New push to ditch GDP as Kenya prosperity measure
Soon you will be able to tell how happy a country’s citizens are as governments move away from using economic growth statistics as measure of a nation’s progress to one based on people’s well-being.
The switch, currently being propagated by French President Nicolas Sarkozy, will see countries abandon use of the Gross Domestic Product (GDP) which has been faulted for focusing solely on production at the expense of social welfare as a measure of progress.
It is a statement that might find many takers here in Kenya, especially after the intense debate during the December 2007 General Election on the achievements of President Kibaki’s government. The President’s party used the fact that the government had been able to revive economic growth from negative growth during President Moi’s era to a historical high of seven per cent to whip up electoral support.
The Opposition, knowing very well that the majority of Kenyans are food poor and that the so-called economic growth was yet to trickle down to the grassroots, charged that the figures were inflated and that the growth only benefited Kibaki’s backers. World leaders now want a measure that captures not just the “figures” but also the state of a people’s being.
Under the Organisation for Economic Co-operation and Development (OECD), they will meet next month to push for adoption of measures that go beyond the economy to encompass subjective aspects of social progress such as freedom, security and contentment.
Under the 3rd OECD World Forum on “Statistics, Knowledge and Policy”, approximately 1,500 leaders from about 130 countries mostly from the developed countries will meet in Busan, Korea between October 27-30, 2009.
The meeting will discuss the recommendation made by The Commission on the Measurement of Economic Performance and Social Progress set up by Mr Sarkozy in 2008. The Commission is constituted by five Nobel prize-winning economists, Joseph Stiglitz, Amartya Sen, Kenneth Arrow, James Heckman and Daniel Kahneman.
“Economic resources are not all that matter in people’s lives,” OECD secretary-general Angel Gurría says in website calling for participants. “We need better measures of people’s expectations and levels of satisfaction, of how they spend their time, of their relations with other people in their community.”
The debate for a measure tacking progress beyond GDP has been on going since 1930 after it was adopted as an indicator for gauging national growth. Arithmetically, GDP is computed by aggregating the total private and government consumption, investment, and difference between what a country exports and imports.
By its very nature it provides an assessment of the performance of the market economy, but being the only known measure of progress has been mistaken as a measure of societal well-being. And so traffic jams will result to an increase in GDP, due to the increased use of gasoline consumption — but not the quality of life.
Where the road infrastructure is in bad shape, GDP will also show improvement due to increased consumption as more money is used to repair or buy new cars and pay for medical expenditures. “What should be treated as a bad – a deficiency in the provision of a public good – will be accounted as a good – an increase in GDP,” the chairman to Sarkozy’s Commission, Joseph Stiglitz says in a paper jointly written with Amartya Sen and Jean-Paul Fitoussi. The paper is titled The measurement of economic performance and social progress revisited.
The situation is even more critical in developing countries where out of desperation to be seen to “work” politicians are increasingly encouraging foreign mining company to set up production in their countries, “even though the country receives low royalties, and degrades the environment as by doing so GDP will be increased.”
Oil rich African countries are the best example in this: oil production has pushed their recorded GPD growth to stratospheric highs but little has changed on their citizens who continue to wallow in poverty. In Nigeria for example despite being one of the largest oil producers in the world, shortages are a constant feature in the country’s oil retail stations.
The urgency to switch to a new measure is a product of the current global economic crisis, increased concern on the degradation of the environment or the depletion of natural resources.
Those rooting for the new measure say use of GDP accounting gave a false impression of economic performance, as they measured the “goods” being produced, but not the “bads”.