BOOKS: THE GROWTH DELUSION
India’s GDP is expected to grow at well over 7 per cent next year onward and maintain those rates for a decade or more. The Union government takes pride in the fact that we’ll be the fastest growing major economy and probably grow faster than China. Some economists, in fact, advise aiming for a higher GDP growth rate—8, 9 or even 10 per cent plus, arguing that we be more ambitious, especially since we have the potential and the so-called ‘demographic dividend’ in our favour.
David Pilling says they are worshipping a false god, and both the concept of GDP and the obsession with GDP growth are useless pursuits—a provocative argument put forward in his book, The Growth Delusion. Pilling, who is an award-winning financial journalist and editor with the Financial Times, London, has studied the history of measurement of economic growth deeply. He has also travelled across the globe, reporting from everywhere—Europe to Japan to Africa (he is currently the Africa editor of FT). As Pilling points out, for many years his reports were focused on GDP growth. But now, he thinks, it needs to be junked by policymakers in all countries and replaced with a yardstick that captures the well-being of citizens more accurately.
Pilling combines deep scholarship with an entertaining style of writing. He starts off with the history of GDP— and even before that, the first attempts at measuring the economy of a nation. He delves into the misadventures of Jacques Necker, the Swiss finance minister of Louis XVI, who attempted to present the king with a comprehensive report of France’s finances. Necker, who was a highly successful banker before he became finance minister, was unfortunately prone to hiding the truth. His report said France’s finances were so solid it could afford to borrow a lot to fight many wars, without mentioning that under him the government had already borrowed heavily.
Pilling looks at other attempts, before discussing in some detail how Simon Smith Kuznets came to create GDP under the orders of Franklin D. Roosevelt. But GDP soon took on a life far beyond what Kuznets had envisaged. In fact, Kuznets had tried to stop the measurement of all sorts of things in the GDP, but by then it had become far too powerful to remain under his control.
Pilling goes on to discuss why GDP is a flawed concept, why it struggles to measure things and how it counts some stuff while leaving out others. He gives colourful examples—like how Britain’s Office for National Statistics embarked on counting prostitutes. Their earnings would, after all, contribute to the GDP (as would drugs like cocaine and heroin). On the other hand, Pilling points out that housework is not counted as GDP even though homemakers do enormous amounts of work. If they were to go out and join an office and hire someone else to do their housework, that would add to the GDP. This, and other issues, such as defence spending and wars contributing to GDP growth, led to Pilling’s disillusionment with GDP.
But if GDP is a false God, what should replace it? Pilling looks at alternative attempts to create indices— from the Human Development Index to the Genuine Progress Indicator (GPI) to the Happiness Index. He discusses the strengths and weaknesses of each. The perfect measurement system has still not been created, but Pilling is quite convincing in his argument that GDP has outlived its utility.
Pilling underlines the need to replace GDP with a yardstick that maps the well-being of citizens more accurately