While real gross domestic product (GDP, or simply national income) economic growth remains one of the main indicators in global academic, and policy discussions as one of the main indicators for economic progress– both of individual countries, and globally– the contributor of GDP to economic discourse, Simon Kuznets warned of its limitations in this regard. Sadly, decades have passed since GDP was created by this economist, yet there has been no significant effort globally to move towards a more meaningful indicator of economic development.
A December 12, 2022 World Economic Forum (WEF) published article ‘A brief history of GDP – and what could come next’ pointed out in this regard ‘What if your invention changes the world, but not in the way you intended it? That is what happened to Simon Kuznets, a Russian-born US economist, who helped develop the concept of gross domestic product, or GDP, almost a century ago. For Kuznets, who tried to make sense of the Great Depression and its impact on the economy, GDP was a useful measure. It helped account how much goods the US economy produced, and how quickly it rebounded after the crisis. But the economist also warned it was a poor tool for policymaking– to no avail. …In 1934, long before the Bretton Woods Agreement– and before even the spectre of war– Kuznets warned US Congress not to focus too narrowly on GNP or GDP: “The welfare of a nation can scarcely be inferred from a measure of national income,” he said.’
Hence, while GDP remains central to talking about economic development of a particular country, voices have continued to gain a lot of weight for using a more multidimensional indicator for better understanding the quantity, and quality of economic well-being of a country. The fast-unfolding nature of climate change crisis– but before that the lack of focus on the negative externalities of just increasing GDP, without caring much in terms of the rise in environmental, and overall social wellbeing issues, which in itself contributed a lot of momentum to the climate change crisis– and the associated ‘Pandemicene’ phenomenon have put all the more pressure on policymakers, as widening of economic approach of expanding wellbeing on these counts has all the more centre-staged during recent years.
The example of Bhutan stands out in this regard, given instead of following the usual measure of GDP growth, they have shifted to pursuing a far more meaningful measure of economic, and social wellbeing, in the shape of coming up with a ‘Goss National Happiness’ (GNH) index. A September 2, Project Syndicate (PS) published article ‘Is gross national happiness the way forward?’ indicated in this regard ‘While much of the world is fixated on the quest for GDP growth, wealth, and modernity, Bhutan– a landlocked kingdom with a tiny population squeezed between India and China– has chosen a different path, emphasizing human happiness and well-being. …In the 1970s, Bhutan’s fourth king, Jigme Singye Wangchuck, declared that GDP was less important than “Gross National Happiness” (GNH).’
Moreover, highlighting the multi-dimensional nature of GNH index, something, which is sadly missing in the real GDP economic growth concept, the same PS published article pointed out ‘Bhutan’s “GNH index” has four pillars: sustainable and equitable socio-economic development, environmental conservation, preservation and promotion of culture, and good governance. The index then has nine domains: psychological well-being, health, education, time use, cultural diversity and resilience, governance, community vitality, ecological diversity and resilience, and living standards.’
While in essence, GNH index is quite representative of a much better indicator of wellbeing, yet it also holds significant challenges of measurement due to a number of subjective aspects in this measure. The same article highlights this aspect, and also points towards a more improved indicator in this regard as follows: ‘The challenge in constructing any index is to determine not only which factors to include, but also how to weight each one. When it comes to happiness, this challenge is compounded by the ways sentiment shifts over time, owing not least to crises, from wars to natural disasters and even fear of future calamities. Moreover, the weighting of factors is likely to vary across generations, genders, and ethnic or cultural groups. Using such a complex index for cross-country comparisons would be particularly difficult. With this in mind, an alternative index was developed. Introduced in 2012, the World Happiness Report asks nationally representative sets of respondents to evaluate their current lives and to provide assessments of positive and negative emotions. Since the WHR is much narrower than Bhutan’s GNH Index, and does not rely on data that are not widely available across countries, it offers a more useful means of comparing the well-being of various populations.’
It is important to move from focusing on GDP economic growth, and towards a more meaningful indicator of economic development, and social wellbeing, especially given fast-unfolding nature of existential threats call for urgent, and deep policy action for improving life in a multidimensional way, including environment in particular, and will also help bring much-needed improvement in allocative, and productive efficiency of expenditure.
The Report points out with regard to these rankings as ‘Our measurement of subjective well-being continues to rely on three main well-being indicators: life evaluations, positive emotions, and negative emotions (described in the report as positive and negative affect). Our happiness rankings are based on life evaluations, as the more stable measure of the quality of people’s lives. Countries are ranked according to their self- assessed life evaluations (answers to the Cantril ladder question in the Gallup World Poll), averaged over the years 2021-2023. … our happiness rankings are not based on any index of these six factors. Rather, scores are based on individuals’ own assessments of their lives, in particular their answers to the single-item Cantril ladder life-evaluation question. We use observed data on the six variables and estimates of their associations with life evaluations to help explain the variation of life evaluations across countries, much as epidemiologists estimate the extent to which life expectancy is affected by factors such as smoking, exercise, and diet.’
As per World Happiness Report 2024, Pakistan’s ranking in terms of happiness among countries in terms of (i) the young, that is, below 30 age group (for the period 2021-23) at being 107 (out of 143 countries), (ii) for the old, that is, age 60 and above, for the same time period, and for the same number of countries at 122, and (iii) in terms of life evaluations, once again, for the same time period, and the same number of countries, stood at 108. This indicates, overall, quite a poor state of how happy people are in the country.
Hence, it is important to move from focusing on GDP economic growth, and towards a more meaningful indicator of economic development, and social wellbeing, especially given fast-unfolding nature of existential threats call for urgent, and deep policy action for improving life in a multidimensional way, including environment in particular, and will also help bring much-needed improvement in allocative, and productive efficiency of expenditure.
