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The Effectiveness of GDP

Introduction

GDP, or Gross Domestic Product, is one of the common measures of a country’s economic development. Calculated by adding up the value of all the goods and services produced in the country, the GDP is widely understood to be a sign of a well-off country. This measurement is applied on an annual basis, allowing economic experts to timely reflect on the state and some emerging trends of a particular location. However, it is important to note that the GDP is not a universal measurement for a country’s growth, and cannot be applied to evaluate the level of its development. Many of the trends and statistics it overlooks are crucial to understanding a country’s worth, and GDP is insufficient in providing a full overview. In particular, the level of technological development, the political tendencies of a nation, quality of life of its people, income distribution among the population, the environmental trends and the state of the shadow market are overlooked. This paper will attempt to discuss the importance and impact of all of these factors on the development of a country, as well as prove that the GDP is inadequate in providing comprehensive data.

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Problems of Using GDP as a Metric

Technology

Technological Development is one of the core foundations of growth for any country. As the levels of knowledge and competency in a particular area rise, its people begin to create more adequate means to solve their problems, adapt to the changing world environment and enhance their life experiences. This includes using digital technology and the Internet to make common services more accessible, increase the efficiency of production, as well as open up further possibilities for growth. GDP, as a measurement, can only be partially reflective of a country’s development, with the relation between the two being unreliable. Technology that assists in production and improves the product output can be correlated with the increase in GDP, as the overall amount of product will be increased. Other types of technology, specifically the kinds that enrich the lives of people or improve convenience, are harder to take into consideration. In the case where a digital service becomes preferable and more accessible than its physical equivalent, the gross domestic product value of a country will decrease, due to the measurement taking into account only physical products. An inability to account for different types of technology, and the application of new tech in society makes GDP incapable of accurately reflect the technologic development of a country.

Political Trends and Affiliations

Each country has its own set of political affiliations and beliefs, as reflected by its leadership, political parties, and the opinions of the public. Country policies reflect a set of values and beliefs that the government considers to be worth supporting or enforcing, creating a unique political landscape of a country. Depending on the laws and regulations put in place, an average person’s life can vary severely, either allowing or restricting their freedoms and desires. In largely conservative countries, for example, the capacity of a woman to live a full and fulfilling live may be limited, as well as her bodily autonomy and possible career paths. The GDP cannot measure the effect of policies and legislations on the wellbeing of population, and is unable to take into account the major changes this variable can bring. For example, India, the country with one of the highest GDP’s in the world, is heavily politically conservative, meaning that its approaches towards issues like abortion, women’s rights, social support and welfare can be either restrictive or harmful to the people living there. This trend can be proven by an extensive history of public action and protest in the face of social injustice and a lack of government action (Activism and Women’s Rights in India 2020). While the economic growth of the country is increasing due to rapid rates of production, the social development is falling behind.

Quality of Life

Quality of life is another factor that has to be taken into account when a person discusses national growth. The ability of people to lead healthy, fulfilling, rich lives is the primary goal of any country, and its government exists to ensure that its population is receiving all the support that it required. In particular welfare services, healthcare, and the education are all crucial consideration of a government. Easily available and high-quality education allows people to more meaningfully contribute to the economy, as well as make a living. Welfare and healthcare support the ability of people to prosper in the face of hardship. Without proper systems of social support, many vulnerable individuals are left with no adequate ways of making a living for themselves, which affects both the strength of the economy and the support population has for its government. While the GDP can be indicative of the economic damage a lack of social support has on production, it is inconclusive to the full extent of the problem, as well as the particular causes for a decreased quality of life. It is impossible to estimate the social problems of a nation by only examining its GDP.

Income Distribution

Another consideration that is hidden by the value of the GDP in a particular country is the income distribution. GDP is determined from the production all over the country, and then divided by the approximate population numbers to find an average production per person. However, this measurement can be inaccurate to the real conditions under which people live. Income inequality refers to the population of a particular country having significant differences in income and spending. In nations with high levels of income inequality, a small portion of people can be responsible for most of the earnings, while all the people below them struggle with minimal wages. Income disparities present multiple problems for a government, both it accurately measuring its GDP and ensuring that each individual is able to lead a fulfilling life. The data provided by the gross domestic product value can be misleading and non-informative to the action state of a country’s economy. A high GDP is taken to mean high spending power for the average population, but with the inclusion of income disparities into consideration, this perspective becomes largely incorrect.

Environmental Impact

The environment is another extremely important point of consideration when discussing a nation’s development level. The introduction, inclusion and use of sustainable technology is a benchmark of a grown nation, one that can utilize its resources in a thoughtful and effective manner. The use of zero-waste environmentally friendly technology can be connected with both high levels of technological development and government policy, requiring a nation to introduce comprehensive solutions to emerging climate issues. In developing countries, on the other hand, the use of clean production and resource extraction is largely ignored, either in favor of more cost-saving methods or due to the lack of proper technology. The approaches taken to produce goods and services, their sustainability, or the impact they have on the environment are all largely ignored by the GDP as a measurement. To use an example, China has the second largest GDP on the planet, being a quickly developing and growing nation. The country, however, not only spearheads production of the world, but also produces the most significant amount of pollution in the process. Carbon emissions, greenhouse gas and mercury are all being sent into the atmosphere at an unprecedentedly fast rate (China’s air pollution harms its citizens and the world 2020). This trend of using environmentally detrimental methods impacts the health of Chinese citizens, decreasing their standards of life and public health, not to mention exacerbating the effects of climate change.

The Shadow Market

The last consideration that cannot be measured using GDP is the size and impact of a country’s shadow market. Any nation has both legal and illegal frameworks for people’s employment, both contributing to its economic proficiency. A majority of people work in an official capacity, being taxed by the government and protected from employer mistreatment. Smaller percentage of the population, alternatively, work in a less regulated environment, both lessening the influence the government can have on them and being deprived of the protection official employment offers. Since the government has no ability to accurately measure and predict the size of its shadow market, it is impossible to account for its production using GDP. The disparity between the stated production and actual production can rather significantly affect people’s quality of life (Picardo, 2021). It is also the reason why some countries may appear to be less financially well-off than others if a person only compares their GDP’s. While in some nations the impact of underground economy may be minimal, in others it can be responsible for a sizeable portion of public wealth.

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Conclusion

In conclusion, GDP is a convenient shorthand for the financial wellbeing of a country that, however, does not fully reflect all of the nuances of its developments. While it is possible to measure the average GDP, observe trends in its growth or recession, the value is largely useless for determining whether a nation is truly “developed”. It cannot account for the quality of life for an average person, their education, availability of welfare and social support, or the quality of healthcare they receive. The economic disparities between parts of the population are also hidden by this value, skewing the understanding of a average person’s income or spending ability. Furthermore, this measurement cannot be representative of national policy, legislation, or the amount of freedoms people are subject to. In relation to more countrywide factors GDP cannot reflect the level of technological advancement, the effectiveness of technology, its spread among the population. Environmental harms done to a nation’s territory is another variable crucial to its development and sustainability that is not evident in a single value of Gross Domestic Product. Overall, it can be said that this value can only be used in a limited capacity, as a measurement of a country’s economic growth, coupled with other measurements and considerations for better accuracy.

References

Activism and Women’s Rights in India. Association for Asian Studies. (2020). Web.

China’s air pollution harms its citizens and the world. U.S. Embassy in Georgia. (2020). Web.

Picardo, E. (2021). The Importance of GDP. Investopedia. Web.

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