10 January 2019
Beyond GDP – Cambridge research project explores new measures for the 21st century economy
Can we move beyond GDP? A research project at the Bennett Institute for Public Policy, University of Cambridge, has been launched with funding from LetterOne to develop better metrics of social and natural assets.
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. For more information on this and other research projects at the Bennett Institute, visit www.bennettinstitute.cam.ac.uk .
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For further information and interviews please contact Lucy Theobald, Communications Manager, Bennett Institute for Public Policy: firstname.lastname@example.org / 01223 760846.
Diane Coyle: Professor Diane Coyle co-directs the Bennett Institute for Public Policy at the University of Cambridge. She is currently a member of the Natural Capital Committee, an expert adviser to the National Infrastructure Commission, a member of the Council of Economic Advisers, and a member of the Industrial Strategy Council. She was awarded a CBE for her contribution to the public understanding of economics in the 2018 New Year Honours.
About the Bennett Institute: Founded in April 2018 our goal is to rethink public policy in an era of turbulence and growing inequality. Our research connects the world-leading work in technology and science at Cambridge with the economic and political dimensions of policy-making. We are committed to outstanding teaching, policy engagement, and to devising sustainable and long-lasting solutions.
About LetterOne: LetterOne was founded in 2013 and is an international investment business, with offices in London and New York, headquartered in Luxembourg. LetterOne’s strategy is to build a new portfolio of successful companies that are leaders in their fields and sectors. It makes long-term investments of its own capital in companies in which its sectoral experience and strategic and geographic expertise will improve performance and help companies grow. It has recruited world-class CEOs, sector investment teams and Advisory Boards to invest at scale. It buys and build assets, which it can develop over time as platforms of long-term sustainable growth. It invests through L1 Energy, L1 Technology, L1 Health and L1 Retail.