The Index of Sustainable Economic Welfare (ISEW) as a proxy for sustainable GDP: revisited and recapitulated

Abstract

The purpose of this “perspective” type paper is to revisit and recapitulate an existing alternative approach to measuring economic and sustainable GDP (using the ISEW as a proxy) at both national and regional levels. Motivated by the recognized inadequacies of Gross Domestic Product (GDP) in capturing true economic welfare, this study highlights the need for comprehensive indicators that reflect genuine prosperity. While GDP has long served as the primary macroeconomic measure of development, it fails to account for genuine progress, prompting the exploration of alternative measures. In recent decades, sustainable development has become a focal point for global, national, and regional economies, highlighted by the United Nations' 17 Sustainable Development Goals. The inability of GDP to capture sustainable welfare has led to the proposal of various alternative indicators in the literature. This study revisits and recapitulates the Index of Sustainable Economic Welfare, first introduced by Daly and Cobb (For the common good: redirecting the economy toward community, the environment, and a sustainable future, Beacon Press, Boston, 1989), which adjusts GDP to better reflect sustainable development. The current “perspective” reviews the application of ISEW across different countries revealing significant insights into the limitations of GDP and the benefits of more holistic measures. Additionally, the study emphasizes the importance of capturing sustainable economic prosperity at the local level and advocates for the inclusion of cultural aspects as the fourth pillar of sustainable development.