A Gross Mismeasurement?

“An organization that is not capable of perpetuating itself has failed,” Peter Drucker wrote in The Effective Executive. “An organization therefore has to provide today the men who can run it tomorrow. It has to renew its human capital.”

What, though, if that organization is the United States? In a book excerpt that appears in the Atlantic, economist Umair Haque argues that modern measures of economic performance, most notably that of Gross Domestic Product, miss the mark and are jeopardizing our future.

Yes, we like it when GDP is high—but high is not necessarily good. Raiding the piggy bank to buy a dinner of foie gras tonight might increase the GDP, but it doesn’t lay the groundwork for serious long-term growth the way, say, spending on education would.

In Haque’s view, things like “human capital, plus social, emotional, and organizational capital” get ignored in measures of GDP, leading to obsessive short-term thinking. “It’s as if we’re pawning our stocks of higher-order capital . . . for cash in hand today,” Haque complains, “but the consequence of such real underinvestment is that we’re left with fewer, poorer assets with which to pioneer opportunities and enjoy higher standards of living tomorrow.” The first step? Ditch GDP (or GNP, as it was once called) for a “better metric.” [EXPAND More]

Drucker, we believe, would have very much appreciated Haque’s take. “Most of the socioeconomic figures we use in the United States”—among them GNP—“are based on aggregates developed in the 1920s,” Drucker pointed out. “And it is a rule in social and economic statistics that aggregates if more than 30 or 40 years old are highly suspect; they must be assumed to be outdated.” Instead, Drucker was keen on developing a new “calculus of relevance,” which he defined as a measure “of qualitative change.”

Beyond that, Drucker would also have agreed with Haque that anything abetting a narrow, short-term mind-set, like GDP, is a mistake. “It is a total fallacy that, as [John Maynard] Keynes implies, optimizing the short term creates the right long-term future,” Drucker wrote, lamenting “the extreme short-term focus of modern politics, of modern economics and of modern business—the short-term focus that is now with considerable justice, considered a major weakness of American policymakers.

What factors do you think should be measured to determine a nation’s overall economic strength? [/EXPAND]