Introduction
Gross Domestic Product (GDP) is a key indicator for measuring the economic production, or the growth and development of a particular economy. It is the total currency value of the commodities that a particular economy produces or purchases within a year. The real GDP per capita is a fundamental measure used to determine the position of an economy over a given period, relative to the position of other countries. The position is irrespective of the judgment provided by different entities such as politicians, macroeconomists, or public officials. For this reason GDP is fundamentally identified with the social welfare of a specific economy. The reason for this identification is a derivative of the idea that GDP is substituted with the term ‘standard of living,’ which means that the measure is used for determining the wellbeing of individuals in a country.
Even though it is possible to use GDP to measure the wellbeing of individuals in a country, several studies reveal that other indicators could be used to measure people’s wellbeing apart from GDP (Kubiszewski et al., 2013). Most of these studies conclude that GDP does not account for the adverse effects that the economic activities in a country have on individuals. There is extensive theoretical as well as empirical information that criticize the use of GDP per capita as a measure of the welfare and progress of a given economy. Regardless of the fact that the economy is fundamental to social development, it is vital to account for the importance of the social as well as environmental indicators that can affect the conditions that people face. The other measures that could be used to determine the wellbeing of individuals in a particular economy are inclusive of Genuine Progress Indicator (GPI), Social Developmental Goals (SDGs), and Gross National Happiness (GNH). In light of the identified alternative measure, it is essential to assess the alternative ways of measuring the wellbeing of a given population, consequently assessing whether they are better than GDP.
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Research Questions
Are there other ways that could be used to measure the wellbeing of individuals apart from GDP?
Are the alternative methods more appropriate than GDP?
Literature Review
As identified earlier, several theoretical and empirical studies criticize the use of GDP as the only indicator for measuring the wellbeing of individuals in an economy. Propositions provided by the studies either make corrections or provide alternative indicators. According to Marc Fleurbaey (2009), GDP statistics primarily measure the current economic activity but do not take note of the wealth variations in an economy, the international flows of income, the production of services by a particular household, and the destruction of the environment, among other determinants of wellbeing. The determinants of people’s wellbeing are inclusive of their social relations, their personal safety, longevity, health, as well as the quality of their economic security (Kubiszewski et al., 2013). GDP statistics do not account for the identified provisions, which could be an indication that other measures could apply.
Empirical studies of happiness could also be used as a factor to indicate that alternative measures of wellbeing could be used in place of GDP. According to Van den Bergh and Antal (2014), most of the OECD nations experienced a steady increase in GDP between the years 1950 and 1970, but the increase in the mean welfare in these countries stagnated or experienced a negative trend. This example could be used to indicate that the increase in the income levels of the different economies exceeded the benefits that the residents received. For this reason, it would be plausible to argue that it would not be suitable to use the absolute income of an individual as a proxy for his or her welfare since the wellbeing of a person depend on other factors that are independent from the person’s income. In the light of the identified situation, the aggregation of the absolute income of individuals cannot be used to deliver a robust indicator of their welfare.
On the other hand, GDP per capita represents the average income of individuals in an economy but neglects the concept of income distribution (Oishi & Kesebir, 2015). This provision is inconsistent with the economic insights provided for through orthodox economics, which relate to the idea that the marginal utility of income is considered as decreasing income (Van den Bergh & Antal, 2014). In relation to this argument, it is vital to take note of the idea that the relationship existing between economic growth and happiness is not understood satisfactorily. The sketchy understanding can be a derivative of the provision that income inequality acts as a moderator. In this regard, different segments in the society do not typically share economic growth equally, which is a provision that results to significant income inequality (Oishi & Kesebir, 2015). In this light, income inequality can be associated with the detrimental effects that characterize the availability of economic opportunities, physical health, social mobility, as well as happiness.
One of the alternative indicators that could be used to measure the economic growth in a country is the Genuine Progress Indicator (GPI). According to Kubiszewski et al. (2013), GPI does not only use different provisions accounted for in GDP, but also includes other figures that represent the costs of the negative effects related to the economic activities. The negative effects are inclusive of the cost of crime, resource depletion, and the depletion of the ozone layer among others. In this regard, GPI nets the positive as well as the negative results of the growth of a particular economy to examine whether or not it benefits the people. It is ptimarily an attempt to measure whether the social costs as well as the environmental impact of the growth process, including consumption, could be considered as negative or positive factors to be included in the overall health and wellbeing of individuals (Kubiszewski et al., 2013). Overall, when compared to GDP, DPI can be considered as a better indicator for measuring the sustainability of economic growth.
According to Cobb, Goldman, and Wachernagel (2017), GDP does not account for the negative externalities attached to the process of economic growth. Examples of the negative externalities that characterize the production process include pollution. GDP increases two times during the production process, which include during production and during the cleaning up process (Cobb, Goldman, & Wachernagel, 2017). On the contrary, GPI considers pollution as a loss, which is equal to the amount that it will cost the economy to clean up the pollution, including the cost of any negative effects that the pollution might have on the economy. However, the quantification of the costs and benefits of pollution is difficult. Regardless of the difficulty, GPI creates a balance between the expenditures of the external costs by accounting for the costs that the society bears because of pollution, including the costs it will take to clean up the environment once it is polluted. For this reason, the indicator provides a more accurate barometer of the health of a particular economy, including the manner in which the national conditioning of the economy is changing over a given period.
According to Fleurbaey (2009), social breakdown imposes huge economic costs on people. Medical expenses characterize the costs, the repair of damaged property, and legal fees, among other costs. GDP treats these costs as additions to the overall wellbeing of individuals in the society, but GPI subtracts the expenses that emanate from crime (Kubiszewski et al., 2013). Conversely, since there are no contributions made in terms of the exchange of money for household as well as volunteer work, GDP does not take note of such contributions. The omissions are accounted for in GPI, which includes the value of the household or volunteer work, calculated through the approximation of the costs it might take to hire someone to do the work (Fleurbaey, 2009). In relation to the aspect of income distribution, economic theory could be used to indicate that the poor can benefit more when their income increases compared to the wealthy individuals in the society. Accordingly, GPI increases when the poor people in the society receive a larger percentage of the national income, but reduces when this share decreases (Fleurbaey, 2009). These provisions could point towards the idea that GPI is a suitable measure for determining the wellbeing of individuals in the society.
The Gross National Happiness (GNH) is the other approach that could be used for measuring the wellbeing of individuals in an economy. In addition to measuring the economic indicators of a country, the GNH index includes provisions such as the environmental, physical, social, and the spiritual health of individuals (Oishi & Kesebir, 2015). GNH implies that it is essential to measure the sustainable development of a nation by taking a holistic approach towards different notions of progress, consequently giving equal importance to non-economic provisions of the wellbeing of individuals. In addition to the material values attached to the pursuit of happiness, GNH accounts for the non-material vales. An example of the nations that use the GNH index is the government of Bhutan. The need to use the GNH index as an alternative to GDP in measuring the wellbeing of individuals in the society is a derivative of the provision that the wealth of a nation cannot dictate the happiness of individuals in the particular society.
As is the case for the Bhutan government, the GNH index is based on four pillars that are inclusive of good governance, the promotion of environmental conservation, sustainable development, and the preservation and promotion of culture (Gurung & Seeland, 2008). The non-conventional economic indicators can provide an economy with actual information on the conditions experienced by individuals, which is fundamental to analyzing their social wellbeing beyond impersonal GDP data. The incorporation of the identified pillars in measuring the wellbeing of individuals in a given society could provide a close representation of the reality experienced by individuals in an economy. For instance, environmental indicators are determining factors that affect other areas such as nutrition, people’s health, and water quality (Van den Bergh & Antal, 2014). These economic indicators are inclusive of the ecological footprint of a nation, its pollution levels, the nature of environmental protection, marine biodiversity, and the access to water and energy. The state of the environment in which individuals live is therefore a direct influence of their prosperity, which means that it is necessary to underline the importance of these indicators during the evaluation of the wellbeing of a particular society.
The other alternative to using GDP in measuring the wellbeing of individuals in an economy is the Social Developmental Goals (SDGs) index. According to Nilsson, Griggs, and VIsbeck (2016), SDGs refer to the blueprint that could be used for the realization of an improved and sustainable future for individuals in a society. SDGs are used to address some of the issues faced by individuals across the globe, which include poverty, the degradation of the environment, climate change, justice and inequality (Costanza et al., 2016). All these provisions are determinants of the wellbeing of individuals in a particular economy, which means that they should be accounted for when assessing the manner in which the economy affects the welfare of the people.
SDGs, adopted by the United Nations, are the focal points of the agenda of international politics (Costanza et al., 2016). The SDGs focus on the eradication of extreme poverty in different parts of the global community, the achievement of universal education, the implementation of measures necessary for achieving environmental sustainability, and the promotion of gender equality, among other provision (Guijarro & Poyatos, 2018). The indicators that constitute the goals provide an accurate perspective of the primary dimensions that relate to a nation’s sustainable development. According to Guijarro and Poyatos (2018), the SDGs index contains information that can assist government officials, the civil society, and private businesses to understand the challenges that they have to face to accomplish the SDGs by the year 2030. Even though the indicators contained in this index can assist in accurately measuring, monitoring, and controlling the dimensions that relate to the achievement of sustainable development, they can inhibit timely accounting for a universal accomplishment provision.
The assessments made reveal that other methods can be used to measure the wellbeing of individuals in a particular society in place of using GDP. However, in answering the question regarding whether the alternatives are more appropriate for measuring the wellbeing of individuals as alternatives to GDP, several provisions should be considered. The considered elements are inclusive of the determination of whether the wealth of a nation could translate to people’s happiness, their progress, the reduction of income inequality, among other provisions. Since other elements account for the well-being of individuals, apart from the wealth of a particular country, it is possible to determine that the different approaches could be used to determine that GDP is not a sufficient measure that could assist in determining the well-being of individuals. However, the ranking of a particular economy can be affected when the measuring the economic growth of the nation using the provided alternative measures (Bowen & Moesen, 2011). In this case, the alternatives include elements such as income distribution, which is affected by other factors beyond economic production.
Results/Findings
The literature review points towards the idea that GDP is not the only indicator that could be used for measuring the wellbeing of individuals in a particular economy. The alternative methods identified and assessed include GPI, GNH, and SDGs. A close analysis of the alternative methods to using GDP for measuring the wellbeing of individuals in an economy account for the idea that there are benefits and limitations to be considered before using the indicators. One of the beneficial elements attached to using the alternative methods to assess the wellbeing of individuals is the idea that they do more than provide data on the economic growth of a specific economy. In this regard, the alternative methods consider other elements that include the degradation of the environment, the sustainability of the economic activities, and social and health status of individuals in the economy. For instance, Nilsson, Griggs, and Visbeck (2016) indicate that SDGs are concerned about the economic as well as the social welfare of individuals. In this light, the goals account for indicators such as education, health as well as poverty, which are primary considerations accounted for in the assessment of the wellbeing of individuals in a given country.
Literature review also provides that traditional economic indicators cannot provide a suitable reflection of the real issues covered in the determination of the wellbeing of individuals. Even though the economy is vital for social development, measuring the wellbeing of individuals solely through economic instead of human factors can omit important social and economic indicators that are essential for influencing the conditions faced by people in a country (Kubiszewski et al., 2013). Instead of limiting the assessment of people’s wellbeing using the economic indicators, it is essential to link the economic growth of a country to social progress since the link provides the moral objectives that a particular economy should observe in the face of the need to improve the living standards of the residents. At the social level, indicators that the alternative measures of wellbeing use include the education level of the residents, the quality of life, criminality indexes, and the sustainability initiatives employed by the particular nation in light of the need to improve the welfare of the citizens. For this reasons, the alternative methods of measuring the wellbeing of people in the society are more suitable for analyzing the social wellbeing of the people beyond the utilization of GDP statistics. The primary reason for considering the alternative measures as more suitable emanates from the provision that they affect the fiscal contribution of the taxpayers and the services they receive by contributing.
Conclusion
In conclusion, it would be important to take note of the notion that the alternative methods discussed in the literature review and the findings are not perfect alternatives to using GDP statistics for determining the wellbeing of individuals in a country. The study brought to light the idea that the wellbeing of individuals in a society is not solely determined by economic growth. In this regard, social and environmental elements should be included in this determination. For this reason, it would not be appropriate to dismiss the use of GDP as a measure of the wellbeing of individuals because the economic growth of a nation is essential for its social development. However, GDP provides a narrow view of the different aspects considered in the assessment of the wellbeing of people in a particular country, which calls for the need to employ the alternative measures since they provide a wider view of this provision. In spite of the benefits and drawbacks associated with the alternative measures, it is possible to determine that a country’s ranking might be affected when using the other views compared to using GDP.
References
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