Is it fair to consider GDP as the “universal proxy” of growth?

In fact, it must be a measure of economic well-being rather than economic growth to assess the economic health of a nation.

By Megha Jain

Over the past decade, the global climate crisis has pushed 20 million people a year away from their homes (the equivalent of one every two seconds), according to the recent Oxfam report (2019) and the summit Madrid COP25. Undoubtedly, the increasing severity and frequency signal negative weather externalities. In this context, the current pressure of the economic slowdown could force the “climate agenda” to take a back seat. It is in this context that the Kuznets curve hypothesis should be the central point of reference for finding answers on climate depletion by pair of growth. This postulate states that climate pressure increases to a certain level as economic growth increases, but that after a certain threshold the relationship is reversed. Essentially, “growth” cannot be interpreted as serving the present at the risk of future generations. The question then is: Should (materialist) GDP be considered the sufficient measure to represent economic, human and social (non-materialist) growth?

There is evidence of a remarkable contribution by Sen, Stiglitz, Daly, and Nayyar since the 1990s in linking growth and income inequality to contain emissions where they primarily challenge the very structure of globalization, and therefore the criterion of GDP. to reorganize its fundamental dissatisfactions. They are of the view to treat GDP as an input, a means to an end, and certainly not the end itself. GDP is probably the simplest, safest, and most linear of all available measures that have worked well for India so far. But, at the same time, it is relevant to identify what could replace the de facto measure of GDP in order to have a global perspective?

The above could be partially answered by the benchmark reports from the OECD and UNDP, suggesting better measures such as the Human Development Index (HDI) and the Better Life Index to assess economic well-being with equity for any country. Indeed, the recent HDI ranking placed India 129th in 2019 against 130th in 2018, despite declining economic growth which further confirms the relevance of replacing or using the right proxies to compare the economic results. , environmental and social. of any nation. In 2006, the New Economics Foundation proposed another indicator of human well-being and the environment, namely the Happy Planet Index. It is based on factors such as life expectancy and ecological footprint per capita, and a subjective “life satisfaction” indicator. In addition, the Heritage Foundation and Fraser Institute Economic Freedom Index could really prove useful in understanding the economic and political positions of any country. Likewise, the Genuine Progress Indicator (proposed in 1989) could be a superior measure to represent the growth and well-being of individuals, mainly in the area of ​​ecological economics. It is often debated that it is impossible to achieve sustainable decision-making aimed at sustainable progress and economic well-being if well-being is viewed from a purely financial perspective.

Alternatively, adjusting the GDP to take into account contemporary qualitative factors such as the environment and the social could be a sustainable path. Tangible factors such as “ quality of life ” and “ ecological integrity ” might be less objective but more sustainable to capture the negative (“ bad ” economic) externalities of increased consumption which increases the Current GDP but undoubtedly endangers the future level.

In fact, it must be a measure of economic well-being rather than economic growth to assess the economic health of a nation. There is no doubt that there are obvious advantages to using “GDP”, so attempting to abolish GDP would be neither feasible nor advisable. Yet economic activity decoded as GDP growth brings the world back to 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 classic GDP philosophy that “the bigger the better” is no longer beneficial. In addition, the climate catastrophe is an indisputable threat multiplier and is certainly not going to discriminate. Therefore, there is an urgent need to roll back the structure of globalization itself in order to have sustainable and egalitarian growth on a global scale, as Stiglitz suggests. The important thing is to know if the growth is sustainable and if most citizens see their standard of living increasing from year to year. It goes without saying that the world is in dire need of new goals and new ways of measuring progress towards those goals.

In addition, there needs to be a global dialogue and consensus to opt for the appropriate economic measure as a global standard and also to maintain control, so as not to fall into the trap of stagflation similar to the GDP crisis of the 1970s. Time is running out for humanity. A broader perspective on measuring economic and social progress could possibly shed light on the sustainable path ahead.

The author is Assistant Professor / Principal Researcher, DRC / FMS, University of Delhi

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