Mon Nov 6th, 2006 at 11:44:14 AM EST
from the diaries. - Jérôme
GDP is a poor measure of a country's performance. When it is the main objective of a country to maximise its GDP growth, poor policies are likely to result.
This, I think, is part of the consensus in this community, which abounds with criticisms of the blind fixation on GDP growth and associated 'reform' measures. Criticism in itself is not enough, but the European Tribune has also shown considerable interest in developing a positive alternative account of development and progress.
After sort of promising it, I went to do some research on the various rankings that existed.
Putting these together in any kind of meaningful way is going to be a lot more work than I expected, because the measurements are often not compatible. And thanks to google plus the ET archive, I managed to find a lot. So this is the first part, the purpose of which is to provide an overview and a discussion.
The various alternative measurements are not used to their full effect. GDP growth still rules as an overall policy objective. Part of the problem is that the alternative measurements are often incomplete themselves, lack an an overarching philosophy, do not produce rankable results, or have not done the empirical part (yet).
Reasons for using GDP
Apart from inertia and the problems of various alternative measurements, there are, I think, two main reasons why GDP is still so widely used as a measurement in policy making. The first is power, the second is jobs.
The problem with GDP is that for a long time, it has been a very good measurement for a country's power, and in some ways, it continues to be. This goes for soft power as well as hard power. The much-vaunted soft power of the EU is largely due to the pull of having the largest internal market in the world. This causes foreign companies to comply with its standards (even in markets where these don't apply), and foreign countries to seek friendly relations and in some cases Membership.
GDP is seen as being convertible into hard power. This view has recently been undermined by the guerilla wars in Iraq and Lebanon, as well as the deteriorating situation in Afghanistan. It now seems that GDP differences are largely irrelevant in asymmetric warfare. As it can be expected that many of the future conflicts will be asymmetric rather than conventional, GDP is less relevant for hard power than it used to be.
Between states, power is largely seen as a relative good. This too is what makes GDP a good measure of power. Less GDP growth equals relative decline. But it causes a disconnect with what we should want politicians to do, which is to care primarily about the well-being of their citizens, which is a rather more absolute good. Apart from being rather incomplete, GDP growth is less telling when it comes to absolute goods, as Jerome explains here.
This problem is one of attitude, or loyalty. Politicians can identify with the state and its requirements rather than with the population. This may be democratically justified if the population is strongly nationalist.
Politicians also tend to think that economic growth equals job creation. Creating jobs is what most social-democratic parties in Europe see as their central task and as long as the belief in the link between growth and job creation remains strong among them, there will be no force in the center questioning the role that GDP growth plays in public policy. This problem is one of perception, and can be solved much easier than the problem above.
The incomplete 'Genuine Progress'
A measure of progress should be as complete as possible. You could, for instance have a measure that offsets for GDP growth that is uneconomical (spending on undesirables, spending at the cost of wealth) and that offsets for growth that is unsustainable. Add contributions to wealth that are not valued in money and you roughly have the Genuine Progress Indicator, made by the fine people at the Center for Redefining Progress.
The GPI, however, doesn't measure such things as health, human rights or happiness. What it does measure doesn't substitute for these omissions (which are, however, admitted). The measure has also not yet been applied on a global scale. Doing so would be a rather large research project, so unfortunately we can't really use this ranking.
The Rise of Happiness
It has become popular to use happiness as an alternative - or even overarching measure. This has been pictured in this diary of Jerome, for instance. It has also gained some political traction following Richard Layard's book 'Happiness, Lessons from a new Science'. The problem with this approach is that it is utilitarian - it portrays happiness as the greatest good, which it is not. Utilitarianism is also prone to a consequentialist calculus that ignores inviolable rights, or to formulate it differently, that does not distinguish between more and less fundamental goods.
The violent death of a gladiator slave cannot be made up for by the happiness of the masses in the Colosseum, to put it in a charged manner. It might be said that happiness correlates with respect for human rights to a high degree, but this correlation is far from perfect. Happiness cannot serve as a proxy for all that we want to know.
Happiness also doesn't adjust for sustainability, but this can be more easily remedied. The sustainability factor is included in the Happy Planet Index. The HPI is made through the following calculation: life satisfaction times life expectancy, parted by ecological footprint (with the individual elements weighted). The ecological footprint is useful in showing roughly how far a country is removed from sustainability but it doesn't directly measure the damages done and resources depleted. Not that those can be easily measured...
So the index has that flaw, and it also has the general flaw of being utilitarian. I also think that its focus on sustainability is too large for it to be taken seriously by western governments. Where the flaw lies in that context can be debated, though.
GNH: Beyond Happiness
Gross National Happiness is a Buddhist approach to economics originating from Bhutan. As explained in the HPI report, it was originally a somewhat vague paternalistic policy from a benevolent dictator who wanted 'what was actually best for Bhutan'. But right now it's being developed into something more rigorous and universally applicable. The project entails finding indicators for 9 different areas:
4)Ecosystem diversity and resilience
5)Cultural vitality and diversity
6)Time Use and Balance
Trying to find data for a range of domains is more comprehensive, and a better way to measure genuine progress than attempts to moderate GNP, I think.
Next up: a hopefully shorter diary on the capabilities approach.