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IB DP Economics Study Notes

3.1.3 Alternative Measures

The complexity of human experience and societal progress can't be captured solely by economic metrics. In the quest to better understand and depict the quality of life in various countries, alternative indicators such as Gross National Happiness (GNH) and the Human Development Index (HDI) have emerged. These measures are crucial, especially when considering the fluctuations in business cycles which can significantly impact the economic landscape.

Gross National Happiness (GNH)

Introduced by Bhutan, GNH is an innovative measure that assesses holistic well-being rather than just economic growth. This approach recognises that the wealth of a nation also depends on the well-being of its citizens, which can be contrasted with traditional measures that might overlook poverty types and their implications.

A diagram illustrating the components of Gross National Happiness (GNH)

Image courtesy of developmentaid

Components of GNH

  • Psychological Wellbeing: Goes beyond basic satisfaction and also captures sentiments of spiritual fulfilment, mental peace, and contentment within the citizens.
    • Benefits: Provides a depth of understanding about individuals' inner states.
    • Challenges: Measuring emotional and spiritual well-being can be subjective.
  • Health: Evaluates more than diseases or lack thereof; it looks at the robustness of healthcare infrastructure, preventive measures, and general wellness initiatives.
    • Benefits: Holistic health perspective can lead to better policy decisions.
    • Challenges: Quality of health can be subjective and multifaceted.
  • Education: Not just literacy rates, but the inclusivity, quality, and diversity of educational opportunities available.
    • Benefits: Comprehensive educational metrics guide better educational reforms.
    • Challenges: Quality of education can be hard to quantify.
  • Time Use: Considers if citizens have a balance between work, leisure, and personal pursuits.
    • Benefits: Guides policies for work-life balance.
    • Challenges: Cultural differences can influence the perception of 'balanced' time use.
  • Cultural Diversity and Resilience: Evaluates the vibrancy of local cultures, preservation of traditions, languages, and even arts.
    • Benefits: Emphasises the importance of cultural preservation.
    • Challenges: Cultural metrics can be deeply subjective.
  • Good Governance: Reviews the effectiveness of governmental institutions, the fairness of laws, and the level of civic participation.
    • Benefits: Reflects democratic health of the nation.
    • Challenges: Governance quality might differ based on regional perceptions.
  • Community Vitality: Emphasises the strength of social communities, networks, and mutual aid systems.
    • Benefits: Highlights social capital's role in well-being.
    • Challenges: Community values can differ widely across regions.
  • Ecological Diversity and Resilience: Focuses on conservation efforts, biodiversity, and sustainable resource use.
    • Benefits: Prioritises environmental health.
    • Challenges: Balancing development with conservation can be challenging.
  • Living Standards: Beyond GDP, it reviews access to basic utilities, housing quality, and overall economic conditions.
    • Benefits: Provides a more nuanced view of economic well-being.
    • Challenges: Living standards can be influenced by transient economic factors.

Human Development Index (HDI)

HDI provides a tri-dimensional snapshot of human development focusing on health, education, and economic standing. It's a tool that allows us to gauge how countries are advancing in terms of economic growth, showing that development is not solely an economic affair.

A diagram illustrating the dimensions and indicators of HDI

Image courtesy of undp

Components of HDI

  • Life Expectancy: A proxy indicator of nationwide health measures, capturing the effectiveness of healthcare, nutrition, and public health campaigns.
    • Benefits: Easily quantifiable and comparable.
    • Challenges: Doesn't capture nuances of health quality.
  • Educational Attainment: Considers metrics like school enrolment rates, dropout rates, tertiary education availability, and more.
    • Benefits: Reflects the state's educational infrastructure.
    • Challenges: Educational quality is not always consistent.
  • Per Capita Income: Uses Purchasing Power Parity (PPP) adjusted metrics to provide a more relatable comparison across nations.
    • Benefits: Gives a snapshot of economic well-being.
    • Challenges: Doesn't capture economic inequalities or disparities.

Understanding the broader impacts of policy decisions on a nation's economy is essential, and the multiplier effect is a concept that can offer insights into how initial spending can lead to greater overall economic activity. Similarly, considering alternative measures like GNH and HDI helps highlight the importance of human development in evaluating a country's progress beyond traditional economic indicators.

Limitations of Both Measures

  • Cultural Bias: Both GNH and HDI, in their design, can lean towards particular cultural or regional values, potentially marginalising or misrepresenting others.
  • Data Reliability: Especially in developing nations, acquiring reliable and comprehensive data sets remains a challenge.
  • Evolving Metrics: As societal values change and new challenges arise, the metrics that are deemed significant today might become outdated tomorrow.

These alternative measures, GNH and HDI, underscore the necessity of a multi-dimensional approach when assessing the well-being and progress of nations. As the world continues to evolve, so too will our understanding and metrics of what constitutes a thriving, fulfilled human existence.


Despite their limitations, both GNH and HDI offer valuable insights into aspects of development that traditional economic metrics, like GDP, might overlook. GNH, for example, emphasises cultural and environmental factors, while HDI gives a snapshot of health, education, and income standards in a country. Policymakers and economists recognise that no single metric can capture the complexities of development and well-being. Therefore, by using a range of indices, including GNH and HDI, they can derive a more holistic understanding of a nation's status, aiding in informed decision-making that addresses various dimensions of development.

Beyond GDP, GNH, and HDI, several other metrics aim to gauge well-being or development. The Genuine Progress Indicator (GPI) is one, adjusting GDP by accounting for factors like income distribution, environmental degradation, and the value of home and volunteer work. The Multidimensional Poverty Index (MPI) evaluates multiple factors contributing to poverty, including health, education, and living standards. The World Happiness Report, which ranks countries by citizens' self-reported well-being, is based on factors like income, social support, and freedom. These varied indices reflect a broader understanding that well-being and progress encompass more than just economic output.

While the HDI provides a simplified, composite measure based on health, education, and per capita income, it doesn't capture the nuances and varied realities of countries with similar scores. Two countries could have identical HDI values but vastly different socio-economic structures, cultural values, or political systems. As such, HDI should be used alongside other indices and in-depth country analyses to get a complete picture. Policymakers and researchers typically delve deeper into individual indicators and other metrics when crafting strategies for development, ensuring that unique national contexts and challenges are considered.

Bhutan is the most renowned country for pioneering and formally adopting GNH as a measure of its progress. While no other country has officially replaced their GDP or similar metrics with GNH, several nations and organisations have expressed interest in holistic measures inspired by GNH. Countries like the United Kingdom, the UAE, and New Zealand have initiated efforts to gauge the well-being of their citizens beyond just economic indicators, though these aren't direct adaptations of GNH. It symbolises a global trend where nations are looking for comprehensive measures to assess genuine well-being rather than purely economic growth.

The Gross National Happiness (GNH) score is derived from a unique blend of qualitative and quantitative measures. While the precise metrics can vary, in Bhutan, the original proponent of GNH, they survey the population based on nine domains: psychological well-being, health, education, time use, cultural diversity and resilience, good governance, community vitality, ecological diversity and resilience, and living standards. Within these domains, various indicators are assessed through surveys, with respondents indicating their level of satisfaction or agreement. This data is then processed, weighted, and aggregated to produce an overall GNH score for the nation. It's worth noting that this method, being holistic and culturally influenced, might not be universally applicable.

Practice Questions

Explain the key differences between Gross National Happiness (GNH) and the Human Development Index (HDI) as measures of well-being and development.

Gross National Happiness (GNH) is a holistic metric introduced by Bhutan, assessing overall well-being encompassing aspects like psychological health, cultural preservation, and ecological resilience. It goes beyond economics, trying to capture a more comprehensive view of human contentment. On the other hand, the Human Development Index (HDI) is a tri-dimensional measure focusing on three key elements: life expectancy (health), educational attainment, and per capita income (economic standing). While GNH is more expansive, HDI is more streamlined and quantifiable, offering a snapshot of a nation's health, education, and economic conditions.

Given that both GNH and HDI have their limitations, discuss why it might be problematic to rely solely on one of these metrics for policy decisions.

Relying solely on either GNH or HDI can lead to skewed policy decisions. GNH, while comprehensive, is culturally biased and may prioritise values that are specific to certain regions, potentially leading to policies that might not resonate universally. Moreover, its subjectivity in certain areas can lead to ambiguous policy directions. HDI, on the other hand, is more quantifiable but does not delve deep into socio-cultural or environmental aspects, potentially missing out on broader issues of well-being. Focusing on just the three dimensions of HDI might ignore vital factors like cultural preservation or psychological wellness. Thus, a balanced approach, taking insights from both metrics, would provide a more rounded perspective for policy-making.

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Written by: Dave
Cambridge University - BA Hons Economics

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