Michael Porter Presents New Alternative to GDP: The Social Progress Index (SPI)

I guess you won’t be shocked to hear that the Gross Domestic Product (GDP) is a deeply flawed way of measuring progress (and not just because it doesn’t include Lady Gaga’s work on new songs), especially from a sustainability point of view. Nevertheless, it is still the most important economic indicator used to measure progress of economies around the world.

It’s not that it wasn’t challenged time and again by alternative indicators, but none of them seem to be able to give it a good fight and threaten its dominance. The latest contender comes from no other than Harvard Business School professor, Michael Porter.

Porter, who has managed to make a remarkable impact on the field of CSR with his (and Mark Kramer’s) shared value concept, wants to do the same on a much greater level, this time with a new alternative to the GDP called the Social Progress Index (SPI). Designed by Porter and the Social Progress Imperative, the SPI measures the extent to which countries provide for the social and environmental needs of their citizens.

Actually, the SPI seems like a natural extension of Porter’s work on creating shared value (CSV). In both cases, Porter connects the dots between economic value and social challenges - in CSV he did it on the corporate level and now, with the new SPI he does it at a country level.

Porter explained to the Guardian that it is ridiculous to be measuring success purely on the idea of growth at a time when countries are facing massive social upheavals. "The Arab Spring of 2011 and the challenges in Mexico over the last decade have illustrated the shortcomings of economic growth as a proxy for social progress," he said.

Porter is not the first one to identity this problem. “The welfare of a nation can scarcely be inferred from a measurement of the national income. If the GDP is up, why is America down?” Simon Kuznets, the economist who helped develop GDP, warned the U.S. Congress back in 1934. Seventy-nine years later, Porter’s SPI presents what might be the solution.

The index includes 52 indicators in three dimensions: Basic human needs (looking at nutrition, air, water and sanitation, shelter, personal safety), foundations of well-being (access to basic knowledge, health and wellness, ecosystem sustainability), and opportunity (personal rights, access to higher education, equity and inclusion). Each of these dimensions is calculated as the sum of its components and is weighted equally in the overall index.

The result of this analysis is an aggregate score for each country measuring its social progress, which is defined by Porter and his team as “the capacity of a society to meet the basic human needs of its citizens, establish the building blocks that allow citizens and communities to enhance and sustain the quality of their lives, and create the conditions for all individuals to reach their full potential.”

Earlier this month, the results of the index were released for the first time, with Sweden in first place among 50 countries ranked by the SPI, followed by the UK, Switzerland, Canada, Germany, USA,  Australia, Japan, France and Spain.

What can we learn from the results except the fact that Sweden is the most socially advanced country worldwide? According to the SPI team, the results show three overarching findings.

1. Economic development is necessary but not sufficient for social progress – It is possible to achieve a high level of social progress at a relatively modest income level. For example, Bulgaria ranks 20th in terms of GDP out of the 50 measured countries but ranks 3rd in air, water, and sanitation.

2. A country’s overall level of development masks social and environmental strengths and challenges – While there is a strong correlation between SPI scores and Human Development Index (HDI) scores, there are significant differences in social progress among countries with similar HDI, especially for high- and medium-income countries, largely due to poor performance on environmental indicators.

3. At a disaggregated level, the SPI shows areas of underperformance and success for countries at all income levels - The SPI model allows disaggregation to the level of dimensions and components, which reveals a far more complex pattern of country performance than is apparent in the overall index. For example, the report shows that Sweden performs relatively poorly on the shelter component, because of weaknesses in affordable housing, yet as well as Switzerland in both access to basic knowledge and access to higher education. Nearly all rich countries perform poorly on ecosystem sustainability.

The main value of the SPI seems to be its ability to provide both policymakers and the private sector better assessment of countries’ success in improving their overall well-being. But that’s not all - Michael Green, head of the Imperative, told The Guardian that the most exciting potential of the SPI, which will take another two years to fully develop, is that it can turn current thinking on its head.

There has always been the idea that economic growth is what gives you well-being, but what the index shows is that it also works the other way around, and that well-being also creates economic progress. If a country is more stable and more at peace, then clearly it's a better place to do business.

This is, indeed, exciting and if Green is right, don’t be too surprised if in 10-15 years everyone is talking about SPI and has a hard time remembering what GDP is.

[Image credit: The Social Progress Imperative]

Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and Parsons the New School for Design, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.