The Case for Going Beyond GDP

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home-videoIn recent years, there has been mounting public criticism of GDP – Gross Domestic Product – as a measurement of a nation’s well-being. One of the principle arguments against it is that it only measures market transactions. Although many financial transactions may be negative for a society, GDP will account for them positively if they grow the economy. Thus, this measurement cannot differentiate between economic activity that is beneficial and that which is harmful.

New Economy notes this by pointing out that “gun sales to children, divorce, and oil spills all generate new economic activity and all count as additions to GDP. Accelerating the depletion of precious nonrenewable resources like oil and coal accelerates GDP growth even as it destroys the essential resource on which that growth depends.”

The Exxon Valdez oil spill is a clear example of this. It was accounted for positively in GDP measurements as net economic gain for the U.S. due to the fact that clean-up expenditures were so high. However, GDP did not take into account the eleven million gallons of oil that went into the Prince William Sound, destroying the natural habitat of hundreds of thousands of animals and killing seabirds, sea otters, harbour seals, and orcas en masse.

So why use GDP, if it has proven to be so flawed as a measure of a country’s true economic progress? It is the most widely used approach, and there is no sign of its impending replacement any time soon. Some argue that, despite its flaws, it is the most accurate indicator in existence. Most citizens’ lives are greatly impacted by the health of their nation’s economy, and generally, low unemployment rates and wage increases accompany a steadily growing economy.

A New Way Forward

 

That being said, GDP fails to take into account income inequality, and will therefore give an inaccurate portrayal of how a society is faring, even in a period of economic growth. For example, Brazil has the seventh largest economy in the world, beating out Canada and Australia by a not-so-insignificant amount. Yet it also has one of the highest rates of income inequality in the world.

formalThis was recently highlighted in media coverage of the government’s expenditures of US$14 billion on infrastructural development and stadium construction for the 2014 World Cup – the most expensive one in history. This news was contrasted with a sobering fact: the poorest 10% of Brazilians live on less than US$2 a day while the richest 10% take about 80% of the income. And the impact of the $14 billion that the government so eagerly pumped into the economy will likely not be felt by those who need it the most.

So what’s to be done if the primary indicator we currently use to measure a country’s well-being is neither satisfactory nor entirely accurate? This is a question being considered by actors as diverse as the European Commission and the country of Bhutan. And it is a question that the Humber International Development Institute and the Centre for Social Change invite you to consider at their upcoming symposium, Beyond GDP: Development Alternatives to Growth. What are some of the ways we can move beyond a sole focus on GDP and economic growth? Join the conversation by sharing your opinion in the comments below.

 

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One Comment:

  1. I think this is a very valid point and is definitely the beginning conversation for a change in metrics, however I think you have to consider one thing first: GDP is not ethical. Comparing the increase in GDP with the Exxon Valdez oil spill is some what apples to oranges. Environmental damage is not related to GDP, unless it is around clean up or other jobs. So it makes sense GDP is impacted positively impacted and quality of life is the inverse.

    That being said, I don’t think it is a coincidence that organizations like the “Centre for Social Change” are leading the change, because the new metric needs to have that social component to it. And GDP is not it.

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