When reading the economy section of any news portal, we often run into monthly, quarterly and yearly figures on ‘economic growth’. More often than not, these figures refer to measurements of GDP (Gross Domestic Product). Such standards in the calculation method of ‘wealth’ (nominal values) and ‘growth’ (real changes) allow international comparisons and aggregations. GDP, a measurement of the value of a country’s production of goods and services, combines in a single figure what the news report as ‘growth’, ‘expansion’, ‘development’, ‘improvement’, ‘increase’, ‘progress’, ‘boost’, ‘success’, ‘rise’, ‘swell’, ‘advance’, among many others. In other words, GDP is the measure of a country’s economic prosperity, which is often used as an indicator of human development and well-being. And that is why GDP and the news that fill one’s heart with joy are in default.
In the website beyond-gdp.eu, an initiative of the European Commission, DG Environment and DG Eurostat, we find the following paragraph:
The limits of GDP are that it does not include a number of factors that determine the well-being of people, such as the value of non-market goods and services (e.g. natural resources), informal and unpaid activities and leisure. Also, GDP emphasises average income and in fact puts weight on the expenditures of the wealthy rather than focusing on similar income development of the poor. Finally, GDP focuses on short-term economic activities or flows, rather than the developments in the assets of natural, economic and social capital, which are important from a long-term sustainable development perspective.
While there are various methods for calculating GDP, all of them end up with the same cliché: They focus on quantity, not quality!
GDP reflects high levels of production while disconsidering the negative consequences it brings to society and environment. (Does it measure well-being?)
GDP includes financial products that increase household debts. (Does it measure wealth?)
GDP considers the rising expenditures on healthcare. (Does it measure welfare?)
GDP includes spending on items such as burglar alarms, safety-cameras and pollution-control equipment (Does it measure prosperity?)
GDP completely ignores the effects of distribution of income. (Does it measure common progress?)
GDP is a quarterly and annual measure. (Does it measure long-term sustainability?)
The topic raised on this post is not new. On the contrary, this is something very well known – since long. Along the years, a series of alternative indices have been created to approach the issue. Most of them tackle one of GDP’s default areas (while still ignoring others). Other approaches, like the HDI (Human Development Index – created by the UN in 1991(!!)) weigh a series of indicators (including GDP) and combine them in a single index. Economists still have not found a common ground from the variety of propositions. Even some supposed ‘Green GDP’ indices have been proposed! No matter what has been done, whether GDP should be improved or replaced is still topic for discussion. The fact is: at the end of the day, when the news report ‘growth’, we are being misled!
That politicians and officials want to look good, this is no revelation. The reason that motivated me to write this topic is the same that motivates me to keep hungrily seeking information: awareness, and the possibility to look at more than one of the many sides of a story. This post is far from being an in-depth look on the topic – it is only a personal call for attention and an introduction on ‘beyond GDP matters’. I do hope that the next time we read/hear/see the news reporting the latest ‘growth’ figures, we will be more critical and consider that these ’embelished’ figures are the basis for much of the monetary, trade and fiscal policies that will ultimately make a difference on our daily lives. After all, for those who follow my “brazilian mind”, ORDER comes first, then comes PROGRESS.*
*This refers to the caption ‘Order and Progress’ (Ordem e Progresso) written in on the brazilian flag.