“We should no longer evaluate the performance of leaders simply by GDP growth. Instead, we should look at welfare improvement, social development and environmental indicators.” That is a fine piece of wisdom from Xi Jinping, China’s president. Leaders of developed economies can learn from it.
Xi was speaking to a domestic audience about the choice of leaders within the ruling Communist Party. The desire for people who are “devoted fighters for the socialism with Chinese characteristics” is distinctly local, but Xi identified a fact which transcends all Chinese characteristics: GDP is a poor measure of economic progress.
Actually, for China, GDP is modestly helpful. In a country still so poor, increases in output correlate well with genuine economic improvements: factories and farms producing more and better goods, enterprises offering more and better services, and so on. Still, Xi is right that China is ready to outgrow this crude indicator. The idea is all the more relevant in richer economies, where GDP growth is a terrible measure of economic progress.
Xi lists only three of the many things that GDP does not capture. He could have added investment, which is counted only indirectly; quality, which is reflected dimly in “hedonic adjustments”; and the economic good, which is totally ignored. But his list is damning enough.
The lack of “environmental indicators” in GDP, which includes only things that are sold, is a greater problem in China than in more developed countries with stronger institutions. American mayors might be just as willing as their Middle Kingdom peers to ignore emission standards to attract a new factory. But the Americans have to worry about emissions limits as well as GDP, while up to now Chinese officials could mostly focus solely on production.