The GDP is a buzzword that is ubiquitous in modern-day media. It is a term that is spewed around in both political and economic environments and is generally used as a metric to determine a country’s economic success in a certain period. Although, in an era of increasing environmental degradation, due to inequality as well as a decreasing rate of social cohesion, perhaps it is time for the world to reconsider the effectiveness of this metric, as the GDP may only be encouraging unsustainable growth, to the extent of causing our planet incorrigible rates of damage.
Gross Domestic Product (GDP) is the “total market value of the goods and services produced by a country’s economy during a specified period of time” (Bondarenko). From this metric, we can correlate that the higher the GDP is, the higher the economic growth in a country during a certain period is, meaning that we can determine, to some extent, how successful a country’s economy is as we can holistically view how much the economy has grown. However, in contemporary times, because this metric is viewed as the main pillar to a country’s success, the lines of a country’s true success become blurred.
One of the main issues with this metric is that the GDP is unable to quantify the amount of environmental degradation during the same time period. Therefore, despite an economy having high rates of economic growth as expressed by the GDP, we are unable to determine just how much of the environment is damaged, such as ocean acidification or deforestation. As countries dogmatically follow the view that the GDP needs to be a positive value at around 2-3% or the country’s economic performance is a failure, this leads to the notion that there must be constant increasing rates of growth, and yet this leads to higher consumption rates of fossil fuel and deforestation to meet these unsustainable goals. According to a study by the Stockholm Resilience Centre, we are at a point in which we have exceeded or gotten dangerously close to the planetary boundary for carbon thresholds, ocean acidification, biosphere integrity, and many more environmental dangers (The Nine Planetary Boundaries).
We continue to reach closer and closer to these limits as we continue to prioritize the GDP metric, especially under the neoliberal era in which we are living. The need for infinite growth pushed by various economists using finite resources will only lead to us reaching an eventual limit in which humankind would have already caused irreversible environmental degradation.
Furthermore, as governments prioritize the GDP metric over all other metrics, this leads to most governments resulting in deregulation in allowing companies to resort to deep-sea oil fracking, extracting unprecedented amounts of natural resources to continue to achieve “growth”, and to continue raking record-breaking profits. The aforementioned deregulation is often achieved by corporations lobbying millions of dollars to convince politicians to create legislation permitting the extraction of finite natural resources despite realizing that we are extracting these resources at an unsustainable rate, resulting in continuing to reach or exceed the planetary boundaries as expressed by the Stockholm resilience center.
Another significant disadvantage of following the GDP metric is that it completely neglects aspects such as income inequality and social cohesion. The GDP metric clearly encourages corporate domination and continued suppression of wages to achieve maximum profits by selling the most goods and services possible. As a result, countries like the US, with a 2021 GDP of $96.1 trillion (“GDP (Current US$) | Data”), also have a prevalent income inequality issue that is continually expanding every year. For instance, the Council on Foreign Relations reports that in 2021, the top 10 percent of Americans held nearly 70 percent of U.S. wealth whilst the bottom 50% owned about 2.5% of the wealth 2021 (“The U.S. Inequality Debate”). Similarly, in 2021, Japan had a GDP of $4.94 trillion (“GDP (Current US$) – Japan | Data”), yet has issues with income inequality as the top 1% captured in 27% of the total growth as Japan has the second-highest poverty rate amongst G-7 nations.
It is evident that countries with glaringly high GDP rates such as the US and Japan have issues with high-income inequality. This is because the high rates of GDP typically benefit the extremely affluent with large corporate and political control. Corporations that rake in the most profit are notorious for the low wages paid to employees despite ascertaining record-breaking profits. This leads to positive GDP rates as corporations can sell increasing amounts of goods, yet the share of the rewards is becoming increasingly disproportional in this current neoliberal era.
Fortunately, there are other metrics that we should be prioritizing to ensure that a country’s success is not measured purely on “economic growth”, but in which the social factors are being prioritized as well. An example of a prevalent metric that measures human development, and the sustainability of a country is the Happy Planet Index (HPI) which combines the life expectancy, well-being, and the ecological footprint of a country. This metric crucially highlights how a high GDP does not correlate to a high standard of living for all citizens in a country.
Costa Rica has the highest Happy Planet Index in the country regardless of only having a GDP of $64.28 billion in 2021 (Costa Rica | Data), whereas, the US, despite having the highest GDP in the world of $96.1 trillion (“GDP (Current US$) | Data”), is only 122nd in the Happy Planet Index. Shockingly, Costa Rica has a life expectancy of 80 years in 2020 (Costa Rica | Data), while the US, with the largest Economy in the world, has a life expectancy of 78 years (United States | Data). There are major reasons why Costa Rica has a higher life expectancy rate than the US. For instance, Cuba ranks highest in the Americas in terms of equity in crucial areas like in terms of income distribution, social security coverage, labor laws, and protection of the environment (ROSERO-BIXBY). The statistics highlight that countries that do not use pure economic growth as the imperative but instead prioritize factors that lead to a higher quality of life and longer life expectancy tend to be those with higher social cohesion and lower income inequality. Thereby, the Happy Planet Index highlights that countries that rank highly have sustainable growth whilst ensuring well-being for all citizens, rather than prioritizing pure economic growth as the main imperative for a country’s success.
Ultimately, the GDP metric is useful in terms of holistically measuring the general trend of the economic growth of a country in a certain period. Although, if we want to consider how to develop our economy sustainably, we need to consider other viable metrics, for example, the Happy Planet Index or the Genuine Progress Indicator (GPI) to encourage sustainable growth whilst minimizing environmental degradation. The founder of the GDP metric, Simon Kuznets, had also warned about the disadvantages of the GDP metric, stating that “Distinctions must be kept in mind between quantity and quality of growth, between its costs and return, and between the short and the long term. Goals for more growth should specify more growth of what and for what” (Hunt). The aforementioned quote stated by Simon Kuznets succinctly delivers to us the dangers of dogmatically following the GDP metric, thereby proving why the GDP statistic is not the metric for the future.
References:
Bondarenko, Peter. Gross Domestic Product | Definition & Formula | Britannica. https://www.britannica.com/topic/gross-domestic-product. Accessed 9 Oct. 2022.
Costa Rica | Data. https://data.worldbank.org/country/CR. Accessed 9 Oct. 2022.
“GDP (Current US$) | Data.” The World Bank, https://data.worldbank.org/indicator/NY.GDP.MKTP.CD. Accessed 9 Oct. 2022.
“GDP (Current US$) – Japan | Data.” The World Bank, https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=JP. Accessed 9 Oct. 2022.
Hunt, Sabastian. “The Case Against GDP, Made By Its Own Creator.” Gross National Happiness USA, 5 Mar. 2021, https://gnhusa.org/gpi/the-case-against-gdp-made-by-its-own-creator/.
ROSERO-BIXBY, LUIS. “The Exceptionally High Life Expectancy of Costa Rican Nonagenarians.” Demography, vol. 45, no. 3, Aug. 2008, pp. 673–91.
The Nine Planetary Boundaries. https://www.stockholmresilience.org/research/planetary-boundaries/the-nine-planetary-boundaries.html. Accessed 9 Oct. 2022.
“The U.S. Inequality Debate.” Council on Foreign Relations, https://www.cfr.org/backgrounder/us-inequality-debate. Accessed 9 Oct. 2022.
United States | Data. https://data.worldbank.org/country/US. Accessed 9 Oct. 2022.
— Writer Ansh Narula can be reached at anshnarula700@gmail.com.
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