The gross domestic product says nothing about our well-being and that of the planet. Time for an alternative
Imagine: you go to the doctor for an annual check-up. You make a little small talk and then he measures your blood pressure. Everything's fine. You will be out like a flash. Does the doctor now have a good picture of your overall health? I'm afraid not. Because what about your lungs, your heart, your eyes and ears, your blood values and mental health? No idea.
Yet this is the way we in the modern world, and I am talking about almost every country on this globe, measure the overall (financial) health of a society. We call it the gross domestic product (GDP). A global economic measurement system of which the economist who once invented it in the 1930s, Simon Kuznets, warned that it is a potentially dangerous oversimplification that can easily be misused. For example, GDP counts bombs and the construction of prisons as progress, for the simple reason that it generates money. It does not include ecological damage at all.
However, that was no reason for the elite of that time not to embrace it as an accounting system for the global economy. After the Second World War, GDP soon formally became part of national and international economic policy. Currently it has been given some sort of holy status. It's like we are presented with only one single figure each year. For example: "GDP grows by 0.7 percent in the second quarter of 2018." And on that basis governments and companies base their policies. Growing, stay the same or contracting, those are the options.
We get what we measure. The indicators that we choose determine which things we pursue collectively. In the case of GDP, this often leads to absurd logic. Because everything that causes economic activity, whether good or bad, contributes to GDP. So if, for example, there is a large oil spill at sea, then GDP will go up because of all the economic activity that the 'cleaning' engenders. The bigger the leak, the better for GDP. In other words, GDP measures the speed at which a society transforms nature and human activity into a monetary economy, without considering what this does with the quality of life in general.
And that's not all. Activities that put more pressure on our natural environment often contribute more to GDP. So for the country's gross national product it's better that I grab my car and top up the tank (and thus spend money) than that I always go to work by bike. Or: if I get something from my own vegetable garden and eat it, it will not affect GDP, but a visit to the supermarket will.
Now the power of GDP is of course its simplicity; an international measurement method that organizes all transactions and balance sheet items of an economy in a structured way and then spits out one digit per country. The big question is therefore how another fairly simple measurement system can replace this method - one that is accepted worldwide (more than two hundred countries are currently using GDP as a 'measure of prosperity').
It is not that there are no alternatives. Alternative measurement systems have been discussed for several decades, such as the genuine progress indicator (GPI) or gross national well-being (GNW). There are also (especially smaller) countries that pioneer with GDP alternatives. In Bhutan, for example, there is gross national happiness, and New Zealand recently announced that it will use new approaches to draw up their budget like better quality of life and general well-being for the population.
Without a coherent and focused strategy, however, a global transition to a healthier welfare measurement system cannot be made. In the world of GDP alternatives, there is no clear agreement between frequently used terms, such as "well-being", "sustainable development" and "quality of life." If it wants to provide a globally usable alternative, it will therefore have to develop a clear common language with the aim of understanding, measuring and managing the present well-being and the well-being of the future.
It is clear that the time is right for a next step. Continuing on the current road will ensure that the economic reality is increasingly moving away from our social and ecological reality. To most people it is clear by now that the good annual growth rates of the economy say little about their monthly wage slip or our social welfare, and certainly nothing about the state of the living environment.
So: if we want a different economy, one that doesn't massively plunder our earth, we'll have to start installing a new measurement system. It requires an overall and integral approach to our economy in conjunction with people, animals and natural welfare. The alternative is Control-Alt-Delete.
Note: all pictures come from Unsplash.
Dear @keysa
Wooo friend this is a great analysis of the economy and measuring the progress of a nation. Taking it from your point of view, there is no use or maybe very little GDP.
Let's say that the alternatives that you name are the best ones to replace the existing one. What can we do to get them implemented? I think it's up to us to just play messages like this and raise our voice to be heard.
Very good topic, great post brother thanks for sharing.
Regards appreciated @keysa and @fucho80.
In this case, the @keysa approach focuses on GDP as a measurement mechanism. But the most important thing here is to reflect on how we as a society have placed a blindfold before our eyes, pretending to deceive ourselves before reality: The nations are destroying the planet with so much desire for power.
As an evolved society we must also evolve in our consumption patterns focusing efforts on the preservation of the planet. Measuring systems or mechanisms should also evolve taking into account other factors that serve as indicators and can give a more globalized idea of human well-being.
All best, Piotr.
I think the key to a better measurement is sustainable growth. Sure you clearcut all your forests in a country would be great for the current GDP, but sure won't help next year's GDP. Now if you build some time of renewable energy sources, ti will be much more expensive in the short term, but pay off benefits in the long run. I am not quite sure how to measure that, however. I shall have to think about it more...
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Bill McKibben once wrote:
Another issue with GDP is that a lot of the economic activity it measures has been built with spectacular levels of private and national debt. Do we really own the alleged prosperity we have built, given it was created in debt? And that doesn't even mention the environmental debt we are creating via externalities that aren't even measured in capitalism.
It will be interesting to see how New Zealand's approach goes. It's a far more rational approach to national well being.
When student debt is counted as part of the U.S.A.'s gdp, you know something is seriously wrong.
I was not aware of that. Damn, it's even worse than I thought.
An economy so let based on endless growth is not sustainable we need a new way this kind of capitalism is working! Great post we need to ask are selfs these questions people really need to know this!!!
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While I do agree that GDP isn't an accurate measurement of a countries prosperity I don't agree with the concept of sovereign nations so I can't really say I would care much for how to measure its output. Countries are merely lines drawn in the sand to provide some measure of control and uses tribalism of humans as a tool for nationalism, keeping people docile and loyal
Ps. You should reference the links to the photographer on Unsplash when using their images
Normally if you see,higher GDP nations, they generally have better standard of living, quality of life and also respect nature quite well.
As for the economic system change you expect can be the circular economy. In a circular economy every product in the market is leased instead of sold and then recycled and again leased. This creates a chain of reduce, reuse and recycle and also keep the GDP running although at a much slower pace.
The GDP also includes debts as people want to buy debts, if you know the 2008 financial crisis was also caused due to high buying of house debts.
Anyway you are right, there is change needed but may be not as radical as you would like it to be and as for GDP, I think GDP has been defining a country's betterment in the best way including happiness, nature loving and etc,etc,etc.
Wow! Just learn a new thing about gdp from your post. Its explain why many country with growing gdp year in year out have reality that's not in tune with the gdp. One would have expect that increase in gdp would have positive effect on the life of the citizens but is not so. Many country with a lot of poor people and big unemployment market but good gdp.
I must say that as comprehensive as this is, your review of the word : GDP is still one sided.
You're looking at GDP from the side of an economy based on its people's suffering which are being marketed for profit, to an extent, Yes. You're right, but that's just one side of it.
GDP also measures the progress of its people, there financial state in cut and clean form.
Wikipedia
Don't forget that presently, GDP is no more in use in some countries anymore, it's the media that still use it to convey to the masses what they could understand : GDP.