Economic systems optimise for what they measure. The question is whether what they measure is what we need.
The Optimisation Mismatch
Economic systems optimise for what their incentive structures and measurement frameworks reward. Market economies optimise primarily for allocative efficiency — the matching of productive resources to the uses that generate the highest private financial return. GDP measures the monetary value of economic activity, not the quality of the lives that economic activity is supposed to support. Corporate governance optimises for shareholder return over the time horizon that capital markets reward. These optimisation targets are not wrong, but they are incomplete — they systematically underweight the dimensions of economic performance that are not easily captured in financial measures.
The dimensions that are underweighted by financial optimisation are not obscure. They include the health of the ecological systems on which all economic activity depends; the distribution of economic output across the population, not just its aggregate level; the economic security of people whose labour market position is vulnerable to displacement; and the social infrastructure — the relationships, the trust, the shared institutions — whose value is real but not easily quantified. An economic system optimised only for financial measures will systematically underinvest in all of these dimensions relative to what a system optimised for broader wellbeing would provide.
The Measurement Problem
Changing what the economy optimises for requires changing what it measures — which requires building the measurement frameworks that make alternative optimisation targets visible and actionable. The development of wellbeing indicators, sustainability accounts, inequality-adjusted measures of economic output, and social capital indices represents the attempt to build these frameworks. The gap between their development and their integration into the policy and investment decisions that actually shape economic behaviour reflects the institutional resistance to changing optimisation targets that have been institutionally entrenched for decades.
The economy optimises for what it measures. The question of what we want the economy to optimise for is therefore also the question of what we decide to measure — and who has the power to make that decision at the scale at which it matters.
Discussion