Rethink GDP and Economic Growth

Economic growth has helped overcome poverty and raise living standards around the world. For many governments, economists, and policymakers, maximising gross domestic product (GDP)—a measure of an economy’s output—has became the be-all and end-all in policy planning, equating it with a society’s prosperity and success.

This economic progress however comes at the cost of environmental degradation and an ever-increasing demand for the Earth’s finite resources. Resource extraction has increased by over 350% since 1970 and is predicted to rise by an additional 60% by 2060.[1] It is also responsible for 60% of climate change and land use change impacts, air pollution (40%), global water stress (>90%), and terrestrial biodiversity loss (>90%).

Annual global resource extraction grew from 30.9 billion tonnes in 1970 to 106.6 billion tonnes in 2024 (Image source: UNEP)

Sustainability has long played second fiddle under the obsession with pursuing higher GDP numbers. GDP however was never intended to assess welfare, and some argue that there is a need for a better way to measure success.[2]

The Happy Planet Index (HPI) for instance proposed to measure the more important things to people, namely health and happiness, corrected by the size of their carbon footprint.[3] In their latest publication released in May, the report’s findings reinforce criticisms that pursuing GDP is not translating to proportional levels of wellbeing.[4] Wealthier economies tend to have larger per capita carbon footprints, but going past 10-15 tonnes of carbon did not confer higher wellbeing. The report also revealed that those in the top income decile scored worse than the ninth decile in all but one region, showing that any marginal increases in wellbeing is completely offset by their outsized carbon footprints from overconsumption.

Per capita GDP is positively correlated with wellbeing up to $20,000, but negatively correlated past $50,000 (Image source: HPI)

When the Russian-American economist Simon Kuznets developed the modern concept of GDP in 1934, he warned of its limitation in measuring prosperity.[5] It does not adjust for environmental harm that may arise from economic activities (e.g., climate change, pollution). It also fails to accurately capture the value of intangible assets like high-quality education or ecosystem services. Yet 90 years later, GDP is still more or less treated as the sole metric of success. Its dominance in political decisions and policymaking has created a conflicting social landscape that encourages individuals to practice green behaviours while simultaneously promoting more consumption.

Ecosystem services (Image source: Fermilab)

Economists have argued that infinite economic growth is theoretically possible on a finite planet; there is no evidence however that this decoupling of economic growth from environmental pressure is happening at the scales needed to avoid planetary crises (i.e., climate change, air pollution, and biodiversity loss). While GDP will remain an important indicator, if we desire a prosperous society without sacrificing our future, we must go beyond solely relying on GDP as a measure of success.