We are lying to ourselves by repeating the mantra that Gross Domestic Product is even minimally representative of the state of human well-being. The GDP, being a measure of the market value of all goods and services produced by a country in a given time, has become to be regarded as the litmus test for standard of living. Let's examine that premise in more detail.
If for a minute we consider productivity as a measure of prosperity, we can easily arrive at the conclusion that they are linearly related (or, if not linearly, then somewhat). That is, the more goods and services we produce, the better our overall prosperity as a society. There are a few things wrong with this mode of thinking:
1) Although overall prosperity (on average) may seem to move in lock-step with productivity, we overlook the fact that (as we all know) wealth is far from evenly distributed. In Canada and the USA and, increasingly, in Western Europe and other burgeoning economies, a small portion (single digit percentages) of the population (the elite political classes), whom are privy to the workings of the monetary system, are able to successfully exploit this to their benefit. Meanwhile, working class citizens futilely wait in the unemployment lines for the 'trickle down' of the economy to jobs, baby, jobs!
2) Not only is prosperity an illusion because of the disproportioned distribution of wealth, but GDP as a measure of productivity is even called into question. This is because ALL productive work contributes to the GDP no matter its consequence. For instance, take the nuclear crisis in Japan. The Fukushima Daiichi region is effectively destroyed for generations, limiting it's long-term productivity and prosperity. However, the efforts made to clean up the mess will veritably add to the short-to-mid-term GDP, thus increasing the entire productivity of Japan (as measured by GDP). Same goes for the cost of health care. Sick people are decidedly someone else's profit in a privatized system.
3) Thirdly, GDP measures productivity as reflected by the state of the economy, which is disproportionately reflected by the economic state of the largest corporations. The glut of the problem is in their mathematics. They forgot (or neglected) a major variable in the equation: the biosphere. Some decades ago (maybe around the time that corporations were granted the rights of a person under the law - in the US) the powers-that-were decided to externalize certain unpredictable variables (like environmental degradation, for example) probably because they were just so unpredictable. Thus, these factors were simply taken out of the equations, left for "someone else" to worry about. As a direct result, for many years GDP seemed to nicely parallel "growth" and hence, by a logical fallacy, prosperity. Now, with global resource depletion a growing concern and society's increasing understanding and compassion for planetary house-keeping, GDP has been thrust back in our faces as a sham measure of human well-being.
So, let's forget GDP. What are some other measures of human well-being? How can we create a useful index that would be able to account for the consequences of, say, industrialization?
One useful construct is the GPI, or Genuine Progress Indicator. Wikipedia defines it as:
an alternative metric system which is an addition to the national system of accounts that has been suggested to replace, or supplement, gross domestic product (GDP) as a metric of economic growth. [It is] an attempt to measure whether a country's growth, increased production of goods, and expanding services have actually resulted in the improvement of the welfare (or well-being) of the people in the country.
Granted, it is difficult to quantify true human welfare because civilization is dynamic and many factors are inherently subjective, like happiness. Nevertheless, happiness, however subjective can be seen and understood to be (beyond the basic necessities of life) only loosely correlated with financial wealth. Once a person has a full belly, clean water, adequate shelter, security, loving family and friends and is emotionally respected by peers, the rest is icing on the cake. The problem with icing is that it is almost always bad for you. The past few decades have seen a doubling and tripling of some people's icing.
The Genuine Progress Index is a much better representation of development and social, environmental and economic progress than the GDP ever was. We should, in fact, begin to abandon the GDP as a proxy for our well-being and move toward the GPI or something similar. The GPI works by considering 'full-cost accounting', that is, in addition to accounting for many of the externalities that are not part of the economic equation for most corporations and businesses, the GPI evaluates social costs. For example, costs that are seen all around us in the form of, 'vanished fisheries, broken families, gridlocked cities, smog-filled air, drug abuse, and other social and environmental woes'. So, at first count, following a GPI-based model of economic growth may impose unwelcome restrictions, these restrictions are not arbitrary or virtual, they are based on real-world restrictions such as those imposed by the planet. One thing is for sure, if we choose our current course for more growth at any price, there will still be restrictions, but they will ultimately be imposed not by prudent, responsible adults, but by the very finite nature of the planet itself. You can be sure that these restrictions will bite much harder than anything we can impose.
The GNH (Gross National Happiness) is another also a useful metric what would have positive consequences on our collective well-being. You can find more information about this and other forms of indexing human wellness with the GNH here:
and the GPI here:
You can find what Atlantic Canada is doing in this respect here:
Gross National Happiness and GPI are much more important indices than Gross Domestic Product because GNH and GPI measure humanity flourishing, while GDP only measures consumption.
Thanks to my good friend Glen Whelan for the idea for this post.
Peace,
Grant