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CAN WE TRUST ON GDP

DOES GDP SHOW WHAT WE REALLY CARE?

Written by Jathew Roman.

 

 

When we discuss whether a country is doing well or not, GDP is typically used as the perfect indicator of this state. And we used it for decades in any kind of territories around the globe. As well as we assumed that growth in GDP is tightly related to prosperity or national growth as a whole. But how accurate is this indicator demonstrating progress in a country? Or how can GDP assure that developing countries are doing great?

 

 

First of all, for those who don’t know what GDP (Gross Domestic Product) means, don’t worry, here’s a simple explanation: it’s just the value of all final goods and services produced in an economy in a given period. Having said that, GDP is a magnificent tool that brings information about a country or any kind of territory. Humanity gets used to it and simplified all its surroundings into this spiritless formula:

 

 

GDP = C + I + G + X – M

 

All these letters stand for Consumption (how much we consume), Investment (how much we invest), Government (how much our government spends) and eXports andiMports. Moreover, we manage to put it all in a formula that will tell if we’re doing great or not. Sounds fine, isn’t it?

 

 

Now, I want you to answer the following question: Have you ever heard a politician to use HDI as a sign of progress? I bet not, they all use GDP growth. As mention before, the GDP formula tries to represent all but it doesn’t include things as happiness, life expectancy, safety, satisfaction in life or pollution. But some unpopular indicators yes, as HDI (Human Development Index) or SPI (Social Progress Index). In the case of SPI, it studies three main areas:

 

  • Basic human needs, that assesses how well a country provides essential needs.

  • Foundation of well-being, that measures the conditions for living healthy lives or the accessibility to basic education, as well as the country’s protection.

  • Opportunity, that calculates if citizens have personal rights and freedoms and can make their personal decisions.

 

For example, Philippine SPI lacks in basic human needs but outperforms in opportunity.T hat’s a society where you can’t have safe drinking water but has well access to advanced education. So, the question is, does GDP show these significant issues?

 

Furthermore, New Zealand is trying to get rid of the dull GDP to take in place a more realistic and human indicator and know what citizens care more about. Prime Minister Jacinda Ardern proudly presents its budget called “Wellbeing Budget”. This is government expenses that will be invested and spent into real problems that New Zealanders have, as tackling the waste problem, mental health, improving child wellbeing, supporting indigenous people or programs for digital literacy for seniors. The aim purpose is to guarantee living standards and maintain citizens’ satisfaction by the action of the government in areas that need improvements. Moreover, the good news is that by translating these new actions into GDP language, the IMF, and some New Zealanders economists forecast that New Zealand will continually grow. Even thoughPM Ardern says that growth alone doesn’t lead to a great country, so it’s time to focus on those things that do.

Notwithstanding, it’s important to keep in mind that developing countries don’t need to use GDP as a sign of growth and progress, if not indicators that are more human as HDIor SPI. Because as a developing country, we don’t mainly want a developed industry and a strong economy. What people are seeking is prosperity transformed into education, access to services, infrastructure, freedom of speech, safety, environment, etc. and this is where the GDP formula fails.