In defense of good old per capita GDP

The quest to replace per capita GDP as a growth indicator has officially come full circle: If you aggregate the latest version —just unveiled at Davos by the World Economic Forum (WEF) —with previous attempts, the top of the resulting list isn’t that different from the original recipe.
Like the other composite indicators —the United Nations’ Human Development Index, the world happiness indicator, the Legatum Prosperity Index —the WEF’s Inclusive Development Index attempts to combine per capita GDP with other measures of national well-being. In its case, all the fashionable buzzwords are covered: productivity, inequality, intergenerational equity, carbon intensity of GDP. It’s not an unreasonable way to evaluate a country’s performance, and it would make even more sense if the WEF didn’t arbitrarily split those included into “advanced” and “emerging” ones (Poland, for example, is an emerging economy while
Slovakia is an advanced one).
One could also argue with some of the results. Azerbaijan’s IDI is higher than that of the US, Japan, Spain or Italy. That should warm the heart of its dictator Ilham Aliev —and prompt healthy skepticism from everyone else. Who at the WEF is ready to move to Azerbaijan and live like the
locals?
These flaws shouldn’t however, distract from the general idea. The size of the economy divided by the population —per capita GDP —is a less meaningful way to gauge prosperity than a more nuanced picture of the economy’s inclusiveness, people’s living standards and environmental conditions. All the different methodologies based on this basic principle have quirks. But averaging out the alternative rankings —by UN Human Development Report, World Happiness Report, Legatum, World Economic Forum —clears out the peculiarities.
Unsurprisingly, Norway, the darling of such rankings, comes out on top. That might explain why US President Donald Trump, whose country languishes near the bottom of the top 20 countries, wants more immigrants from Norway —and also why Norwegians are fine where they are. The leading positions of other Nordic countries and Switzerland are also, by now, unsurprising. These are wealthy, happy, environmentally aware countries without much inequality. One could argue whether Australia or New Zealand is more like these nice European countries, but one or both of them will always intrude in their ranks.
In other words, the list of countries to imitate is rather constant across the various GDP alternatives. But what’s particularly instructive is the comparison of our composite ranking with the GDP-based one.
The top of the list is almost identical, although a clear outlier bursts in. Another small country with an anomalously high GDP, Luxembourg, rockets to the top of the list. The Czech Republic does much better by alternative measures than its wealth level might warrant, and the US does much worse. These discrepancies, however, don’t detract much from the insight that the wealthiest countries are generally the best, whichever parameters one prefers and whichever buzzwords are most frequently used in Davos this year.
It’s a cruel truth for leaders who want to move their countries up the rankings, but it makes sense for them to chase wealth as measured in dollars per capita first. Then they can worry about fine-tuning policies that move the rankings designed by the WEF and its peers.

—Bloomberg