Why GDP is a perverse index of wellbeing

I was trained as an economist. For the tribe of economists, the Gross Domestic Product (GDP) of a country is a sacrosanct measure of national production within the borders of the country. Not just economists and policy wonks, businessmen, politicians, the media and the universities constantly refer to it.

Its textbook definition goes: ‘The total value of all the goods and services produced in a country in one year.’ ‘Value’ could be nominal or real (after adjusting for inflation). But it is always stated in monetary terms (in current or constant dollars or rupees or whichever currency you wish).

The classic textbook example used to be that if a man marries his housekeeper, the GDP of the country would fall. One can come up with a thousand similar stories. My grandmother used to knit sweaters not just for me but for the entire (joint) family. Her contribution to the GDP? Nil. If the same sweaters were sold for a profit in the export market, they would have warmed the hearts of GDP-conscious patriots!

The joy that my grandmother derived from making sweaters for everyone was incomparable. So was our happiness when we received such handmade gifts of love.

But there is no room for such things in the economic calculus of today’s experts. They know no other index of human wellbeing than the GDP. In the process, they usually track human misery more closely than human happiness.

They forget what Einstein (to whom the quote is correctly or falsely attributed) might have meant when he said: “Not everything that can be counted counts and not everything that counts can be counted.”

Let us consider three other dimensions of GDP that economists rarely speak of. The first has to do with the fact that the origins of the GDP as an official measure of national production are as recent as 1937 when Simon Kuznets (who received a Nobel Prize for his immense labours) made a presentation to the US Congress on the subject. In a time of war, it facilitated a simple way to compare the relative military strengths of two different countries.

This aspect of the GDP became ideologically very potent by the time the Cold War took hold of the world after 1945. Capitalist and communist ideologues would routinely try to prove the superiority of their respective systems by making crude GDP comparisons.

The United Nations was formed in 1945. It officially adopted the system of national accounts developed by Kuznets. By 1953, the first international data comparing GDP across countries was released. During the same period, after the famous 1944 conference at Bretton-Woods when the World Bank and the International Monetary Fund were created, the idea of ‘development’ was hurled upon the world.

In the aggressive climate generated by the Western powers (and the Soviet Union) the compulsion to ‘develop’ was felt by every government in the world, an artificial imperative that survives the last three generations.

As the idea of ‘development’ came of age in the 1950s, ‘welfare economics’ was born, pioneered by such stalwarts as Nobel economists Kenneth Arrow and Amartya Sen. They themselves were rarely so crude, but many others of their ilk, as well as policy wonks, businessmen and governments began seeing GDP not merely as a measure of an economy’s production, but as an index of human wellbeing.

Experts pointed out the absurdity of such an intellectual leap. But the powers in control of the profession as well as those in high office were not to be deterred. GDP, at least as a proxy measure of human wellbeing, was here to stay. The fact that its primary purpose was to compare just how much and how quickly a country could produce the steel or military hardware to win wars over its enemies was conveniently overlooked. And it remains that way. The happiness of grandmothers and grandchildren is of little concern to those who wish to make a nation ‘great’.

A second aspect of GDP as a measure of well-being deserves graver comment. If parents begin charging children retrospectively for having raised them to the age of reason, education and economic productivity, the country’s GDP would rise dramatically. The same result will obtain if children begin charging parents for looking after them in old age. Given the global and national dispersion of families, homes for senior citizens already make sense.

The full monetisation of mammalian affections would constitute an economic miracle of global fame. However, society (or what remains of it after the virtual victory of dating apps over it) would stand defeated, if not destroyed.

The economic anthropologist Karl Polanyi had pointed out in his prophetic 1944 volume The Great Transformation that the triumph of the market would eventually result in the destruction of ‘the substance of society’. Now, with the speedy rise of the virtual sphere and the erosion of the family and the community across wealthier parts of the world, we have hard evidence of this.

Finally, consider the fact that every time an oil drill is installed anywhere, mother Earth heaves a sigh of crushing distress, an accumulating agony which is already turning the human adventure on this planet into a terminal ecological nightmare. Exhaustible resources are closer to complete exhaustion.

Not to romanticise the past, but the air everywhere was immeasurably cleaner the world over before ‘progress’ had begun a few centuries ago, and species death through climate change or nuclear Armageddon was not even a dystopian fantasy.

When the stakes are such, the deployment of GDP as a measure of wellbeing presents to us an idea of organised human stupidity today. Perhaps it is the inevitable collateral damage of a ‘smart world’ exclusively devoted to the organisation of races among ‘smart people’. Fashion parades, the original root of the spread of the word ‘smart’, are now glamorous metaphors for life itself.

Aseem Shrivastava is an economist. He now teaches ecosophy

Courtesy: The Billion Press