It seems like GDP has always been a favorite toy in politicians and economists’ hands. It seems that it is fairly simple to sum up all the material goods produced in a certain country and we will get global leaders in terms of GDP – EU (16,092 trillion dollars – the data provided by the IMF in 2012), the USA (15,684 trillion dollars), China (12,405 trillion dollars) , India (4,684 trillion dollars) and Japan (4,627 trillion dollars). These are the countries that produce most of the good consumed around the globe.
The next sep we do is to divide a country's GDP by the amount of people living in it in order to get the rating of poor and rich countries. It turns out that according to the IMF, Qatar ($102,211 per person), Luxembourg ($79,785 per person) and Singapore (60,410 per person).
Simple, isn't it? This is exactly who the entire world has been calculating people's wellbeing over the last 8 decades.
The Guardian on the Drawbacks of the Contemporary Method of Calculating GDP
The tendencies seen over the last few decades around the globe that the only thing governments have been obsessed with is economic boom. At the same time, somehow they tend to operate abstract figures (including GDP), forgetting that these figures are produced by certain people with different levels of personal income.
The existing concept was put forward during World War II. Still, at that time it was justified as the major indicator of mobilizing recourses. Still it failed to reflect the real economic situation. The only thing it did is to show the speed at which the nature was turned into money and the common land turned into raw materials.
At the same time, these macroeconomic indicator failed to take into account the nature's most precious resources – water and land – the resources of which now seem not as unexhausted as they used to be.
In particular, The Guardian cites several examples of underdeveloped countries where the intensive and excessive use of the local water resources needed to back an increase in the production of Coca-Cola, for example, may result in a short-term local economic boom followed by the exhaustion of the water resources and a major economic collapse along with all the devastating economic consequences for the local population.
This leads us to believe that the existing economic structure is “anti-vital”. The living standards are measured by means of the financial flows that go through the governmental system. In this case the poor get poorer while the rich get richer.
Expert Opinion
The Guardian is right when picking on the existing GDP criterion when defining the wellbeing of companies and states worldwide. The criterion does have a lot of major drawbacks since GDP doesn’t take into account the labor of housewives and people that work in humanitarian fields if they do not produce products or render services).
The Guardian’s example with forests is a good one as well. When forests grow, they are not taken into account when calculating the GDP of the very country but when these forests are cut and turned into timber to be sold/exported (while the place turns into a desert), the timber is definitely taken into account to contribute to the expansion of the GDP.
GDP figures are focused on the wellbeing of the entire country in general rather than individuals living in it. This leads to multiple paradoxes.
What should the GDP criterion be replaced with? This is the question to the IMF, the World Bank and governments…
