Is it right to consider GDP as the ‘universal proxy’ for growth?

Published: December 13, 2019 4:09:42 AM

Tangible factors such as ‘quality of life’ and ‘ecological integrity’ could be less objective but more sustainable to capture negative externalities (economic ‘bads’) of increased consumption that expands the current GDP but indubitably jeopardising the future level.

india, india growth, economy slowdown, economy news, gdp, gdp growth, gdo slumpActually, it has to be a measure of economic welfare instead of economic growth to assess the economic health of a nation.

By Megha Jain

In the past decade, the global climate crisis pushed away 20 million inhabitants per year from their households (equivalent to one every two seconds), as per the recent Oxfam report (2019) and COP25 Madrid summit. Undoubtedly, rising severity and frequency signal towards negative weather externalities. Given this backdrop, the current economic slowdown pressure might force the ‘climate agenda’ to take the back seat. It is in this context that the Kuznets curve hypothesis should be the focal reference point to find answers on the growth paired climatic depletion. This postulation establishes that climatic pressure increases up to a certain level as economic growth goes up, but after a threshold the relationship reverses. Essentially, ‘growth’ can’t be construed to serve the present at the risk of future generations. So, the question is: Should GDP (materialistic) be considered as the sufficient measure to proxy economic, human and social growth (non-materialistic)?

There is evidence of noteworthy contribution by Sen, Stiglitz, Daly and Nayyar since the 1990s to link growth and income inequalities to contain emissions where they primarily contest the very structure of globalisation, and hence the GDP yardstick to revamp its basic discontents. They are of the opinion to treat GDP as an input, a means to an end, and certainly not the end itself. Probably GDP is the easiest, safest and linear of all the available measures that have adequately worked so far for India. But, at the same time, it is pertinent to identify as to what could substitute the de facto GDP measure in order to have an umbrella perspective?

The above could be partially answered by reports reference of OECD and UNDP, suggesting better measures such as Human Development Index (HDI) and Better Life Index to gauge economic well-being with equity for any nation. In fact, the recent HDI ranking has placed India at 129th rank in 2019 vis-à-vis 130th in 2018, despite falling economic growth that further confirms the relevance of replacing or using the right proxies to benchmark economic, environmental and social balance-sheet of any nation. In 2006, the New Economics Foundation suggested yet another human well-being and environmental indicator, i.e. Happy Planet Index. It is premised upon factors such as life expectancy and ecological footprint per capita, and one subjective indicator ‘life satisfaction’. Further, the Economic Freedom Index by Heritage Foundation and Fraser Institute could really prove handy to comprehend the economic and political stances of any nation. Likewise, Genuine Progress Indicator (proposed in 1989) could be a superior measure to proxy the growth and well-being of individuals, primarily in the field of ecological economics. It is often debated that it is impossible to achieve sustainable decision-making aiming at sustainable progress and economic well-being if welfare is being considered from a purely financial point of view.

Alternatively, adjusting GDP to factor-in contemporary qualitative factors like environment and social could be a sustainable way forward. Tangible factors such as ‘quality of life’ and ‘ecological integrity’ could be less objective but more sustainable to capture negative externalities (economic ‘bads’) of increased consumption that expands the current GDP but indubitably jeopardising the future level.

Actually, it has to be a measure of economic welfare instead of economic growth to assess the economic health of a nation. Unquestionably, using ‘GDP’ has clear advantages.So, attempting to abolish GDP would be neither feasible nor recommendable. Still, economic activity decoded as GDP growth is leading the world back towards the brink of collapse. There is a growing global consensus that GDP does not provide a good measure of overall economic performance, at least in the long run. The classical GDP philosophy of ‘the bigger the better’ doesn’t prove beneficial any more. Also, climatic disaster is an indisputable threat multiplier and certainly not going to discriminate. Therefore, there is an emergency to retreat the globalisation structure itself so as to have sustainable and egalitarian growth globally, as Stiglitz suggests. What matters is whether growth is sustainable and whether most citizens see their living standards rising year after year. Needless to mention, the world is in a dire need of new goals and ways to estimate progress towards these goals.

Additionally, there is a requirement of global dialogue and consensus to opt for the appropriate economic measure as a global standard and also to keep a check, so as not to fall into the trap of stagflation similar to the GDP crisis of the 1970s. Time is running out for mankind. Probably a broader perspective on the measurement of economic and social progress could enlighten the sustainable way forward.

The author is assistant professor/senior research scholar, DRC/FMS, University of Delhi

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