries are the happiest in the world, but it is first and
foremost a way of measuring the efficiency with which a nation converts its natural
resources into long lives and happiness for its citizens.
Each value relative to a country takes into account: 1) the level of subjective
satisfaction; 2) the average life expectancy; and, 3) the ecological footprint per capita.
HPI measures what matters: sustainable well-being for all. It tells us how nations are
reaching out to achieve long, happy, and sustainable lives. The HPI provides a compass
to guide nations and shows that it is possible to live good lives at no cost to the planet
Earth (http://happyplanetindex.org/about).
It is important to note that the welfare and life expectancy data used to calculate HPI
scores for each country captures how people are doing in a nation. The Happy Planet
Index, however, does not measure human rights abuses and violations, which is a
serious problem affecting people all over the world, including some of the countries that
are first in HPI. While human rights violations have a negative impact on the well-being
and life expectancy of some people in a country, HPI is based on average numbers for
the population as a whole.

7. 7
The HPI combines four elements (Well-being, Life Expectancy, Results of Inequality
and Ecological Footprint) to show how effectively residents of different countries are
using environmental resources to lead long and happy lives.
Well-being: How much does the residents of each country say how they feel about life
in general, on a scale of zero to ten, based on data collected as part of the Gallup World
survey. To measure wellness, globally renowned survey data are used that asks
respondents questions about how they feel as their lives are going in general whose
validity has been demonstrated in a variety of different contexts around the world. As a
result, psychologists, sociologists, and economists now regularly use subjective well-
being data in research, and policy makers are beginning to use it to inform decision-
making.
Life expectancy: The average number of years a person must live in each country based
on data collected by the United Nations.
Results of Inequality: the inequalities between people within a country, in terms of
how long they live and how happy they feel based on the distribution of life expectancy
and the welfare data of each country. The inequality of results is expressed as a
percentage. We need to adjust the inequality of outcomes because people across the
world are experiencing the impact of growing inequalities both in terms of the
underlying failings of social justice and the negative effect it has on other outcomes.
Ecological Footprint: The average impact each resident of a country imposes on the
environment, based on data prepared by the Global Footprint Network. The Ecological
Footprint is expressed using a standardized unit: global hectares (gha) per person.
It is important to note that the welfare and life expectancy data used to calculate HPI

8. 8
scores for each country captures how people are doing in a nation. The Happy Planet
Index, however, does not measure human rights abuses and violations, which is a
serious problem affecting people all over the world, including some of the countries that
are first in HPI. While human rights violations have a negative impact on the well-being
and life expectancy of some people in a country, HPI is based on average numbers for
the population as a whole.
The 10 best HPI countries for 2009 are the following:
Place Country
Value
(HPI)
1 Costa Rica 76.1
2 Dominican Republic 71.8
3 Jamaica 70.1
4 Guatemala 68.4
5 Vietnam 66.5
6 Colombia 66.1
7 Cuba 65.7
8 El Salvador 61.5
9 Brazil 61.0
10 Honduras 61.0
Source: https://pt.wikipedia.org/wiki/Happy_Planet_Index

9. 9
3.4- World Hapiness Report
The World Happiness Report is an annual publication of the United Nations Sustainable
Development Network. In July 2011, the UN General Assembly adopted resolution
65/309. In pursuit of a holistic definition of development, he invited member countries
to measure the happiness of their peoples and use the data to help guide public policy.
The first World Happiness Report was launched on April 1, 2012 as a key text for the
UN High-Level Meeting: Well-Being and Happiness. The report uses mainly Gallup
World survey data. Each annual report is available to the public for download on the
World Happiness Report website (https://worldhappiness.report/ed/2019/).
The national happiness measurement method is based on nationally representative
samples of respondents who are asked to rate their own current lives on the scale of 0 to
10. The report correlates the results with various factors of life. In reports, experts in
areas such as economics, psychology, research analysis, and national statistics describe
how well-being measures can be used effectively to assess the progress of nations and
other topics. The World Happiness Reports were issued in 2012, 2013, 2015, 2016,
2017, 2018 and 2019. In addition to ranking countries' levels of happiness and well-
being, each report has contributing authors and most focus on one subject. The data
used to rank countries in each report are taken from the Gallup World survey, as well as
from other sources, such as the World Values Survey, in some of the reports. The
Gallup World Poll questionnaire measures 14 areas within its main issues: (1)
economic, (2) citizen engagement, (3) communication and technology, (4) diversity
(social issues), (5) education and families, (6) emotions (welfare), (7) environment and
energy, (8) food and shelter, (9) government and politics, (10) law and order, (11)
health, (12) religion and ethics, (13) transportation and (14) work.
The World Happiness Report of 2019 shows that Finland, Norway, Denmark, Iceland
and Switzerland compete for the top spot in the world ranking of the happiest countries.
The 2019 edition reports that Finland is, for the second consecutive year, the happiest
country in the world for the United Nations. Brazil lost four places, moving from 28th
place to 32nd in relation to the last edition. This report takes into account variables such
as Gross Domestic Product, social assistance, life expectancy, freedom, generosity,
corruption and the quality of life of immigrants. It is prepared by the Network of
Solutions for Sustainable Development - a multidisciplinary research body linked to the
UN.
Among the reasons that make Finland the happiest country in the world for the United
Nations is the quality of its education, health care system, life expectancy and
awareness of inequality. Finland is one of the countries with the lowest wage gap
between men and women, according to the latest report from the World Economic
Forum. Also, like most Nordic countries, it has a long paternity leave that can last up to
six months. In terms of training, Finland still has the best primary education, according
to the World Economic Forum. In addition, it is the third country in the world in terms
of air quality and the country with the most forests in Europe.
4. Conclusions
From the foregoing, one can conclude the following:

10. 10
• GDP distorts economic growth because it computes all the financial movements of a
country or region that are beneficial to the population and ignores other important
economic activities.
• The per capita GDP that has been used as a measure of social progress has several
limitations because it does not consider the regional particularities, in addition to not
establishing criteria for the weighting attributed to each one of its components.
• The GPI seems to be the best solution to replace the GDP by correcting the anomalies
presented by it. The GPI takes into account more than twenty aspects of our economic
lives that GDP ignores. It includes estimates of the economic contribution of numerous
social and environmental factors that GDP rejects with an implicit and arbitrary value of
zero. It also differentiates economic transactions that contribute to well-being and those
that decrease. The GPI then integrates these factors into a composite measure so that the
benefits of economic activity can be weighted against costs.
• The IBEE presents itself as an index capable of measuring more adequately the
economic well-being of a society than GDP per capita. The IBEE is an alternative
indicator of economic well-being, especially in relation to GDP per capita, which
ignores relevant factors regarding access to economic resources. In addition, the IBEE is
a relevant indicator to subsidize the implementation and monitoring of public policies.
• The HPI also presents itself as an index capable of measuring more adequately the
economic well-being of a society than per capita GDP and should be used as a
complementary indicator to GPI and IBEE because it measures what matters that is
sustainable well-being for everybody, even though it does not measure human rights
abuse and violation, which is a major problem affecting people around the world. HPI is
a way of measuring the efficiency with which a nation converts its natural resources into
long lives and happiness for its citizens. It tells us how nations are reaching out to
achieve long, happy, and sustainable lives. The HPI provides a compass to guide
nations and shows that it is possible to live good lives at no cost to the planet Earth.
• The World Happiness Report also presents itself as an index capable of measuring
more adequately the economic well-being of a society than GDP per capita by
classifying countries' levels of happiness and well-being and power be used as a
complementary indicator to GPI, IBEE and HPI in order to guide public policies
towards happiness.
* Fernando Alcoforado, 79, awarded the medal of Engineering Merit of the CONFEA / CREA System,
member of the Bahia Academy of Education, engineer and doctor in Territorial Planning and Regional
Development by the University of Barcelona, university professor and consultant in the areas of
strategic planning, business planning, regional planning and planning of energy systems, is the author of
14 books addressing issues such as Globalization and Development, Brazilian Economy, Global Warming
and Climate Change, The Factors that Condition Economic and Social Development, Energy in the world,
The Great Scientific, Economic, and Social Revolutions that Changed the World and Inventing the Future
to change the World.
.