Measuring gross national wellbeing
It seems good news that we are again the fastest growing economy in Asia, and possibly the world, with the 6.9 percent reported annual growth rate of our gross domestic product (GDP) in the first quarter. Still, not everyone is applauding. I have written time and again on the need for caution against reading too much into that number, and for everyone to understand what GDP tells us, and what it doesn’t. (The same holds true with its accompanying measure gross national income or GNI, formerly known widely as gross national product or GNP.)
Three world economic and financial giants recently came out calling for a serious review of how economies measure their performance. In separate sessions at the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, Nobel laureate economist Joseph Stiglitz, International Monetary Fund chief Christine Lagarde and Massachusetts Institute of Technology professor Erik Brynjolfsson all described GDP as a poor indicator of progress. All argued for change in how economic and social development are measured—and it seems the time is finally ripe for this.
With all its limitations and shortcomings, GDP remains the most widely used measure for assessing the performance of economies worldwide. It measures the value of production within the country regardless of nationality of the producers, while GNI/GNP measures production by a country’s nationals whether within or outside the country. Both measure the total value of goods and services produced and of total incomes earned in the economy, which are two sides of the same coin. But do they measure a country’s well-being? Clearly, no, whether from the aggregate perspective or from an individual point of view.
At the aggregate level, growth in GDP says nothing about how output and incomes are distributed. Where there’s a wide gap between a small rich minority and a large number who are poor, rapid GDP growth could come with increased misery, particularly when the benefits of growth accrue mainly to the former. The Philippine experience is testament to this: Based on official statistics, poverty incidence had gone up between 2003 and 2009, and again from 2013 to 2014, even as GNP/GDP had been growing at record rates. Furthermore, GDP ignores how our children’s future may be compromised by our production and consumption activities today. Inclusive growth and environmental outcomes are missing from the picture that GDP paints.
At the individual level, even economists themselves have long questioned the premise that increased income or access to goods and services leads to improved wellbeing or greater happiness. Economics students are taught that “utility,” economists’ clinical term for “satisfaction” or “happiness,” is directly related to levels of consumption, and that for a rational consumer, more is always better. But happiness is a state of mind, and need not just arise from consumption. Psychologists have long known that happiness or wellbeing can be improved not only from “having,” but also from “doing,” “being” and “being related with.” Humans also have an inherent instinct for altruism, or for caring and sharing, even as economics assumes them to be intrinsically selfish. One may thus add “giving” to the list of happiness generators.
In other words, we humans can increase happiness not just from consuming more goods and services. We may actually do so from giving more to others as well, drawing joy from the increased joy of others. We could also derive satisfaction from doing something enjoyable, such as playing a sport, or even doing our job (hence the word “workaholic”). Or we may derive it from being famous, popular or respected by the community. Or we may get it from loving someone and being loved, or having good relations with family and neighbors, or having many friends. In many cases, these other sources of happiness may actually be associated with having less of the things that GDP measures.
A true anecdote from the Kingdom of Bhutan, where its former king had prominently championed the concept of gross national happiness, drives the point home quite clearly. Many years ago, the Bhutan government reportedly encouraged a prominent and influential farmer to double-crop a high-yielding rice variety. Indeed, he harvested a bumper crop and gained considerable surplus grain that year. It was hoped that with him serving as an inspiring example, other farmers would emulate him and thus diffuse the improved technology. But the authorities were astonished when the model farmer chose not to plant in the following year. His surplus had left him enough to live on for another year, he explained. Thus, he would rather live leisurely and spiritually—and chose to spend his time in the monastery instead. He simply but eminently demonstrated that more production and more happiness do not necessarily come together.
With world-renowned economists now calling for it, we may soon see serious efforts to revisit our standard measures of economic performance, or more importantly, economic wellbeing. WEF chief economist Jennifer Blanke writes: “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.” She points to three key questions that GDP overlooks: Is growth fair? Is it green? Is it improving our lives?
Stiglitz aptly summed up why we need to find a better measure: “What we measure informs what we do. And if we’re measuring the wrong thing, we’re going to do the wrong thing.”
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