Economic reevaluation: From GDP to the donut

     The Gross Domestic Product (GDP) has been maintained as the holy grail of the world of economic evaluation for around 75 years, since it was given a modern definition by Simon Kuznets in 1934 and then adopted as the primary method for measuring a country's economy at the Bretton Woods conference in 1944. Even as Kuznets was making use of the term, he warned against overusing it and making it more important than it really was.
     Alas, humans often prefer to take the easy route rather than more troublesome, but more accurate, methods. Thus, the GDP -- which was relatively straight-forward (although requiring huge masses of data) to calculate became the primary indication of a country's economic health. An increasing GDP was "good", rapidly increasing GDP was "better" and a stagnant, or decreasing, GDP was "bad". An example of such a graph follows ("real" GDP compensates for inflation and graphs according to a certain monetary index at a fixed period of time):

     Many criticisms have been made about the GDP but it was simple, came with an apparently exact number, and there was no alternate proposal to take its place. Complaining about something that is bad is useless unless you have something better that people can agree upon to take its place.

Some of the primary criticisms of the GDP as a primary economic index are:

1. It leaves out a lot of the economic activity of a country -- probably the majority of activity. It only counts activity where "money" (or economic credit) is transferred from one entity (person, corporation, country, ...) to another. This leaves out all of the work done by "non-paid" workers -- including parenting, "housewives" and "househusbands", inter-generational childcare and other family work (such as within a business or on a farm), and so forth. Think that shouldn't count? Think about how many minutes a country would survive without it.
   
2. The model relies on continued growth. Growth of population, growth of numbers of consumers, growth of production, growth of monetary supplies according to GDP status (a bit circular there), and on and on. This emphasis on growth also pushes the economy towards consumerism and nonrenewable wastage of resources. In a finite world, with finite resources, and the need to protect the environment and economy for future generations, the idea is counter-productive and destructive.
   
3. GDP aggregates the economic transfers within a country. Thus, if one company (or individual) controlled all official economic activity, the GDP could be the same as for a country where economic transfers were spread out equally among all the people within a country. Accurate numbers but largely meaningless in terms of economic health.
   
4. Economic credit transfers is a poor indicator of a country's health by itself. There are many other "soft" factors -- "happiness", income distribution, access to food and water and clean air, and so forth. Thus, you can easily have a strongly positive GDP growth rate in a country in which no one wants to live.

     As mentioned above, one objection to discarding the GDP as a primary economic indicator has been the lack of anything "better" to take its place. In this case, "better" means something that, at the least, takes into account the above criticisms of the GDP model.
     Kate Raworth came up with a model that has limits -- the limits are indicated by an "outer" limit where human activity uses up resources faster than can be renewed and an "inner" limit beyond which human activity cannot achieve the minimum needed to live. These upper and lower limits are expressed as two concentric circles or -- in the shape of a donut (doughnut for some).

     So, what does it mean to have a new model? Will this new model solve all of the world's problems? No. However, in order to THINK about a situation, or an idea, it is very useful to have a visualization of the concept. A person must have words, or some other representation (such as images), to properly manipulate an idea.
     One real-life example that has come out of this model is that of reorienting sales from products to services (which is compatible with many business strategies). There is an airport (I believe in Germany) that now pays a company for light -- a certain amount of lumens distributed across certain living areas in the airport. This is instead of paying for light fixtures, light bulbs, and electricity. Thus, since the provider wants to maximize their profits -- it is to their advantage to have the most long-lasting, energy-efficient light production as possible AND to recycle older materials as they are replaced (rather than throw them out). Profits on services makes the provider want to make them as efficient as possible -- and that tends to fit into the donut model better than the continuous growth/consumption GDP model.