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‘GDP = Development’: Debunking the myth


Aniket Motale writes: Many new age economists have realised the limitations of GDP as a measure of development, including a few Nobel Laureates like Joseph Stiglitz. US politician Robert F. Kennedy once criticised GDP saying, “It measures everything, except that which makes life worthwhile “. Let’s take a closer look at the arguments against GDP.

Aniket Motale, New Renaissance

Many of us have watched and was impressed by the TED talk of Bhutanese PM on how the country is now ‘Carbon Negative’. It is indeed an adorable step from a tiny little Himalayan country to refuse to go along with the conventional GDP-based idea of development and to develop her own, more-holistic measure – Gross National Happiness. It’s worth pondering upon – what is their motivation to refuse the idea of GDP & embracing GNH. Once we are clear about the vision of  righteous development, our ideas, our understanding of sustainable living on a individual, social and national level is likely to change.

GDP was developed as a war time measure. In the 1930’s, American and British economists developed GDP as a tool to help determine the depth of the Great Depression, and it served the purpose very well. It helped govt to take informed decisions. During World War 2, it was re-purposed to help the Allied powers to out-produce the Axis powers in terms of weapon and armament production. And it served the purpose this time as well. Soon, it became popular in the western world and spread as a measure of development in all First World countries. Today, unfortunately, the idea of GDP has been equated to the development without qualification.

Many new age economists have realised the limitations of GDP as a measure of development, including a few Nobel Laureates like Joseph Stiglitz and Amratya Sen. Some other prominent names who have criticized GDP  includes Herman Daily (Former World Bank economist),  E.F. Schumacher (Author of Small is Beautiful and pioneer alternative economist) , Robert F. Kennedy, former US politician who criticised GDP saying – “It measures everything, except that which makes life worthwhile”. Let’s take a closer look at the arguments against GDP.

*The GDP-based growth model does not differentiate between good and bad economic activity. E.g. GDP can grow even because of increase in road accidents or increase in wars or increase in number of cancer patients. There should not be a second opinion on this, as this cannot be called ‘Development’ by any standard. And these are just a few examples, there could be an exhaustive list of such ‘bad’ or destructive activities which grows GDP. Such growth is termed as ‘Undifferentiated growth’.

*GDP essentially is a materialistic development measure. It considers only the material aspect of human existence. As human beings, we have other dimensions of existence as well, like our intellect, our emotions, our psyche, our spirit/consciousness, our society, our nature. Real development is to evolve and progress on the health, intellectual, emotional, psychological, spiritual and social level and to expand our consciousness. Our purpose is to find our unique gift and give it an outlet through creative expression, to make all existence thrive. Materialistic well being is just a tool to achieve this. But, the GDP growth model makes materialistic well being the sole purpose of human life. It aspires us towards unlimited maximisation of material consumption and possessions & takes us in opposite direction of real development.

*The GDP paradigm expects unlimited, perpetual material growth, and that too, keeping the material economy linear. But we live on a finite planet. In reality, Nature is all about cycles, so a linear economy with infinite growth is practically impossible on a finite planet. We should not be surprised if the present system collapses in future. As the economist Kenneth Boulding said, “Any one who thinks infinite economic growth is possible on a finite planet is either a madman or an economist”. Fortunately, many are realizing this flawed fundamental assumption that the economy can grow infinitely. And some are also considering and talking about a ‘Circular Economy’ these days.

* Environmental & social costs are systematically and conveniently ignored from economic calculations. Conventional economists have a beautiful word to explain this – ‘externalities’! When an automobile manufacturer does not consider the cost of clean air his products are polluting, it’s an externality. When a plastic bag manufacturer does not consider cost of degradation, cost of land-water-air pollution, cost of loss of non-human life, its an externality. When a chemical fertiliser/pesticide manufacturer does not consider the cost of loss of long term soil fertility, loss of human health, loss of lives of non human-beings, its an externality. So on, if we consider all those environmental and social costs , the balance sheets of companies of every industry will show a loss.

* GDP based growth is a cancerous growth. Thinking in terms of systems, if we consider the human being as a basic unit of ‘Earth as one system’ – the hierarchy of systems would look like this: Earth => Countries (or Geographical units) => Societies/human communities => Human. In nature, every sub-system works for the advancement and evolution of its supersystem. Meaning, if any system grows or develops, the supersystem also grows. E.g. if a plant grows, the forest expands. If the development is abnormal, it’s then a cancerous growth and no more a symbiosis, it either kills the supersystem or the supersystem kills it. In the GDP growth model, since environmental and social costs are externalised, human individuals actually prosper at the cost of society and environment. e.g. Doctors, pharma companies earn more if more people are sick, if there is more pollution of water or air. It’s the same with the planet, our industries keep growing while the planet itself is dying.

* There are no subtractions of losses in GDP calculations – e.g. – In case of any natural calamity, if we have an infrastructural loss, this is a loss for the country and should be considered in the GDP calculations. But it’s not. Or if a local municipality destroys a road in good condition in the name of ‘repair work’ or ‘up-gradation to cement road’, it should be a infrastructural loss, but this is also not considered in GDP calculation. To put it in the language of commerce, on the balance sheet or profit/loss account of GDP, the debit side is always empty, everything is just credited. It should be called an ‘imbalance sheet’, rather !

* What’s worse, all of this is done deliberately. Yes, the use of ‘Gross’ Value is emphasised and made a norm, only to hide Net Value. Subtraction of all the expenses/losses from the gross production, gets us the ‘Net production value’, Yes you guessed it right – which could even turn out to be negative. Such a calculation would indeed reveal the actual face of the Development paradigm, and could prove that its really destruction and not ‘development’.

* Many better indices have been developed by different new age economists and scholars – Net national welfare (eliminates the debit problem in GDP), Quality of Life, Country Future Indicators, Basics Human Needs Index, Index for Sustainable Economic Welfare, Human-Development Index, Social Performance Index, Gross National Happiness, Better Life Index and so on. GNH addresses most of the issues mentioned above and is one of the best choices till date.

Cuba, Bhutan and many villages communities with world-wide with a rich natural heritage are trying to tell us something – Prosperity without economic growth is possible, and the first step towards such prosperity is to give up one ‘sacred’ rule – “Growth is imperative and economy must grow at any cost”. It’s time we stopped worshiping the false god of ‘Development’!

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