To GDP or not to GDP — that is the question.
Since the 1940s, Gross Domestic Product has been the main tool for measuring the size of economies across the world, and it is revered by economists. As author Caroline Criado Perez puts it, ‘If economics has a religion, then [GDP] is its god.’ But now it’s facing increasing backlash. And rightly so. World leaders have questioned the importance of continuously chasing economic growth for decades, most famously Robert Kennedy. In 1968, he deplored the world’s fixation on GDP during a speech at the University of Kansas, arguing that it doesn’t measure: ‘the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures everything in short, except that which makes life worthwhile,’ he concluded.
Even the inventor of GDP, Simon Kuznets, echoed this sentiment: ‘The welfare of a nation can scarcely be inferred from a measure of national income.’ There are numerous excuses for our continued reliance on GDP. It’s a simple system of measure, money makes the world go round, and it’s the way we’ve done things for almost a century. But it’s also undeniable that GDP has become increasingly outdated and has numerous limitations.
Ignores Environmental Degradation
One of the main limitations of GDP is that it neglects to factor our toll on the planet. As Steve Killelea, founder of the Institute for Economics and Peace says, environmental degradation increases a country’s GDP:
‘GDP includes pollution […] and environmental disasters as “growth” because they generate spending,’ he explains. ‘Cleaning up the 2010 oil spill in the Gulf of Mexico was “worth” more to GDP economically than the carbon absorption provided by the Amazon rainforest.’
This is because spending on labour and machinery to deal with the oil spill increased, thereby boosting GDP. From an economic point of view, it would be considered a better outcome than if the oil spill had never happened. The Amazon’s absorption of CO2 may be crucial in helping to mitigate climate change, but it doesn’t provide monetary value. Rising deforestation, on the other hand, increases GDP by providing a living for locals and boosting the timber trade. But this doesn’t take into consideration the welfare of Latin America’s citizens, who will have to deal with the effects of degraded farmland and global warming in the future.
GDP was developed during WWII, well before we truly understood the toll humanity has on the planet. Now that the environment is a hugely topical issue, we can begin to understand just how outdated GDP truly is. That’s why Nic Marks invented the Happy Planet Index (HPI). This ingenious measure calculates a country’s HPI score based on its citizens’ life expectancy, quality of life and carbon footprint, and then ranks every country based on how well it performs in each sector. The results may shock you.
Countries such as Vanuatu, El Salvador, Costa Rica and Nicaragua received the highest ratings. The United States, however, which has the highest GDP in the world, lies in 102nd place. Unlike Gross Domestic Product, which only measures transactions that have monetary value, the HPI places huge importance on human well-being and the different factors which affect it, from health and happiness to crime rates and basic human rights. So, despite the US having a phenomenally large economy, its citizens are unhappy. Rampant gun crime, uncertain reproductive rights, a lack of free healthcare, political tension, racism, inequality, a housing crisis and corruption have all contributed to this sense of dissatisfaction. It doesn’t help that the US is also the third most polluting country in the world.
Contrary to popular belief, it’s the emerging economies with relatively high life expectancies, happiness levels and low carbon emissions, that have found a balance between preserving the welfare of their citizens and caring for the environment. Thanks to Marks and his team of economists, the HPI has gone some way towards replacing GDP, by revealing that nations don’t necessarily become happier as they get wealthier.
Negates Inequality
Another shortfall of GDP is that it doesn’t show the distribution of wealth. Returning to the example of the US, we can begin to see how its impressive growth is not all it’s cracked up to be. It may have the largest GDP globally, but when you measure its economy by GDP per capita (i.e., divided equally amongst all its citizens), it ends up in sixth place. How? Because of inequality. The US has clusters of extreme wealth, as it’s home to over a quarter of the world’s billionaires, as well as states that suffer from widespread poverty. Cities with towering skyscrapers are equally occupied by tents for the homeless. The US’ GDP currently stands at $25 trillion, but this negates the deeply unequal distribution of its wealth. It ignores the fact that around 40 million people are in poverty, most of whom are black and Latino families who have not felt the benefits of America’s rising GDP the way its 800 billionaires have.
The reason GDP is a flawed measure is because it doesn’t take into consideration who gets to enjoy their country’s prosperity and who’s being left behind.
Undermines Women’s Contributions
If you were to ask any feminist economic group about the main limitation of GDP, they would likely all give you the same answer: it undermines women’s contributions to society. Because it focuses solely on things that have monetary value, it doesn’t include the unpaid work undertaken in the domestic sphere: the cooking, cleaning and laundry the average woman spends over 4 hours per day on. This is before you also take into consideration that women do the majority of unpaid care work globally too. From raising children to checking up on elderly parents, to looking after relatives with disabilities, the vast majority of caring responsibilities fall on women’s shoulders. And when it all becomes too much, evidence shows that it’s them, not their male partners, who will quit their jobs or switch to working part-time to accommodate these extra responsibilities.
Since women are still paid less than men and make up a huge proportion of part-time workers, if you were to look at their contribution to GDP compared to men’s, it would appear that women are less productive. Globally, women make up 50 per cent of the population, yet they represent less than 40 per cent of measured GDP. But these figures are misleading. It’s not that women don’t work as hard as men; it’s just that the household chores and care work being done are not salaried.
This doesn’t mean women’s contribution to society is not valuable. As Caroline Criado Perez says, ‘Women’s unpaid work is the work that society depends on, and it is work from which society as a whole benefits.’ Women’s unpaid care work alone is estimated to represent a contribution of £10.8 trillion to annual global GDP, more than three times the size of the global tech industry. And for those who try to dispel this argument by claiming it could have only been thought up by a ranting modern feminist, you’d be wrong. Even in 1960, renowned economist Paul Studenski argued that ‘unpaid work in the home should be included in GDP.’
To Conclude …
It is undeniable that GDP is a thoroughly outdated measure, created by men, for men. We cannot continue using a measure that neglects women, conceals inequality and ignores the climate crisis. The world is changing. It’s time the way we measure our economies changes with it. Instead of doggedly pursuing economic growth, perhaps we should all take a page out of Jessie J’s book, and begin to understand that ‘it’s not about the money.’
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