Mea­sur­ing well-be­ing

GDP pos­sesses many short­com­ings and needs to be com­ple­mented with al­ter­na­tive in­di­ca­tors which act as a proxy to eco­nomic, so­cial and en­vi­ron­men­tal well-be­ing

Millennium Post - - Mp In Focus -

The re­cent re­lease of the back-series data by the Cen­tral Sta­tis­tics Of­fice (CSO) has ig­nited a series of de­bates and dis­cus­sions be­tween aca­demics, politi­cians and sev­eral other ex­perts en­gaged in the field. This is an out­come of a global sig­nif­i­cance that has been his­tor­i­cally ac­corded to the Gross Do­mes­tic Prod­uct (GDP) by var­i­ous gov­ern­ments and re­searchers for the pur­pose of eco­nomic de­ci­sion-mak­ing. The GDP num­ber fea­tures the to­tal mar­ket value of goods and ser­vices pro­duced within a re­gion, in a time pe­riod, i.e., mar­ket eco­nomic out­put. This, how­ever, does not sing well with the pros­per­ity and well­ness of cit­i­zens. There­fore, a de­bate on mea­sur­ing well­ness and pros­per­ity holds the key to fu­ture de­vel­op­ment and sus­tain­abil­ity, not some rhetoric around GDP fig­ures if notched up or down by a sim­ple change in method­olo­gies.

No­bel lau­re­ates like Amartya Sen and Joseph Stiglitz, IMF head Chris­tine La­garde and aca­demics like Erik Bryn­jolf­s­son, Richard Easter­lin, Thomas Piketty and An­gus Deaton have time and again un­der­lined the in­ef­fi­ciency of GDP fig­ures in mea­sur­ing so­cial wel­fare and the cu­mu­la­tive ca­pa­bil­i­ties of in­di­vid­u­als and house­holds. Easter­lin, a Pro­fes­sor of Eco­nomics at the Uni­ver­sity of South­ern Cal­i­for­nia said, “GDP is an ab­strac­tion that has lit­tle per­sonal mean­ing for in­di­vid­u­als.” In 2009, a com­mis­sion un­der the Or­gan­i­sa­tion for Eco­nomic Co-oper­a­tion and De­vel­op­ment (OECD) (headed by Joseph E. Stiglitz, Amartya Sen and Jean-paul Fi­toussi) through its re­port Mis­mea­sur­ing Our Lives: Why GDP Doesn’t Add Up, very well ques­tioned the true ef­fi­cacy of GDP num­bers. It chalked out a series of rec­om­men­da­tions for build­ing a set of in­di­ca­tors which, along with the GDP, would act as a proxy to eco­nomic, so­cial and en­vi­ron­men­tal well-be­ing. Un­der­pin­ning the idea for a small set of al­ter­na­tives, the doc­u­ment has ex­ten­sively dis­cussed var­i­ous in­di­ca­tors which would de­pict the over­all well­ness of the econ­omy and its peo­ple.

Lim­i­ta­tions of GDP

The lim­i­ta­tion of GDP to mea­sure the over­all eco­nomic and so­cial

wel­fare has been widely dis­cussed in the past. As com­monly known, GDP num­bers show­case the growth in eco­nomic ac­tiv­i­ties and in­come gen­er­ated from it. It was de­vel­oped to mea­sure mar­ket ac­tiv­i­ties but over the years, ex­perts have been us­ing it as the sole in­di­ca­tor to reckon the progress and health of na­tions. GDP can­not cap­ture the im­pact of wide­spread mar­ket pro­duc­tion on re­sources, Cli­mate Change, eco­nomic dis­par­ity and qual­ity of life be­cause prices do not ac­count for the so­cial costs and ben­e­fits. For ex­am­ple, an in­creased spend­ing on agri­cul­ture to boost crop yields im­plies higher GDP but it would de­grade re­sources like water, soil and in­crease meth­ane emis­sion – di­min­ish­ing the qual­ity of life and over­all well-be­ing of so­ci­ety. The neg­a­tive ex­ter­nal­ity is

not tapped by GDP fig­ures be­cause of mar­ket fail­ure. The in­ca­pac­ity of GDP to mea­sure sus­tain­abil­ity and dis­tri­bu­tion of in­come is an­other short­com­ing.

Fur­ther, the fo­cus on ris­ing GDP fig­ures in the past has not done much to re­duce in­come and gen­der dis­par­ity in In­dia. As per the World In­equal­ity Re­port 2018, in­come in­equal­ity is ris­ing rapidly in the coun­try. The share of the top 10 per cent earn­ers in the to­tal in­come has risen con­tin­u­ously to reach 55 per cent in 2016 from around 30 per cent in 1980. Sim­i­larly, a ris­ing GDP has not been able to up­lift the fe­male labour force par­tic­i­pa­tion rate in the coun­try, which has fallen from 35 per cent in 1990 to 27 per cent in 2017, one of the low­est in the world. A pol­icy de­sign, there­fore, based only

on GDP es­ti­mates clearly misses the wel­fare max­imi­sa­tion tar­get and ends up cre­at­ing poli­cies which over­look so­cial and en­vi­ron­men­tal well-be­ing as well as dif­fer­ences in op­por­tu­ni­ties.

In 2013, OECD in­tro­duced a com­pos­ite in­dex called ‘Bet­ter Life In­dex' that cap­tures a set of 10 in­di­ca­tors namely hous­ing, in­come, jobs, com­mu­nity ed­u­ca­tion, en­vi­ron­ment, civic en­gage­ment, health, life sat­is­fac­tion, safety and work-life bal­ance to present a broader pic­ture of progress in the na­tions. Re­cently, OECD pub­lished an­other re­port {A Com­mis­sion un­der OECD (2018), headed by Joseph E. Stiglitz, JeanPaul Fi­toussi and Mar­tine Du­rand} as a se­quel to its 2009 re­port. In the fol­low­ing re­port, Be­yond GDP: Mea­sur­ing What Counts for Eco­nomic and

So­cial Per­for­mance, ex­perts high­light hu­man cap­i­tal, trust, in­se­cu­rity, in­equal­ity and sus­tain­abil­ity for mea­sur­ing the over­all well-be­ing of a so­ci­ety and its cit­i­zens. As per the re­port, it was due to the ab­sence of ad­e­quate well-be­ing met­rics that GDP fore­casts were over­es­ti­mated dur­ing the post-2008 cri­sis in the United States (US). Even though the re­cov­ery pe­riod recorded a faster growth, it came at the cost of grow­ing in­equal­ity and eco­nomic in­se­cu­rity.

Al­ter­na­tive mea­sures of hap­pi­ness or well-be­ing

To ar­rive at a def­i­ni­tion for these well­ness met­rics is an ar­du­ous and time-con­sum­ing ex­er­cise. How­ever, once ac­com­plished, the new in­di­ca­tors, un­like GDP, would bring a bet­ter per­spec­tive to pol­i­cy­mak­ers and drive so­ci­etal well-be­ing. Sev­eral coun­tries in the past have taken ini­tia­tives to mea­sure and record the eco­nomic well-be­ing and hap­pi­ness of its cit­i­zens, Bhutan be­ing a prime ex­am­ple. Bhutan has been us­ing Gross Na­tional Hap­pi­ness (GNH) In­dex as an al­ter­na­tive to GDP since 1972. Aus­tralia be­gan to as­sess the well-be­ing of its cit­i­zens with an ini­tia­tive called Mea­sures of Aus­tralia's Progress (MAP) in 2002 un­der which the gov­ern­ment rolled out ques­tions based on 26 in­di­ca­tors re­lated to so­ci­ety, econ­omy, en­vi­ron­ment and gover­nance. Other na­tions like New Zealand, Swe­den, UAE and Italy have also adopted GDP al­ter­na­tives. Many states in the US have de­vi­ated from GDP es­ti­mates and have of­fi­cially adopted the Gen­uine Progress In­di­ca­tor (GPI) to ob­serve whether eco­nomic growth re­sults in sus­tain­able pros­per­ity. The United Na­tions through its Sus­tain­able De­vel­op­ment Goals has also laid down met­rics to mea­sure its sev­eral in­di­ca­tors (17 goals and 169 tar­gets). These in­di­ca­tors are large in num­ber and are dif­fi­cult to track and con­sol­i­date. Many such ex­er­cises as al­ter­na­tives to GDP are be­ing car­ried out at na­tional lev­els around the globe without a com­mon con­sen­sus.

To­day, de­spite the grow­ing sup­port for an idea of new in­di­ca­tors to mea­sure over­all growth and eco­nomic well-be­ing, no such of­fi­cial met­ric ex­ists in In­dia. GDP as a mea­sure of eco­nomic growth pos­sesses many short­com­ings and needs to be com­ple­mented with al­ter­na­tive in­di­ca­tors. The idea is to use a set of met­rics which are quan­tifi­able and, to­gether with GDP es­ti­mates, can act as a tool for pol­i­cy­mak­ers to de­ter­mine the state of the econ­omy, for which it is im­por­tant that In­dia de­vel­ops an of­fi­cial well­ness in­dex which is ro­bust, in­clu­sive and cap­tures the dis­tri­bu­tion of well-be­ing in so­ci­ety. The OECD Re­port 2018 can be used as a blue­print in this di­rec­tion. Such a well­ness in­di­ca­tor will help the gov­ern­ment in mak­ing bet­ter fi­nan­cial de­ci­sions and re­tain­ing the trust and con­fi­dence of its cit­i­zens.

(The au­thor is Young Pro­fes­sional, Eco­nomic Ad­vi­sory Coun­cil to Prime Min­is­ter, NITI Aayog. The views ex­pressed are strictly per­sonal)

GDP was de­vel­oped to mea­sure mar­ket ac­tiv­i­ties, but over the years it has been used as the sole in­di­ca­tor to reckon a na­tion’s progress and health. It can­not cap­ture the im­pact of wide­spread mar­ket pro­duc­tion on re­sources, Cli­mate Change, eco­nomic dis­par­ity and qual­ity of life be­cause prices do not ac­count for so­cial costs and ben­e­fits

(Rep­re­sen­ta­tional Im­age)

GDP'S in­ca­pac­ity to mea­sure sus­tain­abil­ity and dis­tri­bu­tion of in­come mars its cred­i­bil­ity as a holis­tic in­dex of de­vel­op­ment


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