Gross Domestic Product (GDP) is considered an indicator of the overall economic wellbeing of the country. It should give a representation of the general welfare of the nation as the higher the level of production, the higher the country’s well-being. However, GDP does not reflect the social state of the country. It does not include activities affecting the standard of living in the country, in particular, non-market operations such as housekeeping or care for elderly or sick people that are usually done by women. In other words, it eliminates nonmonetized economic activity. Moreover, GDP does not pay attention to the local production because it does not make a great contribution to economics, but it is rather important for the local population. Therefore, GDP fails as a measure of wellbeing.
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There are plenty of activities included in GDP, but they do not contribute to the wellbeing of citizens, society, and the environment. For example, a divorce that leads to lawyer fees, purchase of a new house, or possible costs for children’s nurse – all that are positive issues for GDP. Another instance is industrial agriculture that uses pesticides polluting the environment. As a result, people have environmental pollution and numerous diseases. They have to pay doctors and drink bottled water promoting the increase of GDP. One more example is connected with extracting minerals.
As a rule, mining companies utilize methods that kill topsoil poisoning water along with flora and fauna in general. According to Herman Daly, “natural capital is the basis of all real wealth in the world” (Rothenberg 348). Nevertheless, GDP takes into account only financial benefits ignoring the wellbeing of families, population, and ecology. Also, GDP increases the bias between the poor and the rich. When high-income countries place their projects in low-income countries, for example, tourist business, the local population has to be dependant on moving from the coast. The situation above is considered affirmative from the view of GDP, but it is negative for low-income country citizens.
It seems important to point out that some communities use two other measures to evaluate development and growth. First, Genuine Progress Indicator (GPI) suggested by Redefining Progress of Berkeley divides categories of costs and profits and is determined by the total difference between them. GPI makes clear the fact that the amount of economic activity means little without assessing its impact on the welfare of people. It fixes numerous gross impropriety of GDP as an indicator of the development of society, in other words, it improves the simplified understanding of the growth of material consumption as social progress. Precisely speaking, GPI pays attention to:
- unemployment, environmental depletion;
- positions that are ignored in the GDP, but should be considered as income (for example, the value of the home labor);
- long-term environmental consequences of human activities, etc.
The second alternative of GDP is community accounting systems. For example, Filipino economist Sixto Rohas takes household as the fundamental accounting unit. It allows hiring workers and paying them high wages as well as benefiting from low prices. The system evaluates the progress from the community perspective responding to citizens’ requirements. Plenty of communities all over the world adopted local indicators initiatives to measure the population’s wellbeing. The common feature of all of them is the rejection of the fact that economic growth is the only wellbeing assessment criterion.
In conclusion, it should be emphasized that GDP lost its value as a measurement of countries’ wellbeing as it cannot reflect the actual situation including social and environmental concerns. Several alternatives such as GPI or community accounting systems were created to replace it. However, the principal mission of any measurement should be ensuring the welfare of the society.
Rothenberg, Paula S. Beyond Borders: Thinking Critically about Global Issues, New York: Worth Publishers, 2006. Print.
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