Cheng Enfu, a senior scholar at the Chinese Academy of Social Sciences, has put forward a new accounting system to upgrade the current one that measures gross domestic product.

Cheng thinks GDP, whether from the perspective of expenditures or revenue, reflects neither the quality of people's livelihoods nor the development of welfare in society. He proposes a system called GDPW, or gross domestic product welfare.

What is GDPW?

GDPW refers to the ultimate economic output that has been transformed into social welfare. Theoretically, the negative welfare value is subtracted from the positive welfare value to get the GDPW.

Since GDP is the ultimate monetary representation of gross product, GDPW can rely on the GDP data calculated by the United Nations System of National Accounts (UNSNA).

Positive welfare value refers to the factors that contribute to the progress of people's livelihoods while the negative welfare includes all the factors that bring down the quality of life, such as drugs and pollution.

Unlike GDP, GDPW is consistent with the creation of welfare and focuses on the tangible wealth that goes to the welfare sector. Based on this reason, GDPW is a more scientific index to measure economic growth. GDPW measures the amount of welfare that human production has accumulated. It will effectively amend the flaws in the existing GDP accounting system.

GDP doesn't reflect social welfare

According to a report published by the UNSNA in 1993, the current GDP measuring system is primarily centered on economic production. This system effectively reflects economic growth, but fails to represent the progress of social welfare. Therefore, this indicator has the potential to lead economic development astray. Cheng's proposed GDPW is not going to revolutionize GDP – it is merely an amendment within the GDP framework, and the two indices are closely related.

Calculating GDPW is a complicated process that involves economics, accounting and environmental factors, and its methodology is not flawless.

GDPW calculation standard

The nature of GDPW is to amend and modify the existing GDP based on the creation of social welfare. Production is the prerequisite of welfare. To convert economic growth to welfare progress requires considerations of both internal and external economic factors.

The concept of scientific development requires attention not only to GDP growth but also to the improvement of the general public's living standards. Therefore, the welfare accounting system represented by GDPW marks a new ideology that the ultimate purpose of economic development is to raise people's happiness.