by Gunhad Singh Rangar
April 3rd, 2015
“The gross domestic product (GDP) has been widely known as the standard measure of the economic status of a country. However, recent analyses of just how holistic GDP is have shown that there may be other forms of measurements that can more accurately depict the welfare of a country.”
The political world is ripe with the discussion of moving away from gross domestic product (GDP), a measure of countries growth based on the production of goods and services, and towards more holistic measurements. The “Beyond Gross Domestic Product” initiative, as proposed by the European Commission, European Parliament, and the World Wildlife Federation is considered “as clear and appealing as GDP,” but more inclusive of environmental and social aspects of progress. Janez Potočnik, former European Commissioner for the Environment, said, “we need to escape the handcuffs of GDP.” Being a quantitative measure, gross domestic product does not cover any “non-market goods and services” that qualitatively contribute to the well-being of people. Other countries around the world including the United Kingdom, Italy, and India, have held conferences through the United Nations to discuss the future of going “Beyond GDP.” UN Secretary-General, Ban Ki-Moon, has asserted that, “we need to move beyond gross domestic product as our main measure of progress, and fashion a sustainable development index that puts people first.” The Telegraph also recently explained how relying on GDP too heavily has left the world “teetering on the brink of environmental disaster and filled with anger and conflict” while other indicators are emerging to shape the way we evaluate development of a nation.
Measuring a country’s development is considered a useful metric to show the impact of new policies implemented in the economic plan and statistical verification of expansions or contractions during that period. Investors, international organizations, and businesses use these rankings generated in order to develop financial positions ahead of time. These metrics need to be calculated by a universal method because countries have varying economic and governmental structures. The world has predominantly relied on the growth of gross domestic product since 1935 to determine the state of an economy mathematically. The United States Commerce Department’s Bureau of Economic Analysis published a report showing that the U.S. GDP grew by 4.6 percent in 2014 as opposed to -4.1 percent in the 2009. This was considered a colossal step towards recovering from the recession caused by the housing market in 2008. Does a higher GDP growth rate, however, accurately show how a country has progressed?
Measuring a country’s development is considered a useful metric to show the impact of new policies implemented in the economic plan and statistical verification of expansions or contractions during that period. Investors, international organizations, and businesses use these rankings generated in order to develop financial positions ahead of time. These metrics need to be calculated by a universal method because countries have varying economic and governmental structures. The world has predominantly relied on the growth of gross domestic product since 1935 to determine the state of an economy mathematically. The United States Commerce Department’s Bureau of Economic Analysis published a report showing that the U.S. GDP grew by 4.6 percent in 2014 as opposed to -4.1 percent in the 2009. This was considered a colossal step towards recovering from the recession caused by the housing market in 2008. Does a higher GDP growth rate, however, accurately show how a country has progressed?
According to the Oxford English dictionary, development is defined as “the act or process of growing or causing something to grow or become larger or more advanced.” The controversy presented in the situation revolves around the question of whether GDP is a valid indicator of development and if it effectively examines what we call development in the world today. The Purchasing Managers Index report, which tracks changes in the service sector of the United States economy, has fallen for the fifth consecutive month, leading Chief Economist of Markit, Chris Williamson, to say that the economic recovery has “lost considerable momentum.” The world economy has expanded 3.4 percent this year, rather than the 3.7 percent previously predicted due to weaker growth in U.S, Russia, and other developing economies. In this period, however, the U.S. GDP has still grown; Bank of America Merrill Lynch Economist, Saul Eslake, therefore emphasizes that GDP is only one of various summary indicators of overall economic activity provided by the national accounts, but “it is not the least misleading of the various measures.” According to an article by the Wall Street Journal, the rest of the world has already recognized loopholes in the system. Some European countries including the United Kingdom, Ireland, and Italy, inflate the size of their economies by including illicit activities such as prostitution and drug dealing in the calculations of their GDP. A higher GDP helps keep their financial debt and fiscal deficits within the prescribed targets set by the European Union. Furthermore, as Former Federal Reserve reporter Josh Zumbrun says, a rise in GDP enables “bragging rights” for a country. While a growth in GDP can be seen as something to be proud of, the ability to fabricate the GDP implies that it can also present a false picture of an economy.
During his rule as the King of Bhutan, Jigme Singye Wangchuck introduced gross national happiness (GNH) as an alternative. In his proposal, he said, “I have no intention to allow technology and money to savage the ageless beauty of this land, its social harmony, the blend of its past, present and future.” GNH assesses development through psychological, social, and other economic factors that are not limited to monetary terms. The theory proposed by Bhutanese economists considers environmental conservation, cultural preservation, good governance, and overall happiness to be viable pillars of development. This inclusivity and balance promotes eradication of poverty, sustainability, and enhanced well-being and discourages unsustainable patterns of consumption and production. Paul Hawken, a prominent author, entrepreneur, and environmentalist, says, “at present, we are stealing the future, selling it in the present, and calling it GDP.” He agrees with the King’s idea – the standard of the well-being of people cannot be determined by production alone. Bhutan has committed to measuring their country’s success through GNH. They have a formula derived by the Centre of Bhutan studies through which all policies are reviewed. The King has also established GNH committees at ministerial, administrative, and judicial levels. The United Nations Human Development reports reflect Bhutan’s radical transition; within four years, Bhutan has increased the life expectancy to 68 years, raised the enrollment rate in schools to 91 percent and reduced the unemployment rate to an astonishing 2.5 percent. Bhutan’s holistic approach to measuring development through GNH has had a positive impact on its GDP too. According to data published by the World Bank, the infusion of GNH into Bhutan’s five-year planning process has increased the GDP from 1,028 million dollars in 2008 to 5,036 million dollars in 2012.
Discussions contrasting GNH and GDP make us tackle basic concepts including materialism, happiness, and success. Economists in favor of GNH believe that it can effectively substitute prevailing methods of measuring development and that Bhutan is a great example of this. They propose that the structure of GDP bases a country’s development solely on a monetary value, thereby encouraging materialism. The Senior writer of CNN Money, Jeanne Sahadi, says, “economic growth as measured by gross domestic product doesn’t really tell us much about citizens’ general well-being.” Those in favor of GDP claim that happiness remains to be a subjective, fictitious, and intangible feature that depends on individual aspirations. Moreover, money with the public is correlated to the level of income and purchasing power parity of people. It is said that this can be traced back to causing happiness, thereby validating the purpose of GDP.
In some ways however, GDP and GNH are both flawed. While searching for a method to evaluate development, we are forced to prioritize either wealth or happiness. Economists forget that changing the method of measuring growth affects not only countries, but also individuals as well. Given the nature of humans’ unlimited desires, only specific demands can be fulfilled because resources are limited. Based on how we measure a country’s development, we choose to allocate resources to different sectors of the economy – either targeting more production and income or higher overall well-being and happiness of people. This in turn changes the mindset of individual people, by influencing their priorities and goals in life.
We recognize that these measures of development impact the life of every person in a country. Accordingly, the situation at hand goes beyond development and connects to humanitarian values. This prompts the core question: why should we care about other humans? As a student of economics and mathematics at New York University, I can relate to the depth of the issue. I remember when I was a child, I had always wanted to be a doctor; I dreamt of one day helping the poor in Indian villages for charity. The intuitive desire to care for people felt natural and I wanted to express it by aiding those in need. As an adult, my goal changed to starting a company on Wall Street and becoming a billionaire. Becoming a businessman appealed to me because I had convinced myself that the world revolved around money. I rationalized that money could buy happiness while helping others through corporate social responsibility, fulfilling my need to give back to society. Looking back on this, the justification of my actions is essentially trivial and falls apart in the light of humanity.
When we talk about how bad the world is and what we could do to improve it, giving money to various charitable campaigns does not hide our inner cynical attitude. We must understand that economic measures have an impact on people’s way of thinking and prioritization in their day-to-day life. When we take this position, we must ask ourselves what the best way to have an impact and help others in life is. Warren Buffet offers one view, “if you’re in the luckiest one per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.” The problem with this however, is that caring should not be something you “owe” because then it comes without compassion.
The importance of compassion can be indicated by why we value it in others. In the film, Pursuit of Happyness, Christopher Paul Gardner (played in the film by Will Smith) highlights an individual’s ability to care. Even at the lowest points in Garder’s life, from his wife leaving him to sleeping with his son on the restroom floor of a subway station, he embraced each moment as it came and was grateful for the others around him. In the process of shielding others from the hardships he faces, he refrained from prioritizing his individual desires. His personal determination to achieve his dream created new opportunities that made him who he is today: the chief executive officer of a multi-million dollar stock brokerage firm. Along with being an investor, entrepreneur, and stockbroker, he is now a motivational speaker, author, and philanthropist, with the goal of helping others achieve happiness the same way he did. Without the responsibility to care, Gardner puts others before himself. While his company sponsors many charitable organizations and has funded over 50 million dollars for charity, Gardner donates clothing and shoes and offers career counseling and comprehensive job training for the homeless population and at-risk communities. His compassion was acknowledged when he received the 25th Annual Humanitarian Award and the Father of the Year Award from the National Fatherhood Initiative in 2002.
Gardner had no requirement to be compassionate and even during difficult times, he helped others around him, making him appreciate the value of life more highly. Despite his wife leaving him and having no source of income, he insisted on taking custody of his five-year old son. Instead of giving him up for adoption, he educated him by sacrificing his own desires. When Gardner became successful, he could have stopped helping others, but at that point, compassion had become a part of him. This shows that the importance of compassion is reflected by its constancy. Regardless of changes in your surroundings, compassion stays with you and provides a form of satisfaction that you can always rely on.
If we revisit Bhutan, we see more evidence for the correlation between compassion and happiness. The primary religion in Bhutan is Buddhism, which states that to realize enlightenment, a person must develop compassion. The Dalai Lama explains, “if you want others to be happy, practice compassion and if you want to be happy, practice compassion.” Since the beginning of the 20th century, the King of Bhutan had an absolute monarchy with unrestricted political power over the sovereign state and its people. His principles of humanity were demonstrated when he chose to develop a constitution and sacrifice his control without any obligation. Bhutan eventually transformed from a constitutional monarchy in 1950 to a multi-party democracy in 2008. This made the people feel like they had a role in society, and by prioritizing their happiness, the country grew as a whole. It created a virtuous cycle that spread the happiness and pride associated with being Bhutanese. Traditions, beliefs, and practices bound the people together, creating unity in diversity. The King spread his philosophy as a message: “whatever work we do, whatever goals we have – and no matter how these may change in this changing world – ultimately without peace, security and happiness we have nothing.” From an entrepreneur at the Royal Bhutan Airlines to a rickshaw driver in Thimpu, Bhutanese are always witnessed as being grateful for what they have. The country’s uniform identity has been formed as a whole by the people, and from the view of economic progress, we can see how human development led to the development of the nation. It is this compassion that Bhutan chose to reflect in their measure of economic development, which has propelled their country forward.
As the Dalai Lama says, “the practice of Love and compassion are necessities, not luxuries and without them, humanity cannot survive.” The value of compassion puts into context the importance of caring for others and the concept of humanity. Thus, it is essential to incorporate this value in measurements of development. The first step to doing this effectively is by understanding the controversy between GDP and GNH. As members of the twenty-first century, we need to find an accurate indicator of development since its impact on the future is much larger than it seems.
Gunhad Singh Rangar is a student of Economics at NYU ‘18. Gunhad can be reached at gsr281@nyu.edu.
References:
The Economics Review 