Sense vs nonsense of GDP in context of happiness of people


Shashank Vikram Pratap SinghShashank Vikram Pratap Singh | Updated: 24-01-2020 18:05 IST | Created: 24-01-2020 14:54 IST
Sense vs nonsense of GDP in context of happiness of people
  • Country:
  • India

The third president of United States Thomas Jefferson once said: “the care of human life and happiness and not their destruction is the only legitimate object of good government.” The best possible operational definition or explanation of ‘care of human life and happiness’ could be- state of being (happy, healthy, comfortable and many more aspects of human being) and state of lives of people (how they feel, where do they stay, what do they do, natural environment they live in and many more).

Various socio-economic indicators can be used as a proxy for assessment of ‘state of being and state of lives’. The data of those indicators for India paints a rather disappointing picture.

The per capita income in India at the current dollar is around $2,000 which is less than the world average of $10,722. It stands at 130th place in HDI ranking, 140th in Happiness Index, 147th in World Inequality Index, 141st  in Global Peace Index, 140th in World Press Freedom Index, 78th in Corruption Perception Index, 115th in Human Capital index, 102nd in global hunger index, 110th in Human Freedom Index, 177th in Environmental Performance Index, 145th in Healthcare Access and Quality Index, 108th in WEF’s Global Gender Gap Report & 142nd place on providing economic participation and opportunity to women and 62nd in Inclusive Development Index.

The present doctor-patient ratio is around 1:10000 as compared to the WHO prescribed limit of 1:1000. A similar position is there in the case of the education sector and income disparity; 75 percent of grade three students and 50 percent of grade five students could not solve two-digits simple subtraction which is unexpectedly lower than most of the African countries (WDR, 2018). And share of the top one percent income earners has now reached the highest level (22%) in the national income (Piketty, 2017). During 1980-2014, the top 0.1 percent of earners captured a higher share of total growth than bottom 50 percent (12 percent vs 11 percent).

Oxfam (2018), too echoes the similar finding and reported that 73% of the total wealth created in the year 2017 went to the top 1% affluent population whereas the lowest half of the population saw their wealth rise by just 1%.

Seeing the status of ‘state of being and state of lives’ through these proxy indicators, it would not be wrong to conclude that, it is not as good as it should be with respect to the rest of the world. But the status of other proxy indicators, like the size of the economy and GDP growth rate, was being considered one of the best in the world before the recent slowdown.

India having USD 10 trillion (PPP) and USD 2.72 trillion (nominal) economy, is the third and seventh-largest economy in the world respectively. It has crowned to be the fastest-growing major economy in the world.

Isn’t it conveying some contrasting opinion about GDP vs other aspects of human life and happiness? Can’t we equate people’s happiness with income and thus effortlessly made the assessment of the nature of good or bad government?

The possible answer lays in nature and original intent of the world’s most fallowed statistical indicator, GDP, which is an outcome of political and intellectual battles among Clark, Stone, Meade, Keynes, Kuznets and Gilbert and two global events; great depression of 1930 and World War II (1939-1945).

It was developed with the intention of measuring depression-led economic progress and guiding the Democratic-led Roosevelt government’s policies in a more effective and efficient manner. It is a great data set that enables thinkers, politicians, and policymakers to answer certain key questions like, Whether a country is the fastest growing economy or not? Has the Chinese economy overtaken the US economy? Will India surpass the Chinese economy in the coming years? Is Ghana a poor country or not?

But what it does not answer is, Whether we are progressing in any meaningful sense? What is the status of overall human life and happiness? Answers to these questions are being addressed incorrectly through the prism of income.

Simon Kuznets, one of its main originators and earlier recipient of economic science Nobel prize once said, “the welfare of a nation can scarcely be inferred from a measure of national income.”

But the wartime politics overruled the welfare notion, whose miscellaneous adverse result is quite evident before all of us. How did it happen that thinkers started looking at everything with the prism of GDP and it became the dominated gospel indicator in public policy? The power of the system of metrics is the most plausible answer.

Stiglitz, Sen, and Fitoussi in their book, “Mis-Measuring Our Lives Why GDP Does Not Add Up” have written that “the theories we construct, the hypotheses we test and the beliefs we have, are all shaped by our system of metrics.”

What if the system of metrics has many flaws? What if, the system of metrics has been developed to serve some specific purpose and now is being used for somethings it never developed to measure? This is the exact case with GDP which increases when there are earthquakes, a fire, environmental disaster, human disaster, and higher accidents, higher medical cost, higher repair cost caused by poor transport and infrastructure, and goes down when a rickshaw puller takes the afternoon off to spend time with his lady love.

“It counts the labor used and wood produced, when a tree cut down, but does not deduct the shade and beauty that are lost.” This is how Banerjee and Duflo- this year economic science Nobel laureate categorically abridged the anti-mankind nature of GDP in their latest book Good Economics for Hard Times (p.153).

Are we really passionate about such kind of system of metrics, where it increases in anti-mankind circumstance and promoting a civilization where the value of family does not count much?

Coming back to the question of good and bad government, I think the government is in the dilemma of assuming index of economic progress (GDP) as an indicator of everything including people’s happiness/wellbeing.

There is a school of thought that believes in the theory of command over resources or purchasing power of commodities; more income, more consumption, more freedom of choice, high standard of living and thus can be used as a proxy for happiness or human well-being. Therefore, if the index of economic progress is increasing, it caters to human life and happiness and hence the government is taking care of its legitimate objectives. But it is not as straight forward or black and white as it appears.

The hard-core factual data of happiness report reveal that none of the top five countries in terms of the size of the economy have secured a place in the top five in happiness report. People have many dimensions of life which cannot be defined only with resources and its price. It is quite possible that an individual would be better off even having fever resources but having greater abilities to achieve in other valuable domains of life. This is what Amartya Sen said while delivering a lecture at the central hall of Cambridge University in 1985 “we could be well off without being well, we could be well without being able to lead the life we wanted, we could have got the life we wanted without being happy.”

Other economic science Nobel laureates like Kuznets, Hicks, Arrow,  Nordhaus, Tobin, Kahneman, Deaton, Samuelson, Solow, Stiglitz also raise their concern for considering GDP as an indicator for human life and happiness. But it does not mean that, GDP is a wrong and redundant indicator.

As far as the measure of economic progress is concerned, it is the ever-best invention that happened in the history of economics. Representation of complete health of economy through a single index having statistically sophisticated and universally accepted standardized methodology makes it the most followed statistical indicator across the world.

Since its inception, it has become an instrument for politicians to convince their electorate. Being followed at the top by governments across the world, bound the intellectuals to see everything immensely with the prism of GDP without taking into the consideration of its good and bad uses, which later on turn into the subject matter of massive beyond GDP discussion across disciplines.

It’s an insufficient and inappropriate indicator for gauging the quality of human life and happiness, but it does not mean that it should not be considered for public policies. It’s an important mean (not an end) to achieve a good ‘state of being and state of lives.’ Even empirical evidence of thinkers like Easterlin, MaxNeef, Helliwell and many more advocates for the same.

Since the mid-twentieth century, many attempts have been made across the world to gauge the happiness of people through different indicators, but none of the indicators have ever developed to perfectly replace GDP. Hence in spite of many flaws, it cannot be ignored at all. But we need to change our perspective of looking at everything immensely with the prism of Gross Domestic Product.

India's former President Abdul Kalam and Pranab Mukherjee too raised their concerns for actual and bottom the line impact of high GDP growth rate. Mukherjee explicitly advocated for Gross Domestic Happiness besides Gross Domestic Product. Hence, the Government of India should take the initiative to look beyond GDP on the lines of likes UK, France, Australia, OECD Nations, Bhutan, and few more countries.

Shashank Vikram Pratap Singh is a Ph.D. Scholar in Department of Commerce at Delhi School of Economics, University of Delhi

(Disclaimer: The opinions expressed are the personal views of the authors. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)

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