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‘What is the real measure of wellbeing? Not GDP Any way!’

Are statistics giving us the right “signals” about what to do? In our performance-oriented world, measurement issues have taken on increased importance: what we measure affects what we do. If we have poor measures, what we strive to do (say, increase GDP) may actually contribute to a worsening of living standards. We may also be confronted with false choices, seeing trade-offs between output and environmental protection that don’t exist.

Eighteen months ago, French President Nicolas Sarkozy established an international Commission on the Measurement of Economic Performance and Social Progress, owing to his dissatisfaction — and that of many others — with the current state of statistical information about the economy and society.

The big question concerns whether GDP provides a good measure of living standards. In many cases, GDP statistics seem to suggest that the economy is doing far better than most citizens’ own perceptions. Moreover, the focus on GDP creates conflicts: political leaders are told to maximise it, but citizens also demand that attention be paid to enhancing security, reducing air, water, and noise pollution, and so forth — all of which might lower GDP growth.

The fact that GDP may be a poor measure of well-being, or even of market activity, has, of course, long been recognised. But changes in society and the economy may have heightened the problems, at the same time that advances in economics and statistical techniques may have provided opportunities to improve our metrics.

For example, while GDP is supposed to measure the value of output of goods and services, in one key sector — government — we typically have no way of doing it, so we often measure the output simply by the inputs. If government spends more — even if inefficiently — output goes up. ***

Statistical frameworks are intended to summarise what is going on in our complex society in a few easily interpretable numbers. It should have been obvious that one couldn’t reduce everything to a single number, GDP. The report by the Commission on the Measurement of Economic Performance and Social Progress will, one hopes, lead to a better understanding of the uses, and abuses, of that statistic.

The report should also provide guidance for creating a broader set of indicators that more accurately capture both well-being and sustainability; and it should provide impetus for improving the ability of GDP and related statistics to assess the performance of the economy and society. Such reforms will help us direct our efforts (and resources) in ways that lead to improvement in both. Source: ET 170909
Joseph E Stiglitz, Professor at ColumbiaUniversity, served as Chairman of the Commission on the Measurement of Economic Performance and Social Progress

NOTE: The author’s observations on Govt. expenditure are especially true in India. Most of the credit for growth goes to government spending, which almost tripled year-on-year to cross 20% in the last quarter FY 2009. This component alone contributed to more than half the GDP growth.

More importantly, community, social & personal services at 13%; the latter is a reflection of the Sixth Pay Commission largesse unconnected to productivity and quality of service. In fact the growth in incomes employees in government service is more than 25% thus garnering a disproportionate portion of the GDP growth by a miniscule of work force, disproportionate compared to the share in GDP growth of the rest of the work force. Surely, this can not be considered as earned GDP growth in the real sense and the cost is met out of tax money which otherwise could have been used for development of much deserving power infrastructure sector which would have added to the real income of the nation. These are real growth figures and conceptually, the Pay Commission is a nominal increase that should have been netted out. However, for government services, it is rarely possible to make that distinction and at least 1% of 6.7% is nominal growth masquerading as real.

Unsustainable Growth Posted by S.R.Ram on 2009-06-02
Growth in Per capita income in real terms is estimated at 4.9%. Sectorally it works out to percapita income of persons deriving income from in Agri sector to NIL, industry sector to 2% and services sector to 8%. Persons deriving income from COMMUNITY, SOCIAL AND PERSONAL SERVICES SEGMENT HAVE GAINED 11%. This segment registered uncommon growth rate, nearly double (13 %) compared to previous year (6.8%), fed by Government spending leading to increased fiscal deficit. All other segments showed lesser growth compared to growth rate during the previous year. Such uncommon growth rate in support sector unaccompanied by simultaneous increase in growth rates in real sectors is not healthy and need to be pared else it will have adverse impact on the economic growth in future. Thus highly skewed growth trend was evident, contrary to XI Plan OBJECTIVE OF INCLUSIVE GROWTH. Agri sector, which employs 55% of work force, drew a blank thus widening income disparity of workforce in agri and non-agri sectors (read income divide between rural and urban dwellers).