Any good sex therapist will tell you it's not what you've got that matters. It's more important how you use what you've got.

The same sound advice applies in an economy, too. Statisticians and politicians alike obsess over the latest ups and downs of GDP, assumed to reflect the progress of an entire economy. But in practice, a well-endowed GDP means nothing if it isn't put to good work. If extra economic production (measured by an expanding GDP) does not bring improvements in the human condition, then what's the point?

An outstanding example of this maxim in practice is provided by the economic and social experience of Kerala, a state on the southern tip of India. Kerala has the same population as Canada, crammed into an area smaller than Nova Scotia. But apart from the crowds, Kerala's most unique feature is how it has leveraged its limited GDP to achieve remarkably strong outcomes in health, education and quality of life.

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Kerala's literacy is the highest in India, well above 90 per cent. Infant mortality is the lowest. Thanks to grassroots education programs and economic opportunity for women, its birth rate is one quarter of that in the rest of India - lower, even, than in the United States. By these social indicators, Kerala could even be considered a "developed" economy, despite its Third World levels of output. On my own recent travels through the state, I witnessed almost none of the grinding, desperate poverty commonly encountered in most of India.

A stark statistical indicator of Kerala's social success is provided by the United Nations ranking of countries according to its Human Development Index. Taken as a whole, India performs miserably in this ranking and has been slipping (from 126th in 2006 to 134th today) despite its free-market economic boom. Shockingly, even while India's expansion has been praised by everyone from business analysts to our own dancing Prime Minister, the relative well-being of Indians has actually been declining. Steel tycoons, call-centre entrepreneurs and Bollywood producers are certainly loving it - in 2008, 53 billionaires possessed combined wealth equal to one quarter of the annual output produced by India's 1.2 billion people. But the UN statistics confirm that most Indians are not benefiting nearly enough.

Kerala's GDP per capita is decent by Indian standards, but not spectacular. But its superior education and health outcomes push it well up the human development ranking. It boasts the highest HDI of any Indian state. If it were a country, Kerala would rank 77th in the world - ahead of countries with much higher GDP per capita, such as Turkey, South Africa and Peru.

Kerala's unique approach reflects its fascinating political culture. For most of the last half-century, it has been governed by elected Communists (either alone or in coalition with other left parties). Economically, the government has made a priority of public services, small-scale co-ops and rural land reform instead of chasing call centres and outsourced jobs from Western offices. Productivity in some of Kerala's smaller workshops is pre-industrial, but that's still better than doing nothing, which is the fate of tens of millions of dispossessed workers elsewhere in India. Kerala's government has strongly resisted the corporatization of agriculture, and this has helped it achieve the lowest rural poverty in India. Again, the contrast with the rest of the country - 200,000 desperate farmers have committed suicide in the past decade - is jarring.

Kerala's investments in its people have, perhaps ironically, made its people one of the state's most lucrative exports: About two million Keralans work in the Persian Gulf countries (many as doctors, nurses and engineers), sending back billions of dollars worth of remittances each year. But there is also a growing high-tech sector in Kerala itself, centred around a technology park where 25,000 people are employed in the state capital. The complex is owned by the state government but operated in partnership with global IT corporations. This funny co-existence of capitalism and socialism is called "flexible communism" by the locals.

Business owners bemoan the hassle and lost productivity resulting from the strikes and protests that are a regular feature of daily life in highly politicized Kerala. On the other hand, it's precisely because they feel empowered to fight for their interests that Keralans have managed to win the highest standard of living in their vast, diverse country. Other parts of India lose very little work time to strikes, yet their people are demonstrably worse off.

Perhaps that's a lesson for all of us. Higher GDP doesn't automatically translate into human prosperity. We have to stand up and make it happen.

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Jim Stanford is an economist with the Canadian Auto Workers union.