Thursday, 5 May 2011

Growth without pain: how to measure it

Recently there has been talk in the media and among philosophers, sociologists, economists, scientists and politicians of measuring happiness instead of just concentrating on economic output as an indication of a nation’s prosperity.
Does this make sense?  Happiness is granted to different people in different ways. A stock trader, a research scientist, a philanthropist, a control freak and a drug addict could all be made happy by different means. So how can we compile an index of happiness that has any meaningful value as a guide to indicate, and help plan, the overall well being of a nation? One could encourage everyone to become a drug addict, give the drug to everyone and give them all a questionnaire.   The resulting data would indicate a completely happy nation; but one that few would want to live in.
Nevertheless, there does seem to be a growing awareness that the standard way of measuring a country’s standard of living, gross domestic product (GDP), is inadequate.
 GDP is defined as the sum total of the following:
 investment spending on (shares, bonds etc.)
consumer spending (on cars, clothes, entertainment etc.)
government spending (on health, local authorities, defence etc.)
the surplus or deficit of export income minus import spending
This is certainly a good measure of money changing hands and when divided by the population of a country  has in the past served as a reasonable indicator of standard of living for nations in their earlier stages of development.
 However, it includes money spent on, for example:
clearing up after thousands of road accidents
financing unemployment
treating addiction to alcohol, heroin and other drugs
legal and social costs incurred by broken families
legal and social costs associated with crime
cost of  recovering taxes lost through evasion
imprisonment of criminals
waste disposal
cleaning up after pollution
Consequently, the more road accidents, the more people thrown out of work, the more drug addicts, the more broken families, the more crime, the more evasion of tax, the more waste generated and the more rubbish and toxic materials dumped into the environment, the more will be the money spent on dealing with these problems, and so the higher will be the GDP. And leaders boast when GDP increases.
The hard earned wealth generated by useful activities could be better spent if such problems did not occur in the first place. It may test our ingenuity and will to succeed but a society generating fewer such problems would be more efficient and give us a better quality of life.
Instead of spending billions of  dollars or pounds or euros on dealing with road accidents the money could be spent on caring for the elderly and financing the arts. The huge cost of waste disposal and pollution clean up passed on to tax payers by irresponsible business and consumers could be knocked off corporation tax, possibly enabling shorter working hours, or spent on preserving biodiversity. A more efficient society would also release money for improving public places and subsidising charities. There must be a host of other examples.
So is there a better parameter than GDP that could be used for gauging a nation’s well being?
Possibly. Such negative spending could be subtracted from GDP to create a new indicator of prosperity, which might be called the net domestic product (NDP). Unfortunately, there is a problem with this; but only a short term one: you could make the NDP higher by simply spending less on solving the problems of a dysfunctional society and economy.
Yet this would be self defeating. As less money was spent on fixing the problems they would catch up on us and the efficiency of the whole system would decline, resulting in a diminished output, i.e. a lower NDP. Overall, in the longer term, the incentive for rulers in a parliamentary democracy would be to make the country more pleasant to live in and more efficient. If the parameter were adopted internationally I suggest that progress in global warming, environmental degradation, poverty and food shortages would be much faster as nations competed to increase their NDP.
I suspect someone has already thought of this but if so there can't have been much discussion of it in the media.

If you have anything to say on this it might be possible to incorporate your comments in a follow up posting.
Autthor, 2077 AD