Performance Indicators in the Reset World

September 25, 2009
  • Peder Michael Pruzan-Jorgensen

    Former Senior Vice President, BSR

GDP is out and sustainability is in—at least according to French President Nicolas Sarkozy, who in addition to capping bankers’ bonuses also wants to cap their hallowed success indicator: GDP growth. While so far the G20 in Pittsburgh has only picked up the ball on the former, the latter warrants consideration.

Despite the media’s sometimes skeptical coverage, Mr. Sarkozy is on a well-trodden track. Just a few weeks ago the European Commission launched a new effort to define a set of indicators that will give a more comprehensive picture of how societies are faring. These indicators would take into account the state of the economy, the balance of the environment, the harmony within the society, and ultimately the happiness of its citizens. And coming up in a few weeks the industrialized nations’ organization for economic cooperation, the OECD, will present the first results of its efforts to address the same problem: the GDP as a single measure of society’s well-being is not leading us in the right direction.

These are initiatives that we should embrace. The problem, however, is not the GDP indicator itself. It arrived at its prominence from the fact that economic growth has been positively correlated with raised living standards, improved health, and better education. Yet, we also know that it correlates with environmental degradation, unhealthy lifestyles, and overconsumption. Despite these flaws, it will remain an important yardstick to measure society’s economic capacity and activity.

In this reset world, we need more indicators—indicators that promote long-term thinking, systemic change, innovation, and that provide a balanced picture of the well-being of people, profit, and planet. No single indicator can express the complexities of today’s society, in the same way that EBITDA alone can’t predict a company’s long-term performance. That’s why we have balanced scorecards in business.

But electing or adding new indicators is not simple because indicators are not neutral. On the contrary, they express political preferences, social, economic, and environmental trade-offs, along with fundamental societal values. Some indicators value economic and social equality and cohesiveness, others the freedom to succeed. Still, this is a challenge we can overcome through democratic processes.

The real problem is less which set of indicators to use, but how we use them. We must ensure that our political decision-making, electoral processes, and market economy can manage the complexity of using more than one indicator, and the resulting set of differing signals of a healthy society.

The fundamental challenge is avoiding giving prominence to one indicator only. Just as the one ring, "the one that ruled them all," ultimately brought the kingdoms of Middle Earth to the brink of apocalypse in that famous book of J.R. Tolkien, Lord of the Rings, we need to restore the balance of power between human priorities.

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