The premier statistic used to judge the viability of any economy is the 'Gross Domestic Product'. The term 'GDP' is synonymous with economic development. Conceptualized by Simon Kuznets, GDP was and is accepted as the frontier method for measuring a country's economy.
GDP is the measure of all kinds of economic activity i.e., the final value of all goods and services produced within a country within a specific time period. The world's GDP at the end of 2020 stood at $84 trillion, with the USA, China and Japan contributing the most. The GDP of Bangladesh stands at $330 billion with a growth rate of around 8%.
The components of GDP consists of four parts: Consumption, Investment, Government Purchases and Net Exports. Consumption includes the total spending on the final sale of all goods and services within a country's border. Investment includes all intermediate tools that are used to produce goods and services. They may include equipment, such as machinery of a garment factory that is used to make clothing. It also includes business structures, such as buildings, and even intellectual property.
Government purchases include the expenditure on expenditure on salaries of government workers and all kinds of expenditure on development works. And finally, Net Exports equal to all exports of a country minus the imports, the net of which adds value to the economy. Together these four components dictate the wellbeing and status of an economy.
Now, while the GDP measure is one that is fairly straightforward and easy to understand, there has been some heavy criticism directed its way. GDP only counts for the final value of goods and services that are legally produced and sold. It does not recognise any activity that pertains to non-market goods or the underground economy. It is said that the value of Bangladesh's underground economy could even surpass the value of its actual economy.
GDP computes economic value based on a fixed basket of goods that is meant to reflect the composition in the economy. So, any change in the composition of goods in the economy or a change in quality of these goods is not reflected in GDP measurements. It also hardly considers the effect that economic activity has on the environment. GDP measurements also do not acknowledge that the economic value produced can be unevenly distributed among the recipients and that it may be concentrated to only a certain portion of the population.
And finally, one of the most obvious drawbacks is that it only computes the well-being of an economy based on economically acknowledged production, but never considers non imputable variables such as happiness and satisfaction of its people, their overall physical and mental health, their level of intellect, their courage, and their sacrifices.
It does not account for the arts being produced every day and the sports being played by everyone. It does not account for the joy that people get from doing even the smallest of things from eating candy to spending time with their families. GDP does not compute the true inner wellbeing of the real component of its economy, the people.
There have been many alternatives passed up to replace GDP as the primary measure of a country's economy. Most of them are improvements of the GDP method, based upon its drawbacks. One of the most popular ones is the Gross National Happiness (GNH). It was materialised through Buddhism and mindfulness principles. In 2008, the king of Bhutan officially shared with the world that the country would be replacing GDP with GNH.
The GNH takes 8 criterions into consideration. They are a certain standard of good living, overall health, good governance, ecological variety, time consumption, flexibility, diversity, and community spirit. Bhutan based its calculations of GNH on a survey of 80,000 households to determine their perceptions of the level of the mentioned criterions.
Another popular measure is the Better Life Index (BLI). The measure was created to help governments make better policy decisions to better their citizens' lives. The BLI ensures 11 traits that are crucial to wellbeing: housing, income, jobs, community, education, environment, civic engagement, health, life satisfaction, safety, and work-life balance.
A drawback of the BLI is that there are not any clear-cut rankings or assessments on which country is better than the other. But instead, it shows users how each country measures up to individually selected factors that align with that of the user's opinions and beliefs.
The Human Development Index (HDI), a measure created by the United Nations Development Program (UNDP) measures not just economic growth but also environmental sustainability. It is a composite index of life expectancy, education levels, and per capita income. The HDI emphasizes that the people of a country and their capabilities should be the base factor instead of only focusing on economic growth. Norway has topped the HDI charts for the past decade.
Then there is the Green Gross Domestic Product indicator, which is a modification of the traditional GDP measures. Along with the GDP measures, it assesses the damages inflicted on the environment by the economy to better understand where countries stand on environmental standards and how they can better their role in the preservation of the environment. This measure was created by the Chinese government in order to assess the environmental impact of their policies.
There is also the Genuine Progress Indicator (GPI) which adds supplementary factors such as leisure time, cost of crime and disaster, environmental depletion etc.
The world economy has changed and grown so much over the years that a singular measure such as the GDP cannot determine the true state and its growth. So, in order for a more comprehensive assessment of an economy the GDP must evolve to include many more abstract yet crucial factors than it does now or must be replaced with a much more inclusive measurement tool.
Tahmeed Rifa is an undergraduate business student currently studying at Bangladesh University of Professionals (BUP).
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard