You can’t judge a book by its cover, yet this is what we habitually do whenever we equate the wealth and success of a nation to its gross domestic product (GDP).
Policymakers often treat GDP as an overarching unit to signify a nation’s development, combining its economic prosperity and the well-being of our societies.
When in 1934 Simon Kuznets developed GDP as a measure of productivity for the American Congress, he had warned against its use as a measure of welfare.
Essentially, GDP measures the monetary market value of all the goods and services produced in a specific period. It has also become a generally accepted means to measure wealth in a comparable manner.
However, it fails to assess good or bad economic growth, and it has not kept pace with the changing nature of economic activity. It is abstract and has little meaning for individuals.
GDP omits the value of goods and services produced at home. Simply put, childcare provided in day-care centres is part of GDP, whereas childcare provided by parents at home is not. Voluntary work also contributes to the well-being of those in society, but GDP does not reflect these contributions.
GDP has gross limitations in measuring progress and wellbeing. It fails to measure whether lives are improving.
Spending on socially negative things show as positive for the economy. Cutting down a forest for wood adds value to the economy, but the loss of natural resources is not recorded.
GDP will still rise if, hypothetically, governments eliminate all environmental regulations, as firms could then produce goods and services without considering the pollution and damage they create. Yet the deterioration in the quality of air and water would more than offset the gains from greater production.
Our political leaders need to protect other things that are just as important as GDP growth- Claudio Farrugia
Concerned about the ever-growing irrelevance of this metric, the World Economic Forum runs an open debate aimed at finding a better way of measuring the real wealth and progress of a country.
The generally held idea among the economists participating in this forum is that in spite of growth in GDP, many people are worse off than they were a third of a century ago, so the world needs a better model for growth and we need to reinvent the way economies are measured.
Rather than improving lives, this metric may lead to abandonment of environmental responsibility and to a culture of excessive and wasteful consumption.
Pope Francis in his encyclical Laudato Sì has warned against excessive use of the world resources and the destruction of the environment for the benefit of economic growth and greed. He stresses that ecological problems and social problems cannot be considered in isolation.
Pope Francis explains how the environmental and social crises we are experiencing will require “profound changes in lifestyles, models of production and consumption, and the established structures of power which today govern societies”.
The Vatican commission for COVID-19 urged world leaders to reduce their spending on weapons and instead spend more money on aid and healthcare. Global military spending in 2019 was $1.9 trillion, 300 times the World Health Organisation’s budget.
Cardinal Peter Turkson, prefect of the Vatican’s Dicastery for Promoting Integral Human Development and President of the Vatican Commission for COVID-19, appealed for globalisation of solidarity.
Our political leaders need to nurture a human economy, they need to protect other things that are just as important as GDP growth.
When we speak of a country’s success, we need to have a system that measures good jobs, the well-being of all citizens, care for the environment, reduction of income inequality, and health services that are accessible to the most needy.
Claudio Farrugia is a member of the Catholic Voices Network.