GDP Problems

The development of a country is usually defined in terms of only its economic progress. The more a country
economically progress the more it grows. Economic progress is measured in terms of its Gross Domestic Product. GDP is calculated in terms of the monetary value of all legal transactions involved in the primary, secondary and  tertiary sectors of economy. More the goods and services are produced and consumed, more the GDP rises and more the country progresses. Most countries in the world and international financial institutions use GDP as a yardstick to measure progress. So much so that some modern economic experts are obsessed with merely maintaining high rates of GDP. Fall in GDP rates brings gloom to economies.

However, from time to time questions have been raised about the GDP being a true measure of progress. Does it capture the overall growth in a holistic sense? Does it hide more than it reveals? Does it have some adverse affects? If GDP is not a true reflection of progress, what is? Let us consider some of these questions.

GDP doesn’t reveal the actual wealth distribution. It is not uncommon for the GDP of a country to increase simultaneously with increase in gap between the rich and the poor. It implies that the wealth being generated is concentrated in the hands of a minority rich section of society rather than being equitably distributed. Economic inequality does not lead to a healthy society as it results in a plethora of social problems. These include crime, violence, physical and mental illness, unsatisfied aspirations of youth, disintegration of community life, trust deficit within and among families, drug and alcohol abuse, social segregation, more members of marginalized sections of society landing in jail, lower literacy levels and health status of society, homelessness, suicides, to name a few. Thus what we get is an encumbered growth.

Let us consider the following examples which expose the flawed nature of GDP. Forests if allowed to flourish on
their own do not contribute to growth but if trees are cut down and wood sold in the market then this activity contributes to GDP. If people are healthy they do not contribute to GDP. But if they fall ill frequently, have to consult doctors, undergo tests and consume medicines they contribute to GDP. If people are hale and hearty they do not contribute to GDP. But if they have to visit psychologists, psychiatrists or counselors, they contribute to GDP. If water sources are clean, they do not contribute to growth, but if they become polluted with industrial waste, chemicals used in agricultural fields and sewerage, their cleaning constitutes an economic activity. The bottled water industry stands to gain directly from polluted water sources. If society is crime free then it doesn’t contribute to GDP. However, if we hire security personnel and buy expensive equipments, arms and ammunition, it contributes to GDP. At global level if there is peace between nations, it doesn’t contribute to GDP. If there are wars and dangerous weapons are used it may boost some economies. There is money to be made even in post war reconstruction work, contracts for which are decided even before the war begins. If people exchange gifts and services as part of barter system, it doesn’t contribute to growth but if the same things and bought and sold, they begin contributing to economy. If people live in joint family system as part of which they share resources then they don’t contribute to GDP. But if there are disputes within family, lawyers have to be hired to contest legal cases, money is spent to divide property and to build boundary walls, nuclear families buy more items from the market, it is good for economy. If the production and consumption is local it is not good for larger economy. But if long distance transportation of goods is involved, packaging and middle men are involved then it contributes significantly to economy. If women take care of domestic chores it doesn’t contribute to economy but if men go out and cook food in a restaurant or a lady baby sits for payment then there is a contribution to GDP. If one helps another human being as a volunteer out of a sense of service, which gives inner satisfaction, it doesn’t contribute to economy. But if the same job is done by a professional, it contributes to GDP. If one believes in the omnipresent notion of God and worships from home it doesn’t contribute to economy. But if one goes on pilgrimage to visit a special place where God resides, it contributes to GDP. If one pays attention to words of wisdom from elders in family and community it doesn’t contribute to GDP, but if one goes to listen to one of the commercial preachers, some of them in the garb of sages, it contributes to economy.

Quite clearly GDP is a very inadequate criterion of growth. It doesn’t capture quality of human relationships, psychological and physical well being of human beings, sustainable relationship with nature, sense of security or even the fulfillment of basic material needs of all human beings.

The idea that ‘product’ can make human beings progress will have to give in to a more holistic notion of growth
where ‘happiness’ of human beings becomes the key criterion. Some countries like Bhutan are already measuring the progress of their society on the basis of a Gross National Happiness index.

By Devansh Mittal and Sandeep Pandey
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(About the writers: Devansh Mittal is a Lecturer and Ph.D. student at IIIT, Hyderabad and Sandeep Pandey is a Visiting Faculty at IIT, BHU, Varanasi)


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