We must look beyond GDP

Twice this past week, I’ve heard the long recurring argument that countries should stop focusing on economic growth, measured in terms of gross domestic product (GDP) or gross national product (GNP), as a measure of economic progress or improvement. A columnist from another paper put it rather strongly as he asked our economic managers to “stop worshipping at the altar of economic growth.” In a recent meeting about development assistance, a colleague similarly vented his frustration over the continuing obsession with GDP and GNP as indicators of economic well-being in the face of widening disparities in our country and in the world. Their frustration is not unwarranted.

A government official recently boasted that the Philippines had the highest GDP growth (at 5.9 percent) among our Asean peers in the third quarter (Q3), as if saying that our economy is performing best. There are of course at least three reasons why that number is nothing to crow about. For one thing, posting a high percentage rate of growth is easier when coming from a depressed base, which is where we’ve been because our economy sank the deepest (and much deeper) vis-à-vis our neighbors at the worst of the COVID-19 pandemic. Thus, we’re still largely regaining lost ground whereas our neighbors have now risen well above their pre-pandemic situations. Second, our faster Q3 growth primarily resulted from government’s dramatic reversal of its Q2 spending cutbacks that had led to the disappointing slowdown to 4.3 percent then. That makes the achieved growth somewhat artificial and not truly reflective of the inherent strength of the economy. But the third reason the faster GDP growth is not a matter for celebration is much more basic—and it’s useful for us to revisit what I’ve written here in past years on the matter.

Whether from the aggregate or macro perspective or from an individual’s point of view, greater economic activity leading to higher output or incomes—which is all that GDP measures—does not necessarily translate to greater well-being or happiness. At the aggregate level, growth in GDP says nothing about the distribution of output and incomes. Where the gap is wide between a minority who are rich and a majority who are poor, rapid GDP growth can come with increased misery, particularly when it’s the former who mainly captures the benefits of growth. We actually saw this happen between 2003 and 2009 when data from the Family Income and Expenditures Survey showed that poverty incidence went up, even as GDP had been growing at then-record rates.

At an individual level, it’s even easier to show how higher GDP can actually mean more misery. Imagine yourself (heaven forbid) getting injured in a road accident that wrecks your car. You would actually raise GDP because it results in more medical and car repair services. When a family sends off elderly grandparents to a nursing home rather than care for them at home, they raise measured GDP because doing the latter doesn’t enter the GDP accounts, which don’t track productive economic activities done at home. In both examples, higher GDP comes with increased unhappiness. Clearly, higher GDP does not necessarily translate to higher welfare. The latter example also shows why GDP data are often said to be unfair to women, whose valuable services rendered at home such as child-rearing and homemaking never enter the GDP accounts, although counted when done as a paid service for others—as with countless Filipino women working overseas.

Moreover, the GDP/GNP accounts completely ignore how the increased production of goods and services is accompanied by significant degradation and depreciation of our natural environment. It has long been suggested that our national economic accounts should include the depreciation of natural capital in the same way that businesses routinely count the depreciation of physical capital such as buildings and equipment in their production costs. Both houses of Congress recently approved landmark legislation that institutionalizes the Philippine Ecosystem and Natural Capital Accounting System or Pencas, which is due for bicameral conference committee deliberation soon. Its sponsors hail it as a step toward “(integrating) environmental inputs in the determination of the national income accounts, to reflect a more accurate state of development and economic performance of the country.”

Still, basic shortcomings of GDP/GNP as an economic yardstick remain, even if enhanced through the incorporation of natural capital accounting. It still must not be taken in isolation of measures of distribution and of human development, especially on health, nutrition, and education. Otherwise, these acronyms will continue to be half-jokingly (but also half-seriously) taken to mean “Gutom Dito Pilipinas” or “Gutom Na Pinoy.”

cielito.habito@gmail.com