The media quotes growth figures and predicts the growth-rate in terms of GDP. Amid this irresistible obsession with GDP, growth is mistakenly equated with development. Economists also assess a country’s overall economic development by the yardstick of GDP. Here is a metaphor to illustrate the point. To understand the measurement of growth and development we may take the example of human beings. The term growth of human beings simply means the increase in the height and weight which is purely physical, but when we talk about development it will take into account both physical and abstract aspects like maturity level, attitude, habits, behaviour, feelings, intelligence and so on.
We tend to define ‘growth’ in a peculiar and self-defeating way. GDP is really not a comprehensive measure of economic development, because the primary method of measuring GDP is based on absurd calculations that include some values and completely, rather arbitrarily, exclude any other consideration of distribution of income, the relentless depletion of essential resources, and ignores the existence of ‘externalities’ of the growth process ~ the reckless spewing of harmful pollutants into the atmosphere, water bodies and biosphere; the relentless depletion of essential resources; the travails faced by the people. As a result, when we use GDP as a lens through which to observe economic activity, we pay attention to what is measured and tend to become oblivious to those things that are not measured al all. British mathematician and philosopher Alfred North Whitehead called the obsession with measurements ‘the fallacy of misplaced concreteness.’
The point can also be illustrated with the help of another metaphor. The electromagnetic spectrum in optical physics is often portrayed as a long, thin horizontal rectangle divided into differently coloured segments that represent the different wavelengths of electromagnetic energy ~ usually ranging from very low frequency wavelength like those used for the radio, and extending through microwaves, infrared, ultraviolet, X-rays, and the like, to extreme high frequency gamma radiation at the right end of the rectangle. Somewhere near the middle of the rectangle is a very thin section representing visible light, which is, of course, the only part of the entire spectrum that can be seen. But since the human eye is normally the only instrument with which most of us attempt to see the world around us, we are naturally oblivious to all of the information contained in 99.9 per cent of the spectrum that is invisible to us. However, by supplementing our natural vision with instruments capable of ‘seeing’ the rest of the spectrum, we are able to understand the entire spectrum. Likewise, GDP is not a good measure of economic performance. We are able to enhance our understanding of the world around us by collecting and interpreting much more information. In the words of Jennifer Blanke, World Economic Forum’s chief economist: ‘GDP is a partial, short-term measure, whereas the world needs more wide-ranging and responsible instruments to inform the way we build the economies of the future.’
During the post- World War II era, when the American model of domestic capitalism was spreading, many experts believed that GDP was the simplest and most accurate measure of whether economic policy was moving in the right direction. Even then, however, the Nobel economics laureate, Simon Smith Kuznets, who had first developed the modern concept of GDP, warned as far back as 1937 that it was potentially dangerous and an oversimplification that could be misleading and subject to ‘illusion and resulting abuse’ because it did not account for ‘the personal distribution of incomes’ or ‘a variety of costs that must be recognized.’ It largely ignores the quality of life. When Prof. Kuznets warned in 1937 that misuse of GDP would make us vulnerable to an ‘accounting error’ and could lead to a form of willful blindness. He also noted that conflicts over resources might well exacerbate the risk inherent in the admittedly flawed design of the accounting system ~ “The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria.”
In the 19th century, John Ruskin coined a term ‘Illth’ to define acts ‘causing various devastation and troubles.’ It is time to redefine growth by taking into account ‘illth’. A good chunk of ‘illth’ is mistakenly distinguished as wealth.
As a result, we may imagine that we have become richer, but in fact our well-being has diminished. In India, it has been claimed that GDP has been improving, but the position of the country has dropped from 118th in 2016 to 122nd among 155 countries in the 2017 World Happiness Index. The country’s position in the Human Development Index (HDI) has also worsened on account of inequality, multidimensional poverty and gender gaps.
To redefine progress we need to calculate the Genuine Progress Indicator (GPI) for every year. GPI adds many aspects that GDP leaves out ~ such as the value of unpaid household labour and voluntary work ~ and subtracts the ‘illth’ costs. The two measurements of progress diverge ~ while GDP keeps rising, GPI begins to fall. The implications of GPI are far-reaching. However, our articulated claim of economic progress should be judged in the light of this vital parameter.
There are three crucial questions that GDP overlooks ~ 1) Is growth fair? 2) Is it green, and (3) Is it improving our lives? In the words of Prof. Richard Easterlin of the University of Southern California: “GDP is an abstraction that has little personal meaning for individuals.” It is not a satisfactory measure of well-being.
It is imperative to revive the debate of the 1950s on how we should define the economy. Obviously, we need to go beyond GDP to define development keeping in mind that equality, happiness, and sustainable development are all inextricably linked.
Amartya Sen in his book, The Idea of Justice, has aptly written: “The assessment of development cannot be divorced from the lives that people can lead and the real freedom that they enjoy. Development can scarcely be seen merely in terms of enhancement of inanimate objects of convenience, such as a rise in the GNP (or in personal incomes) or industrialisation ~ important as they may be as means to the real ends. Their value must depend on what they do to the lives and freedom of the people involved, which must be central to the idea of development.”
The writer is a retired IAS officer