GDP not an accurate measure of prosperity

In his valedictory address on his graduation from university, the author asks why, despite all the reports of impressive economic growth and trade figures, high corporate profits and stock market activity, the world today is in such a bad shape, with high unemployment, widespread starvation, and environmental degradation. His conclusion — GDP and other conventional yardsticks of global economic success are inaccurate and outdated.

By Paulo M C Eusebio

FELLOW graduates, how many of you here today are graduating under what this week’s The Journal has termed “Graduating under a mountain of debt”? How many of you can relate to this article? How many of you are worried? How many of you think that you are going to find a full-time job? I’m afraid that I have some very shocking but real facts to share with you.

According to Statistics Canada, the labour force participation rate of 15-24-year-olds has reached its lowest point in 20 years. And, as our debt burdens increase we are told that we must continuously acquire new skills and this means an even larger debt burden. According to a recent International Labour Organisation (ILO) report, training and retraining programmes directed toward the unemployed are masking the true extent of joblessness.
Just this week, our Federal Finance Minister has told us: “I’m quite optimistic about the state of the economy. Things are in really, really good shape.” And, in fact if you look at the overall GDP, corporate profits which are at record highs, trade figures, interest rates, stock market activity, and other conventional measures you can see why he would make such a mind-boggling statement.
But is he unaware of the increasing rate of unemployment, especially among the young, the declining real incomes of most Canadians, the fact that people are working longer hours just to make ends meet? Increasing job insecurity, including growth of part-time, seasonal work with no benefits — many go to work one day without knowing whether they will still have their jobs the next — the higher stress levels and poorer health, the ever widening gulf between rich and poor, the 51% increase in child poverty since 1989, the growing dependence of more than two million people on food banks — most of whom are young people.
This is very much a global issue. World trade has never been higher, and the world’s gross product continues to expand. The profits of the world’s largest corporations are skyrocketing. All good news? So it would seem.
Why then are global unemployment figures the highest since the great depression and growing — including in the developed countries alone 35 million jobless and millions more underemployed? Why do one billion people live in absolute poverty, chronically hungry? Why do 40 million a year die of hunger and related diseases — mostly children?
Why does the world’s richest country — the United States of America — imprison a larger percentage of the population than any other developed country in the world, why does it boast child poverty four times that of other developed nations, why must 30 million be hungry? And why is the world faced as never before with potentially catastrophic environmental degradation — accelerating global warming, 35% of the world’s arable land undergoing severe erosion, the world’s forests disappearing, our fisheries overexploited, and species becoming extinct at 1,000 times the normal rate?
Clearly the dominant economic system is producing more in pure numbers but it is tearing society apart. As the ILO recently reported, never have the means of producing consumer goods been so successful. Never has the number of those excluded from sharing the enjoyment of these goods and services been so high. How many times have we heard the cliche ‘this is an unfair world’. But it does not have to be so. It is unjust because the minority insists on controlling a very large chunk of the pie at the cost of excluding the majority. This is the case internationally, nationally, and in our communities.
My fellow graduates, we cannot understand our debt, our job insecurity, our fears about the future, our confusion here at Saint Mary’s University and that of our fellow graduates whether in Tokyo, Nairobi, Caracas or Lisbon, as if they were separate from the global picture. In fact, as we plan our next step into the world we must understand that our very motivations, goals, aspirations, our measure of success, of what is worthwhile and what is worthless is shaped and pervaded by the way the global economy is measured. The universal measuring stick of which is the gross domestic product — the GDP.
The GDP measures all market activity, all goods and services exchanged for money. When the GDP grows our political and business leaders trumpet the good news. So why are most of us not cheering with them?
Firstly, the GDP is a dumb measure. It cannot distinguish between economic activity which causes benefit and that which causes harm. All economic activity whether it produces bombs, cigarettes or oil spills, like the devastating Exxon Valdez which generated $2 billion worth of economic activity in the form of legal fees, detergents, media coverage, labour, and equipment or the gruesome Oklahoma City bombing credited by the Wall Street Journal with producing a boom for firms making anti-crime equipment — or even child labour and sex trade. All of these are counted as growth.
Secondly, not only is this conventional way of measuring growth dumb, it literally omits most of the world’s productive activity. Because it measures only money transactions, it does not count most of the work done by women, including child rearing, household work, and growing food for the family. It does not count volunteer work, including care for the sick and elderly, literacy programmes, charitable activities, all forms of batter, sharing, and non-monetary exchange.
For example, in sub-Saharan African women grow 80% of the food for their households. For the GDP this work does not exist because no money is exchanged. Nor can the GDP measure non-money quality-of-life indicators like health, leisure time, environmental quality, crime rates and social peace or divorce rates. In fact, higher divorce rates are good for GDP if they provide more work for lawyers. It cannot measure increased stress levels due to longer work weeks nor the loss of free time spent with children.
Thirdly, the GDP is simply bad business accounting. No business person would count the depletion of capital reserves as gain or profit. Yet overfishing, clear cutting of forests and depleting our natural resource base is measured as growth. Only short-term gain is counted — thus the obsession of our politicians, economic analysts and reporters with monthly changes in the GDP. Long-term costs are ignored and even passed on to the next generation. Cigarette sales are positive growth, long-term health costs for increased incidents of lung cancer are ignored. The GDP measure actually encourages short-sightedness and discourages political accountability.
Fourthly, the GDP is crude because it measures only gross domestic product. It fails to make critical distinctions. If the GDP is up it assumes that all are doing well and it fails to point to the growing gap between rich and poor both within Canada and in the world at large to the extent that 358 billionaires own more than two billion people’s net income — or 40% of the world’s population. It fails to point to the rising numbers of people slipping below the poverty line. It fails to distinguish the job prospects of young and old, between part-time and full-time and who loses and who gains.
In the words of economist Hazel Henderson: Trying to run a complex society on narrow indicators like the GDP is like trying to fly a Boeing 747 with nothing on the instrument panel but a single oil pressure indicator.
Fifthly, the GDP is a single-minded linear model which assumes that more is better. The GDP was invented during the Second World War to rally resources for Britain’s war effort at whatever cost — at a time when the earth’s resources were assumed to be unlimited. It is only in the last 20 years that we have begun to understand the limits of the earth’s carrying capacity. That unchecked growth can literally destroy the planet. This outdated economic measure has not been adapted to this new understanding.
In short, the GDP is dumb, crude, outdated, poor business practice, and omits most productive activity, and discourages political accountability. It cannot contribute to solving the three biggest problems plaguing nations North and South: poverty, unemployment, and social disintegration.
No wonder we are confused when our leaders tell us the economy is rosy. No wonder we are confused about our own job and future prospects and about our personal direction and priorities. Until we change the way we measure the economy we are very unlikely to know how to measure our own success and how to choose wisely for ourselves, our families and our society.
The good news is there are alternatives. Distinguished economists have proposed outstandingly sophisticated models to measure economic health and prosperity far more accurately than the ancient and outdated GDP indicators still currently in use. The country futures index (CFI), developed by economist Hazel Henderson, and the genuine progress indicator (CPI), developed by Cobb, Halstead, and Rowe, are good examples of excellent measurement tools which assess environmental and social impacts, the state of the economy’s natural resource base, and various family, housing, educational, health and ethical criteria, as well as economic activity, to determine a society’s progress or decline.
The GPI, for example, includes more than 20 aspects of our economic lives which the GDP ignores — including the household and volunteer economy, crime, spending to defend against future environmental degradation, distribution of income, resource depletion, habitat destruction, and loss of leisure. We can calculate these measures The superficial and misleading economic indicators trumped by Wall Street-type analyses which dominate mainstream media need to be exposed. Just because the mass media ignores calls for alternatives it does not mean there is a shortage of such. For example, in France a parliamentary report has called for new indicators of progress, the Australian Treasury and the European Parliament have done the same. Even the Clinton Administration has proposed that resource depletion be subtracted from GDP.
What stands in the way are entrenched vested interests with no eagerness to see things changed. Imagine the mainstream media reporting national and international economic pulses based on indicators along the lines of the GPI. The impact would be radical. Policy-makers, political leaders, and others would have to confront the real economy — the one that is making increasing numbers of people insecure and poor. The absurdity of the dominant economic system would be exposed. Accountability would be ensured.
How many times have we heard alternatives being greeted with statements like “that’s a radical way of looking at things, get on with the programme!” Or, “everyone else is downsizing and restructuring; we have to keep up with times.” According to The Independent, from 1987 to 1991 — a period of economic growth — more than 85% of US Fortune 1000 companies reduced the size of their staff. As the British newspaper reports, the real drive behind downsizing is that “announcements of job cuts are often greeted by rises in share prices”.
Finding other ways to raise total income requires senior management to think harder about other opportunities such as investing in new skills and the like. “It is far easier to cut jobs or sell off parts of the company.” If all this sounds familiar it is because governments are emulating these practices. Cuts to education funding are one stark example confronting today’s students.
Feeling repulsed and even angry when confronted with this reality is natural. However, it is a fallacy to ignore this reality simply because seeing the truth displeases us. If we do, not only will we be making life dangerously insecure for ourselves but we will leave future generations in a bigger mess than that which we have inherited from the previous one. Exposing the social tragedies underlying this superficial and senseless economic system is needed to move our global community toward positive change.
Fellow graduates, the choice between buying into a misguided illusion or seize the new reality is not an abstract one. We do not have the luxury of waiting in vain for our leaders to wake up on their own. It is both our self-interest and our civic duty to see the reality clearly and make the choice ourselves, as consumers, producers, and participators.
For example, in the political realm, we can refuse to vote for political parties that although wearing different colours basically follow the same bankrupt policies and keep on perpetuating the same old myths which continue to rob increasing numbers of people of their dignity. What is urgently needed is an opening up of the political and economic space for alternative parties for genuine and meaningful alternatives to emerge.
In the economic realm we can choose to avoid companies with known links to arms trade, predatory business practices, and who have no problem in getting rid of workers when profits are rolling in. We can choose to support ethical and socially responsible business.
As a University we can make similar choices. We can, for example, follow the lead of University of Victoria’s students’ union which introduced coffee from Oxfam-Bridgehead, a fair trade organisation which pays producers a fair price and uses profits to fund literacy and other social development programmes in the developing world.
I am hopeful that our new Business School will go beyond the old illusion and become a leader in incorporating a study of these vitally important alternatives into the curriculum.
Finally, I would like to conclude by saying that moving to Nova Scotia to take on the challenge of the International Development Studies Programme (IDSP) at Saint Mary’s University is one of the best decisions I have ever made. I am leaving this university not just with a degree but with an outlook on my life and the ability to make a small contribution to make our world a better place. — Third World Network Features