Measurement Of Societal Well-being
Hira Bahadur Thapa
Economists have been using gross domestic product (GDP) as the prosperity metric of an economy at a certain period of time. For decades GDP (the total sum of goods and services produced at a fixed period of time) has served as the indicator of the economic performance.
To find out whether there is justification behind GDP approach of measuring the economic strength of an economy is the objective of this piece. GDP is considered to be the king of economic statistics. Until a reliable successor is devised, GDP will continue to be an important tool to indicate the economic health of the country.
Controversy exists if GDP presents a real picture of a country’s economic situation. Those declining to accept its reliability are proposing new methods. Among them is Cambridge University professor of Public Policy, Diane Coyle, who proposes new alternative to GDP for measuring economic progress. (Project-Syndicate)
Digitally-connected people value their access to free digital goods, online search and social media. This counts much in ascertaining how prosperous they are. While measuring prosperity, people need to be asked how much they value free digital goods.
Similar opinion is expressed by Erik Brynjolfsson of the Massachusetts Institute of Technology (MIT). He believes that the economic benefits of zero-money-prize digital goods are high. This factor should be taken as a meaningful improvement in people’s lives. To him GDP calculation should not ignore this aspect to make it more reliable indicator of prosperity.
Furthermore, a more meaningful economic prosperity metric has to take into account some other components of human well-being. These are natural environment, leisure, and unpaid worker in the homes. With rising adverse impact from climate change, life styles have been affected considerably in many parts of the globe, including Nepal.
Very recently Nepal experienced an abrupt change in the weather conditions due to rain and accompanying snow in the country. Meteorologists predicted that the sudden change in weather in the last two weeks was due to the cold winds coming from the west. This phenomenon has both positive and negative effects on the lives of the Nepali people depending on which region of the country they live in.
Available reports suggest that in some parts of Karnali where rain and snowfall became less frequent, farmers have been compelled to leave their agricultural land barren. Lack of snow in such areas has led to the loss of productivity in the soil. Resultantly, farmers who survive on agricultural products have no other means to carry on as land does not get the natural manure which snow provides. This year may be an exception. Thanks to heavy snowfall in those areas, which has occurred after many years.
The issue of GDP as a tool for measuring the well-being of people is important for Nepal against the background of the slogan of the government, which is “Prosperous Nepal and Happy Nepali”. This has been the motto to realise which the government has been unveiling new programs.
As a chief guest in the opening session of Kantipur Conclave on February 17 aimed at generating useful discussion on the broad topic of Unleashing Nepal’s Potentials, Prime Minister KP Sharma Oli placed due emphasis on turning the prosperity slogan into a reality. He assured that the government is committed to do everything that attracts foreign direct investment by ensuring good governance, transparency and facilitating the operation of an industry through appropriate laws.
This sounds reasonable for the Executive Head, who has vowed to make his remaining four years more productive to reflect change in people’s quality of life. Undoubtedly, today’s quality of life demands more than rising incomes.
The environment issue is definitely among the top priorities. The rapidly deteriorating quality of air to breathe in Kathmandu, where almost the quarter of country’s population resides, has become a life threatening issue. Kathmanduites are dissuaded to go out for morning exercises, walking, running etc. because of highly polluted air as dust gets settled in the lower part of the space. Environmental degradation is clearly visible.
The submission here is that our prosperity goal must not ignore environmental component. Economic development cannot be at the expense of people’s health. We cannot afford to compromise the welfare of our future generations by failing to preserve environment. Therefore, the ensuing discussion to look for alternative metrics to measure a country’s economic prosperity is indeed conspicuous to Nepal.
With regards to new approach to measure prosperity Nobel Laureate Amartya Sen (Project-Syndicate) has emphasised people’s ability to live the kind of life they value. He talks about access to health or skills and social capital, which means human relationships and networks.
The World Bank emphasises wealth as the genuine measurement of prosperity. In devising a new indicator of prosperity one must also consider the issue of implementability. Any metric to be useful needs to be implementable.
In the wake of financial crisis in 2008 that engulfed many economies worldwide, former French President Nicolas Sarkozy set up a commission comprising two Nobel laureates Joseph Stiglitz, Amartya Sen and a leading French economist Jean Paul-Fitoussi to study the usefulness of GDP in measuring prosperity. That commission has produced a provocative report entitled “Mismeasuring Our Lives, Why GDP Doesn’t Add Up”.(The Newspress.com)
As per that report GDP is a deeply flawed indicator of economic performance and social progress. The above commissioners have concluded that the financial crisis is teaching us a very important lesson: those attempting to guide the economy and our societies are like pilots trying to steer a course without a reliable compass.
On account of this study there is increasing evidence that GDP is not measuring economic and social progress truly. In our current debate concerning prosperity this finding could be valuable. We can hardly claim to be prosperous just because our GDP goes up unless key components including health and environment are factored into the calculation of societal well-being.
(Thapa was Foreign Relations Advisor to the Prime Minister from 2008 to 2009. He writes on contemporary national and international issues)