How should we measure progress toward the kind of society we want? It is evident that the standard metric of success – GDP growth – is an inadequate guide for policy at a time of increasingly deep social fractures, combined with an ever more connected and complex global economy. Some important phenomena, contributing to the current political turmoil in many countries, have been invisible within the existing framework of standard measures. The long-term sustainability of our societies requires a better approach.
“The costs of our GDP-centric approach to measurement are becoming clear, and there are more and more suggested alternatives [...] We propose a system of economic measurement that ensures the future gets due weight in present decisions.”
Diane Coyle & Benjamin Mitra-Kahn, Making the future count
In her Indigo Prize winning essay with Benjamin Mitra-Kahn, Making the future count, Professor Diane Coyle (Bennett Institute, Cambridge) argues that our measurement of economic success should include six critical assets: physical, financial, intangible, human, natural and social capitals. A radical replacement of GDP that would build in sustainability and fairness could include a dashboard indicating access to these six key resources.
Work is about to begin on a new research programme entitled Six Capitals, which will begin with a project exploring improved social and natural capital measures.
Social capital refers to the level of trust and network of relationships prevailing within an economy. It is vital for businesses and communities to thrive, and there is evidence of its importance for outcomes ranging from individuals being able to find jobs more easily to more successful innovation and start-ups. Natural capital consists of the assets nature provides, which provide a stream of services to humankind ranging from the clean air vital for everyone’s health to mineral resources used in production or the quality of the soil enabling crops to grow. Both are omitted from standard economic statistics, and as a result have too little traction in government policy.
Diane commented: “There has been surprisingly little recent progress on measuring social capital, despite a range of evidence for its importance in economic outcomes. Natural capital, by contrast, has an international definition (in the System of Environmental Economic Accounts), and some statistical agencies have begun developing natural capital estimates but there are significant conceptual and data gathering challenges. The two offer different types of opportunity to improve measurement, and thus have an impact on policy and ultimately all of our well-being.”
In its initial stages this research aims to: produce a usable definition of social capital for development in official economic statistics; explore systems monitoring natural assets and how these could be turned into useful metrics; explore the ethics of natural capital accounting; and research the valuation of natural assets and their services.
Lord Davies, Chairman of LetterOne, commented: “This project presents an exciting opportunity to make tangible changes to our systems of economic measurement that could be felt the world over. As long-term investors – who buy and build companies over the long term – it’s crucial to understand the 21st century socio-economic eco-system in which firms operate in order to invest at scale and create sustainable long-term growth for all stakeholders. We are delighted that we have been able to support this project taking forward Professor Coyle’s work on Making the future count.”
A research team will be starting work on Six Capitals in the New Year.