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GDP and The Real Growth: Are They Synonymous?

GDP and The Real Growth: Are They Synonymous?
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Have you heard of Bhutan’s Gross National Happiness (GNH) as an alternative to Gross National Product (GNP)? It shifted to GNH from GNP as Jigme Singye Wangchuck, the fourth Bhutanese King thought that happiness is more the essence of life than mere products. The country’s 7-hour survey in 2015 finds only 8.8% of its population unhappy while the remaining are narrowly, extensively or deeply happy. The rest of the world is more material-focussed measuring Gross Domestic Product (GDP) as an indicator of growth and happiness.

A nation’s growth is measured by the quantity of finished products and services it generates during a period of time and this number, after a bunch of arithmetics, becomes the Gross Domestic Product of that nation. It is popularly believed that GDP reflects how happy and satisfied the people within demarcated national boundaries are as it advocates that the more the production of goods the better is the consumption and hence the well-being of a nation’s subjects. The man who came up with the modern concept of GDP Simon Kuznets warned that the term could be misleading in measuring true well-being.

GDP alternative in Bhutan GNH

GDP alternative in Bhutan GNH (Source: Slideshare)

GDP, being a vague indicator of the health of an economy, especially the well-being of people, has its proponents and opponents. To many, the surge in production signifying real growth is a fallacy as more production doesn’t ensure that the real-life needs of people across the economic spectrum are met. There are both the concepts of needs and wants and our idea of economics pays lesser attention to the needs of the people and emphasizes more on the wants of the better-offs. GDP is one such term that doesn’t advocate a fair distribution of wealth.

During the last few decades, human civilization has seen a phenomenal upsurge in the growth curve due to the advancement in technology and industry. Meanwhile, income inequality has also grown wider in the last three decades in most of its member countries, say reports of Organization for Economic Co-operation and Development (OECD). GINI index that gives a clear picture of equality, by remaining zero in case of perfect equality and leaning towards one as inequality grows, has been marching towards one in the same period where a lot of economic prosperity has been recorded ever in history- the last three decades.

Read: Inequality: The Top 1% Rich Own More Than 50% of the Global Wealth

This, in turn, suggests that the raise in GDP has been real but the resulting prosperity is not fairly distributed but accumulates more wealth in the hands of the wealthier, and the countries celebrate their economies growing while keeping the real growth at large. When the income share of the top 20 percent rich increases by 1%, the GDP growth contracts by 0.08 percentage points in the following five years whereas a similar percentage point growth in the income share of the bottom 20% would help the GDP grow by 0.38%, says IMF.

Real GDP Vs Median Income

Real GDP Vs Median Income [Source: Wikipedia]

Thus GDP alone as an economic measure doesn’t assert income equality, fair wealth distribution, and well-being. Conforming to this idea, during Davos 2016, prominent economists including Nobel laureate Joseph Stiglitz and IMF’s Christine Lagarde say that as the landscape of businesses is evolving, we need a better indicator to measure well-being and progress.

In the Davos summit, Professor Stiglitz says that the real wages adjusted in the US today are lower than what it was 60 years ago, whereas the country’s GDP has been growing since 2009. Thus, the economy machine is working and turning in favor of the wealthy and lowering the standard of living of the middle-class that sweat their blood.

There are number of alternatives to GDP that takes into account income inequality or distribution and other socio-economic stigmas including health, child mortality rate etc. Fordham Index of Social Health (FISH), Genuine Progress Indicator (GPI), and Human Development Index (HDI) are some of the measurements that can give us a fair idea- if not an accurate one- of human well-being.

Using GDP to measure growth says it all about what we collectively as a society value in our lives. Our journey to pursue happiness and longing for world peace can become never ending as long as we find growth and well-being in the wrong things, but not in the smile of our fellow men.

Related Video: How can countries measure the well-being of their citizens?

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