Indexes (or indices, for the bourgeoise humanists among us) are a like botox. You can use them to heal, cover up, or kill.
In case of the botulinum toxin: heal obnoxious conditions like fissura ani, cover up your probably well earned wrinkles, or use some grams of this hyper toxin to kill half a million people by poisoning their milk supply.
Same goes with KPIs. You can use them to tweak your business processes by creating accountability for set goals. Because, If you can’t measure it, you can’t manage it. You can use them to cover up what’s already going wrong (Hello, Enron).
And they can have some rather impressive, probably unintended, real world consequences. And this is what the new format Berlin Debates was taking on in their first round of Cambridge Union Society style exchanges: »GDP has failed. It’s time to switch to a new measure of progress.«
Matthew Taylor, Chief Executive of the Royal Society of the Arts, debated Prof. Dr. Karl-Heinz Paqué, a politically well connected German (neo-)liberal professor of macroeconomics. Taylor preemptively summed up the two hours nicely in his blog. Not measuring the GDP, the gross domestic product, is bad. But using GDP as one of the three major yardstick to evaluate governement performance: unemployment, inflation, and economic growth.
In a nutshell, GDP is a nice tool to compare different national economies. But it doesn’t say much about the economic state of the state. As Taylor nicely explained: it’s nice to knvoting with their feet (ow that there have been five goals shot at the football game. But if you do not know who scored for which club, the information lacks a certain quality. But quantity over quality is not GDP’s only defect. GDP does not include externalities. Long term costs like pollution (which would be quality of living problems as well) are not reflected.
This does not mean GDP is bad. It’s very well defined, definitely stable (a big plus), and works on an international level. It’s just that using GDP as the main KPI to manage a national economy tends to set the wrong incentives. Says Taylor. And that’s what the audience agreed upon by voting with their feet (by choosing an exit you voted either yay, nay or whatever).
So say good-bye to yer olde GDP? Most likely, not. Popular indices have a tremendous staying power. Even if they might have overlived their time for quite some time. Case in point: the Dow Jones Industrial Average. Published since the 1880ies, the Dow is still “among the most closely watched U.S. benchmark indices tracking targeted stock market activity”.
It’s not watched, because it’s so spectacularly well designed. Measuring stock market tendencies with the Dow is a bit like an MD measuring the pulse of a patient, who’s wearing a space suit. You might see something. But taking 30 industrial stocks as an indicator for the sanity of the US markets leads to a VERY blocky image. Still, it affects investment decisions on a global scale.
Of course, the GDP’s problem is not granularity. But it skews governing decisions by omissions. So as a policy decision making toolset, it seems a bit out of whack. Because, honestly: as a citizen, you shouldn’t be interested in beating your neighbor in GDP growth. You’re interested in your own economic well being, the well being of your community.
Of course, now the hard work starts. What do we want to measure and for what reasons? What is sustainably measurable anyway? It’s a reconciliation process with a lot of stakeholders.