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Mainstream, VOL LI, No 15, March 30, 2013

Does GDP add to Human Welfare?

Sunday 7 April 2013, by Shyam Chand


One of the legacies of World War II is the Gross Domestic Product (GDP). During that War, a system of national income accounts was adopted to assess the production capacity available to support the War effort. The War ended in 1945 but the growth in the Gross Domestic Product has become an important indicator for policy-makers to assess national progress.

The GDP, a measure of the gross domestic product, is an index of the gross market value of a nation’s monetised transaction for goods and services. Productive work done for self or love, even beneficial, is not counted. On the other hand, the most harmful transaction, when monetised, adds to the GDP.

A mother who bears and rears her own child as a labour of love does not add to the GDP, whereas a surrogate mother makes economic contribution to the GDP like other intermediaries —lawyer, doctor and semen donor.
Increase in crimes, like theft, stimulates the demand of the security system and security guards who add to the GDP.

Prof Tsuru, the former Head of the Department of Economics, Tokyo University, during his lecture at the Delhi School of Economics in 1960, making an oblique reference to the world’s oldest profession, remarked: One sector of the economy produces mosquitoes and other sector produces mosquito-nets and both add to the GDP.

In the preface to his book, Japanese Economic Development, he has mentioned about his earlier lecture at the Delhi School of Economics in 1956 when he illustrated, with facts and figures, showing belligerent tendencies in the Japanese economy and its rate of growth higher in war times—war with Russia, war with China and WWII—than in peace time. The Japanese ambassador, who was among the audience, left the hall in protest.

Heavy armament manufacturing industries producing weapons of mass destruction, like cluster bombs or drones, add to the GDP.

A factory which produces milk powder to bottle-feed the child adds to the GDP whereas a mother whose child suckles on her does not add to the GDP though the mother’s milk is more nutritious, it does not need to be boiled, no sugar needs to be added, no cat prowling and moreover, it comes in a beautiful cup.

Economists, like sociologists, shy away from making value judgement. Values, whether ethical or unethical, spiritual or materialistic, are central to every aspect of economic life.

The highly respected World Watch Institute in its State of the World Report 1998 notes that the last half of the 20th century had been a remarkable success for humanity. The total global economic output increased from $ 4.9 trillion in 1950 to more than $ 29 trillion in 1997. In the same period, worldwide life expectancy increased from fortyseven years to sixtyfour years. The literacy level also increased.

But in pursuit of money we have mortgaged our future and the future of our children for generations to come. This economic development had increased the human demand on environment many folds. The use of lumber tripled, that of paper increased six-fold, the fish catch increased five-fold, grain consumption tripled, fossil fuel burning nearly quadrupled and air and water pollution multiplied several-fold. The growing demand on the finite system has resulted into adverse consequences. “Forests are shrinking, water tables are falling, soils are eroding, wet-lands are disappearing, fisheries are collapsing, rangelands are deteriorating, rivers are running dry, temperatures are rising, coral reefs are dying, and plant and animals species are disappearing.” Meanwhile, the world population has crossed six billion and continues to grow at the rate of eightyeight million a year. Can the world assume that the US level of consumption is achievable and sustainable? Or worth emulating?

Allen Durning, the former head of the Northwest Environment Watch, in his historical account of resource extraction in the Pacific and Northwest region of North America, says:

In the late 1700s and early 1800s the fur traders arrived. The sea otter and then the beaver population were wiped out.

Then came mining beginning in the mid-1800s and growing to a juggernaut; it too collapsed from exhaustion before WWII.

Next came fishing. Before White settlers came, natives collected fifty thousand pounds of Chinook from the Columbia River on a good day. The current catch is a fraction of what the Indian tribes brought each day.

Agriculture once thrived on the extraordinary fertile soils deposited in the region during the Ice Age by receding glaciers. The soil was so fertile that a single crop could sustain the community but intensive cultivation methods used depleted the soil and the farmer lost six pounds of soil for every pound of wheat grown. Increased use of chemicals contaminated ground water supply.

Forests, that stretched from Alaska to Northwest California, were once the heaviest accumulation of living matter in the history of our planet. Government subsidy for stripping of trees progressed at a level that by 1990s most of the accessible old growth forests were gone.

The abundant and wild rivers were dammed for irrigation and cheap power. Waste water used for cooling the reactors is dumped into the rivers raising the level of radioactivity-many fold and rendering the water unpotable.

Economists ignore all forms of productive capital except human-made physical capital, such as building and equipment. Then instead of deducting its depreciation, they add it as a pro-duction cost; thus counting it in as a production cost, they add it as a positive contribution to the gross production output. As a consequence, the faster the physical-human-made capital depreciates, the faster the GDP grows.

People talk of China’s higher rate of economic growth. China expert Carl Riskin warned that widespread bankruptcies, deepening inequality and soaring unemployment threaten China’s social stability. He further noted that China, which generates 18 per cent of the world’s ozone depleting substance and is the largest producer of green gases after the US, is one of the most pollutant countries in the world. A World Watch study estimates that 2.03 million people die annually in China from the effect of air and water pollution. Overall about eight per cent of China’s GDP is lost each year in damage to life, health and property from air and water pollution. As Riskin notes, subtract that from the real economic growth rate, and virtually none of it is left.

In Greek mythology, King Midas of Phrygia was granted a wish by god Dionysus for a favour. His wish was to turn everything into gold he might touch. But his touch turned his food, drink and even his beloved daughter into gold. Then he realised that the blessing in fact was a curse.

Trading life for money is a bad bargain because it is life that gives money its value.

The author is a former Minister, Haryana.

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