Extract 3 – Beyond GDP: The Well-being Transition?

The Australian federal government has emphasised that regional development is not about simple wealth transfers from Sydney's financial hub or mining-rich Western Australia to rural towns, but rather lifting productive capacity and living standards across all states equitably. However, the core assumption behind this—that compounding real GDP growth is the ultimate marker of national success—is facing fierce scrutiny. Some ecological economists argue that growth often degrades non-market welfare. They point to metrics like the Index of Sustainable Economic Welfare (ISEW), which adjusts GDP for income inequality, resource depletion, defensive expenditures (such as pollution cleanup costs), and domestic labor value, as a truer indicator of long-run living standards. Fig. 3.1 illustrates this divergence in Australia between 1980 and 2020.

Fig. 3.1 GDP and ISEW per capita in Australia, 1980–2020

Advocates of a 'Steady-State Economy' or 'Well-being First' paradigm argue that the relentless pursuit of GDP growth drives environmental degradation and rising inequality while failing to generate meaningful welfare gains in high-income nations. To address this, they propose replacing the prioritisation of economic expansion with explicit ecological and social targets, even if this results in lower or zero GDP growth. Opponents, however, caution that modern market economies are structurally dependent on growth to remain stable. Without it, tax revenues could shrink, public services could suffer, and unemployment could rise, creating systemic instability. Developing a macroeconomy that remains robust without growth represents an unprecedented policy challenge.