Whenever a country's economy is considered, the GDP is the bench mark by which it is measured. Why are limitations of this measure not mentioned from time to time to remind politicians and policy makers that there are equally important things to consider when they look at a country's well-being.
For the average punter, we take what is said by the 'experts' as gospel and don't look below the surface. What is the Gross Domestic Product all about?
Gross - it certainly is. In the technical sense that it measures totals of household spending, national and local government spending, investments, imports and exports. At times these large figures get subdued into averages so that we can relate to them better but they are essentially the same number in disguise. All added up to show how busy the economy has been. At no stage does it include a measure of how that economy is distributed within the country and so we end up with 10% of New Zealanders owning 50% of the country's wealth and 50% of New Zealanders having to make do with only 5% of the country's wealth (1). This is indeed gross in the colloquial sense - like maggots in your meat pie!
Domestic - maybe. If you think in terms of the whole country, then it does indeed refer to what goes on here. Ironically, it avoids our common use of 'domestic' as applying to homes, because it does not include any of the work done in the home such as bringing up children because it is unpaid, in spite of being vitally important to our country’s future. Similarly, the voluntary work that helps to keep the community flourishing gets ignored.
Product – is a variable.measure. It proudly includes all the goods and services we produce, as long as someone is being paid to produce them. Unfortunately, it also measures a lot of unproductive investments such as sending money around the world financial markets’ merry-go-round - more akin to gambling than investing in the support and development of useful work. It is also greatly and positively influenced by wars and natural disasters such as earthquakes in Christchurch. These increase the GDP by including the cost of replacing all the damage, but in reality, the country is left no better off than before the tragedy.
After the world financial system proved yet again that it was not working in 2008 with the GFC (Global Financial Crisis), French President Sarkozy asked a group of economists and social scientists to review how we measure economies. The report by Joseph Stiglitz, Armatya Sen and Jean Paul Fitoussi (2) emphasised that although money needed to be measured, we should also measure the distribution across society as well, and it was also important to look at measures of health, such as life expectancy, of education by way of accessibility and achievements, of employment, housing, governance and how much say we have in the running of our lives and the country as well as the social and family connections we see as so important. Lastly and probably most importantly, we need to measure the sustainable use of our world’s finite resources and the pollution of any economic activity.
These additional items are harder to measure and so we end up totting up the easy numbers to see how busy we are, forgetting Stephen Kuznets' comments that the measure he developed in 1934 for this, namely GDP, did not indicate the welfare of the country as a whole.
That this is true can be confirmed by asking people in the street what they see as most important in life. When the BBC did this in 2005 (3) in a survey asking about what was the most important thing people needed to flourish, the answer was predominantly (nearly half) about family and friends, with a quarter seeing health as the main thing. Only 7% put money as the most important item for their life to flourish.
We clearly need a better measure of what is going on in our society and its economy, rather than tying everything to its monetary value and not giving enough thought as to how we want to live and enjoy a satisfying life.
References: 1) Jit Cheung, Wealth Disparities in New Zealand, Statistics New Zealand, Wellington, 2007
2) Stiglitz J, Sen A, Fitoussi J-P, Report by the Commission on the Measurement of Economic Performance and Social Progress, 2009
3) Poll by GfK for BBC in October, 2005