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Mainstream, VOL LVII No 33 New Delhi August 3, 2019

Government’s Obsession with Growth — Misleading the Nation

Saturday 3 August 2019, by B P Mathur

The Economic Survey presented by the government to Parliament on July 4, 2019, a day before the Budget presentation, targets eight per cent growth and aspires India to grow at this rate annually, so that it becomes a $ 5 trillion economy in five years time—2024-25. That is the ultimate goal of economic policy, and the government thinks that by achieving it, India will become a wonderland and everything will be hunky-dory. (Currently India’s GDP is $ 2.7 trillion—2018.) Economists have been chiding the government for the slow growth during the last three years—seven per cent and less and say that the economy is in recession and want it to be accelerated—an ultimate craft of their profession. The obsession of the government as well as the economist fraternity, with GDP (Gross Domestic Product) growth numbers as a measure of the society’s progress, is fallacious. It hides poor outcomes of health, education, agriculture and industrial sectors, critical to our well-being and completely ignores issues such as environmental degradation and loss of social capital.

The GDP is basically a measure of a country’s overall economic output—the market value of all final goods and services made within the borders of a country in a year. The GDP ignores environment, home production for self-use and domestic work. The current system of measuring GDP counts armament production, wars and cigarette production and advertising as contri-butors to economic growth, while child rearing, house-keeping and volunteer work is ignored. The economic value of health care is a classic example of the GDP as a wrong index of progress. The USA spends 17 to 18 per cent of the GDP on health care but its health outcome is worst among the developed countries. The UK’s state- supported public health system spends only around nine per cent of the GDP and is considered among the best in the world. France spends 11 per cent of the GDP, Japan 10 per cent and Singapore just five per cent on health care and they all have exceptionally good health care system. The US system is in the hands of powerful drug companies and private insurers, who have powerful vested interest in keeping the cost of treatment expensive and manipulate the medical fraternity and exploit the patients. In India in recent months (January-June 2019) car production has declined, which economists call slow growth and harmful and dub as recession. But isn’t it good? Shouldn’t we reduce the number of cars on Delhi roads which is causing traffic jams, pollution and lung diseases?

Continuous economic growth is the foundation on which the modern free market capitalist economy is built. Its inspiration comes from the West’s materialist ideology where earning money and making profit is considered the summum bonum of life. Profit can come only through growth of the economy. The corporates and businesses have deep vested interest in a system of ever rising production and consumption. In the US the largest Fortune 500 companies account for over half the gross domestic product. The corporate and business sector wields great economic and political power and can influence the government’s policies. As they are driven solely by the profit motive, they do this by maximising production and sale of goods and services irrespective of its environment and social costs. So long as production and sales are increasing, the GDP number would grow and keep the corporate and business sector happy. A model of development based solely on GDP growth can create serious socio-economic problems for a country, as it is happening today all over the world. It causes ecological devastation, economic inequality, promotes the culture of consumerism and causes social Darwinism.

Stiglitz Report

 

Severe dissatisfaction with the GDP as an indicator of economic and social progress has been expressed by the Commission on the Measurement of Economic Performance and Social Progress,chaired by Nobel Prize winning economist Joseph Stiglitz, which included Amartya Sen as a member, besides many eminent academicians, and was set up at the initiative of French President Nicholas Sarkozy. (November 2009) The Commission has recommended a shift from measuring economic production to measuring people’s well-being and sustainability. While there are several dimensions to well-being, what can be measured is material well-being or living standard. The Commission observed that when evaluating material well-being, look at income and consumption rather than production. As the GDP only measures market production in money units, production may expand, while income may decrease. There is a need to give prominence to distribution of income, consumption and wealth. The Commission recommended broadening income measures to non-market activities. The Commission observed that ‘well-being’ is multi-dimensional and should include: (i) material living standards—income, consumption, wealth; (ii) health; (iii) education; (iv) personal activities including work; (v) political voice including governance; (vi) social connections and relationships; (vii) environment; (viii) insecurity, economic as well as physical. Quality of life depends on the objective conditions and opportu-nities available to people. The Commission emphasised the importance of sustainable development and measuring environment cost and proposed a new set of indices to measure it.

Limits to Growth

The Club of Rome, a leading think-tank, has been pointing out since 1972 that there are ecological limits to growth and pleads for a managed process of growth. The exponential growth of population and industrial production increases the ecological footprint of the economy. The world is today in an overshoot phase, which is measured in terms of the ‘ecological footprint’ of humanity and is compared with the ‘carrying capacity’ of the planet. The ecological footprint can be defined as the land area that would be required to provide resources such grain, feed, wood, fish, and urban land and absorb emission (carbon dioxide ) of the global society. The Club of Rome calls for a managed process to limit growth, if humanity is to survive.

Leading environmentalist James Speth points out that mindless pursuit of growth is responsible for the present ecological devastation. He says that in the worldwe live, economic growth is both seen as beneficent and necessary, without realising that past growth has brought us to a perilous state environ-mentally. He says that growth is the enemy of environment and economy and environment are on collision course. Expressing similar views Al Gore, the environment crusader and former US Vice- President, observes that ‘The violent impact of human civilisation has on the earth’s eco-system added upto to a world-wide ecological crisis that threatens the habitability of the world’ and if it is not quickly addressed, ‘it has the potential of ending human civilisation as we know it’.

A report published by the British Sustainable Development Commission (March 2009), titled Prosperity Without Growth, concluded that pursuit of economic growth was one of the root causes of the financial crisis of 2008, as well as the environmental crisis and has undermined the well-being of developed countries. The report notes that reliance on debt to finance the cycle of growth has created a deeply unstable system which has made individual families and communities inherently vulnerable to cycles of boom and bust, while increasing consumption does not make people happier. Tim Jackson, the Economic Commissioner at the Commission, observed ‘that allegiance to growth is the most dominant feature of an economic and political system that has led us to the brink of disaster’. The report notes that the growth imperative has shaped the architecture of modern economy. The market was not undone by rouge individuals or turning of a blind eye by incompetent regulators. It was undone by growth itself.

Eric Assadourian of the World Watch Institute, notes that in the consumer cultures dominant around the globe today, growth is always considered unquestionably good. But this is a false premise. We aren’t actually better off just because more expenditures are being made by consumers, businesses, or the government and the GDP goes up. A Group of Experts have constructed a new index called Genuine Progress Indicator (GPI) balanced across economic, environmental and social domains for sustainable development. GPI measures: consumer purchases, government spending, and business investments. But it subtracts out some bad forms of economic activity, like pollution and resource degradation, costs of accidents, and expenditures on fighting crime, and adds in some good ones like the estimated dollar value of hours spent volun-teering or parenting. It has captured data for 17 countries, which make up 53 per cent of the world’s population and 59 per cent of the global GDP. What the analysis shows is that while the GDP has nearly doubled since 1970, GPI has stayed essentially flat, suggesting little progress has been made in the past four decades. The World Watch Institutes pleads for major contraction in human consumption, in human energy use, in material goods produced, and even in human numbers. If we don’t make these hard choices now, then nature will make them for us and the future will be bleak for humanity.

The Growth Delusion

David Pilling, an eminent British journalist, in his recent book, The Growth Delusion (Bloomsbury, 2018), severely critiques the current cult of growth, where the GDP has become a proxy for a country’s well-being or its success. The experts’ definitions of ‘growth’ and ‘the economy’ doesn’t fit in people’s lived experience. The GDP is indifferent to morality as it measures production of whatever kind, good or bad. The GDP is mercenary as it is doesn’t count transactions where no money changes hand. The problem with growth is endless production and endless consumption. ‘Unless we want more and more things and more and more paid experiences growth will stall. For economies to keep on moving forward, we must be insatiable. The basis for modern economics is that our desire for stuff is limitless. Yet in our heart we know that way lies madness.’ Chiding economists he comments: ‘Economists know the price of everything but value of nothing.’

Hiding Inequality

 

An economy may grow fast, but the benefits of growth may be cornered by a small influential section of the population bypassing the vast majority of people. An Oxfam study (2017) finds that over years the inequality in the world is increasing and threatens to pull societies apart. Since 2015, the richest one per cent has owned more wealth than the rest of the planet. In the USA the top one per cent own 40 per cent wealth, the bottom 80 per cent just only nine per cent. In last three decades in the USA, the workers’ wages have remained stagnant despite rising labour productivity. Between 1973-2011, while productivity increased by 80 per cent, wages increased only by 10 per cent.

The economic growth in India is following the same pattern as the USA and other Western countries and its benefits are unevenly distri-buted. The Arjun Sen Gupta Committee (2009) had found that benefits of growth have been cornered by 20 per cent middle and higher income group bypassing the 80 per cent poor and vulnerable section of the population. The Oxfam study found India as one of the most unequal countries in the world. It noted that in 2015 the richest one per cent owned 58 per cent wealth, while the poorer half just two per cent, up from 37 per cent which they owned in 2000. According to Forbes, India has more than 100 dollar billionaires accounting for one-fourth of the country’s GDP. It is apparent that the benefits of growth are being cornered by urban, educated and better-off people, with the poor left out of the race for economic betterment.

Economic experts often point out that due to the growth of the economy or increase in per capita income, the country on the whole is becoming wealthier, but they forget the trap of law of averages. That reminds one of a parable. If you are advised to cross a river whose average depth is 3 ft, though for some portion in the middle, its depth is 15 to 20 ft, what would happen? You will simply drown. The same logic applies to the economy. If as a result of economic growth, income is not equitably distributed, it will cause widespread misery and social unrest, as is happening in India in the rural areas as well as in urban pockets.

Well-being and Life-Satisfaction 

It is erroneous to equate the GDP growth with development or better life for the people. Real development means creation of an environment in which the personality of every human being flowers and people can lead a happy, satisfied and fulfilling life. The UNDPs Human Development Reports have been emphasising that real development is primarily and fundamentally about people and the core of human develop-ment is empowerment, equity and sustainability.

The people’s capability can be increased only when investment is made in their education and health. Every country of the world, which is in the league of developed nations, has done so on the strength of full literacy, high quality education and universal health care. India’s record in the field of education and health care is deplorable. Periodical survey’s by NGO Pratham, known as ASER, present an alarming picture of primary education. A large number of children after years of schooling cannot even do basic reading and writing and solve simple sums. The privatisation of higher education has allowed a band of exploitive players to enter the field, and hundreds of engineering, medical and management colleges charging capitation fees have sprung up everywhere in the country, producing third-rate graduates, who are generally unemployable. Public health services in India are in a pathetic state. Therefore the public bypasses them and go to private doctors and hospitals, who charge exorbitant fees, which only the rich can afford. The poor have nowhere to go. A publicly funded Universal health Care system is the answer on the pattern of the UK, France and some other developed countries.

Robust agriculture and industrial sector are the key components of people’s well-being, as they alone have the potential to provide employment to people and make a dent on wide spread poverty. There is a huge rural distress in India. The agriculture GDP is just 15 per cent, although more than 50 per cent population is dependent on it. The root cause of the agri-cultural crisis is low return on agriculture and under-pricing of farm products. Nobel Prize winning economist Theodore Schultz had observed that by political means an indentured agriculture has been created in low income countries, to supply cheap food for the urban population. Micro, medium and small enterprises (MSMEs ), which could be the backbone of the country’s industrial development, are facing an existential crisis. They provide 45 per cent of the manufacturing sectors’ output and employ 60 million people—about 15 per cent of the country’s employment. Besides problems such as lack of finance, marketing skill and techno-logical obsolescence, they are unable to with-stand competition from large corporates and cheap imports from abroad.

The United Nations General Assembly (January 2013), found that the GDP is not designed for nor does it adequately reflect the happiness and well-being of the people and pleaded for recognising its relevance in public policy. It proclaimed March 20 every year as the Inter-national Day of Happiness. The developed countries’ club, OECD, feels that there is more to life than the cold GDP number and economic statistics. It recognises the importance of material life conditions and quality of life and has developed Better Life Index, with 11 parameters. They are Housing; Income; Jobs; Community; Education; Environment; Civic Engagement; Health; Life Satisfaction; Safety; and Work-life Balance.

Bhutan is the first country in the world to make happiness as a goal of public policy. Bhutan computes the Gross National Happiness Index (GNHI) which is a multi-dimensional development approach that seeks to achieve harmonious balance between material well-being and the spiritual, emotional and cultural needs of the society. GNHI has four pillars and nine domains. The four pillars are (1) sustainable and equitable development, (2) preservation and promotion of culture, (3) conservation of environment, and (4) good governance. The nine domains are (1) living standards, (2) education, (3) health, (4) cultural diversity and resilience, (5) community vitality, (6) time use, (7) psychological well-being, (8) ecological diversity and (9) good governance. A very interesting aspect of Bhutan’s Happiness Survey shows that good health, community, ecology and psychological well-being contributed 50 per cent to the GNH of happy people, while living standard (income, wealth) contributed only about 10 per cent to happiness.

Government’s Misunderstanding

Immediately after the presentation of the Budget for the current year, some experts expressed doubt about the government’s target of 5 trillion dollar economy in five years. Prime Minister Narendra Modi mocked them and dubbed them as professional pessimists. (The Times of India, New Delhi, July 7, 2019) He said that the size of the pie matters and a bigger economy will translate into higher per capita income, more production and more employment. The Prime Minster is wrong here and has been misadvised by his economic advisers. The issue is not about the size of the economy, whether it is 2, 3 or 5 trillion dollars. It needs to be understood that GDP growth does not automatically get translated into equitable distribution of income and wealth and alleviation of poverty. The story of India’s growth, post-economic liberali-sation of 1991, is that its benefit is cornered by a small upper and middle income group, bypassing the poor and vulnerable section of the population. Nor does growth translate into more employment generation or improvement in agricultural income or remuneration of persons engaged in micro-industries and handicrafts.

If you go to a doctor for a health check-up, he will perform a number of tests such as take your blood pressure, examine your blood to find out your sugar, sodium and potassium level, take your ECG, and if need be take an X-Ray of your chest and an ultra-sound of your abdomen. Only a quack doctor will examine only one parameter like BP and give you a fitness certificate. When some professional economists rely solely on the GDP growth as a measure of success of government’s economic policy, they behave no better than quack doctors.

Emphasise People’s Well-being

It is time the government gives up its obsession with a single measure, the GDP, to judge whether the people’s standard of living is improving. American Senator Robert Kennedy had famously said, ‘It measures everything, except that which makes life worthwhile.’ There is a need to develop an Index to measure people’s well-being and life-satisfaction. Its key components should be: quality of education and health care; employment generation; poverty alleviation; improvement in life of people engaged in agriculture and micro and small industries; and environmental sustainability. Success of public policy should be judged by the fact whether the people’s well-being is improving and they are leading a more healthy, happy and fulfilling life.

B.P. Mathur is a former civil servant and has served as the Deputy Comptroller and Auditor General and Director, National Institute of Financial Management. He holds Ph.D and D.Litt in Economics and has authored several books on governance, economy and finance related subjects. His latest book is, An Alternative Philosophy of Development—From Economism to Human Well-being.

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