Wednesday, 22 May 2024
BusinessCan GDP measure well-being and happiness?

Can GDP measure well-being and happiness?

The recurring debate about whether economic growth reflects the well-being of a nation has been put back on the table at the Davos Forum, where there has been talk of looking beyond economic performance to measure the progress of a country, taking the level of life or the happiness of citizens as a measure of success.

Ninety years after the gross domestic product (GDP) was introduced as an indicator of national economic progress, the world economic forum has considered how to measure “good growth” and whether national accounts should incorporate environmental or social elements, in addition to monetary value of the goods and services it produces.

According to academic literature, the creator of GDP himself, the Russian-American economist Simon Kuznets, recognized from the beginning that the well-being of the population could not be deduced from GDP per capita without taking into account how a country’s income is distributed and He later advocated a reformulation of the indicator with a more qualitative approach.

The Swedish Finance Minister, Elisabeth Svantesson, present this week in Davos, considers that GDP is today a necessary indicator and the best way to measure growth, because “things cost”, although she recognizes that other indicators of growth are needed. welfare.

However, the Spanish Minister of Economy, Carlos Body, defends that the elements with which GDP is measured must be updated and improved, adding an environmental and social perspective.

In Davos, the minister gave as an example the increase in the minimum wage in Spain of more than 50% in the last five years, which has been a boost to consumption, but has also reduced the vulnerability of an economy in which households are now better prepared to withstand rising inflation or increases in interest rates.

Calculating the value of a country’s monetary transactions allows us to know the evolution of household consumption, private investment, public consumption spending, the trade balance (exports minus imports), the distribution of income between salaries and operating surpluses. of companies, as well as the distribution of production by sectors.

As Kuznets designed it in the 1930s, GDP does not include in public spending what is paid in pensions, unemployment, or what is invested in education or health, because there is no economic exchange.

It also does not measure unpaid domestic and care work or the value of self-consumption and barter, which may be relevant to the real economy of developing countries.

On the other hand, the GDP counts as wealth creation the consumption of alcohol and tobacco, or the activity of a polluting industry, without taking into account negative externalities for health or the environment.

Alternatives to evaluate progress

During this week’s debate in Davos it was recalled that in 2008 French President Nicolas Sarkozy commissioned a group of experts led by Nobel laureate Joseph Stiglitz to identify alternative metrics of economic performance and social progress.

Among its conclusions, the need for an intergenerational approach to evaluate well-being at each moment but also its sustainability over time, which depends on whether “the reserves of capital that matter for our lives (natural, material, human, social) are transmitted to future generations.

In 2011, the Organization for Economic Cooperation and Development (OECD) launched its “Better Life Index” that analyzes eleven specific elements of well-being: housing, income, employment, community, education, environment, civic engagement, health, life satisfaction, security and balance between life and work.

In the Davos debate, the Swedish minister stressed the importance of the return on social investment for progress and made a personal reference by recognizing that without Swedish public education she would probably not be participating in that session.

In this sense, another of the participants in the debate, the CEO of the multinational technology consultancy Cognizant, Ravi Kumar, stressed that the best measure of good growth is upward social mobility that allows individuals to improve their economic situation. origin.

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