In 1776, capitalism and modern economics was born with the publication of Adam Smith's The Wealth of Nations. Before the onset of capitalism, mercantilism was the conceptual system used to approach economics; which theorized that wealth is finite and fixed, and that the path to maximizing wealth is to hoard financial capital.
Adam Smith introduced the idea of free, self-regulating markets that allow individuals to maximize their wealth according to their own self-interests. Smith believed that societal prosperity would increase under this new type of economic regime.
"Smith demonstrated that trade, when freely initiated, benefits both parties... that specialization in production allows for economies of scale, which improves efficiency and growth... [and] that the collusive relationship between government and industry was harmful to the general population."
- Laura LaHaye, The Library of Economics and Liberty
In the 1930's, the famed economist Simon Kuznet developed the modern concept of GDP to measure the market value of goods and services after the world started to adopt capitalism on a global scale. While introducing the concept of GDP to congress in 1934, Kuznet explicitly warned against using GDP as a measure of welfare.
Kuznet described the characterization of a complex situation into a simple index as dangerous, and that measures of national income are subject to a type of illusion when attempting to track the concept of "growth." What the GDP lacks, argues Kuznet, is the distinction between quantity and quality of growth.
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Gross Domestic Product (GDP) per capita 2018
Despite Kuznet's description of the GDP's limitations, the field of development was born into a world that relied on GDP as the operational concept to track development's success.
However, with the introduction of the Human Development Index (HDI) in 1990, the field was introduced into a new concept with a different set of operational metrics that captured some of the more nuanced ideas of well-being that didn't revolve strictly around income.
The wealth of a nation was no longer just about income, it was also about the wealth of its people.
Human Development Index (HDI) 2017
Defining what is development and how to measure it involves a highly critical, iterative process. The field is constantly adding new measurement tools to complex indexes that seek to characterize a country's current state of "development." This includes concepts of equity, sustainability, and empowerment.
Is it possible to add too many factors of consideration? At what point does an index become oversaturated with variables? Adding qualitative factors into indexes that are embedded with quantitative analyses of economic variables creates complications on how to measure some of the more "fuzzy" aspects of development like "happiness."
World Happiness Report 2019
While other indexes like the Gross National Happiness present important contributions to this on-going discussion on "what is development?" and "how it can be measured?", it can also potentially create illusions as to what is needed to alleviate poverty. The challenge with measuring development is therefore, what metrics are important and how do we combine them in a meaningful way?
More importantly is the question of who gets to choose the standard index of development? Moreover, is it necessary to fixate on the best index for development?
While the ID field is increasingly accepting of the concept that there are no silver bullet solutions, why then, must we debate and concentrate on the silver bullet index?
Perhaps the measurement of well-being is far too complex to ever simplify into an index as Kuznet warned nearly 80 years ago today. As social science continues to emphasize the importance of context, development indexes may be rendered into useful tools to analyze global trends but problematic when using the index to explain an individual nation's development "issues."
How do you think we should approach the challenge of measuring development? Share your thoughts with us below!
- Jake Meyers, Co-Founder