When it comes to evaluating our economy, measuring the right thing really matters. What we measure sets the direction of travel for politics and policies and establishes what it means to be making progress. For many decades, the primary measures of economic progress have been indicators of output and production, such as GDP or GVA. Growth in these indicators has come to define what success looks like and dominate strategies for improving our economy.
While these measures offer a useful indication of economic activity, experience has shown they lack the necessary insight to accurately reflect our progress towards broad-based prosperity. This is hardly surprising given they have no regard for the distribution of economic gains, offering only a narrow measure of economic activity.
Of course, calls to move ‘beyond GDP' are nothing new. Even Simon Kuznets, a pioneer of GDP measurement in the 1930s, warned against its use as a proxy for progress. Yet these critiques have largely been ignored on the grounds that, while not perfect, measures like GDP are the best we've got, and so their ubiquity has endured.
However, after the worst decade for pay growth since the Napoleonic wars, momentum is now growing for a reorientation of our economic priorities. This is happening at a national level, with New Zealand leading the way by using well-being as an economic yardstick. But it is also being seen at a local level here in the UK. Local authorities, LEPs and combined authorities are all rethinking what they want to achieve with their economies. Priorities are moving from growth at all costs, to quality, sustainable growth that delivers for all.
In this context, the concept of inclusive growth has emerged as the leading alternative. Rather than focusing solely on quantity, inclusive growth concerns itself with the quality of growth. In a significant break with what GDP is able to capture, it strives to enable as many people as possible to contribute to and benefit from growth.
Lack of agreement as to what exactly inclusive growth means and how to measure it has seen a plethora of different approaches sprout up. But while we must recognise that inclusive growth priorities will be different in different places, it is helpful to have a consistent measure of inclusive growth which enables places to compare performance. Such a measure could inspire co-ordinated action on inclusive growth across the country.
That is why the Centre for Progressive Policy is creating an inclusive growth measure at the local and combined authority level, as part of our partnership with the All-Party Parliamentary Group on Inclusive Growth. This metric is part of a wider programme of work which will deliver three new measures of inclusive growth – at country, community and company level – with the country level published earlier this summer.
The community index, to be launched ahead of party conference season in September, will combine data on consumption, inequality, unemployment, leisure time and healthy life expectancy to provide a simple summary statistic capable of making comparisons between local areas through time. We have deliberately kept the number of indicators low to minimise complexity, while weighting their importance according to economic theory and evidence.
But is inclusive growth enough? When denouncing GDP, many call for measures far broader in scope, such as life satisfaction or happiness. Yet GDP responds (albeit imperfectly) to the need for our policymakers and political leaders to understand how the economic levers at their disposal can improve people's lives. The power of inclusive growth is that it remains within the realms of economics, while adding significantly deeper insight into the path to truly broad-based prosperity.
Inclusive growth is entering an exciting phase. As more and more areas take up its principles as the guiding force for public policy and local action, now is the time to prove that a focus on inclusive growth can deliver for people up and down the country. But to do so requires a measure that matches this ambition, one that once and for all goes beyond GDP.
Andy Norman is research analyst at the Centre for Progressive Policy
