Introduction
Last week’s column responded to the question: Is Guyana’s GDP an appropriate measure of its economic size, progress or well-being? I presented ten of the strongest arguments I could find in support of the view that the GDP is indeed an appropriate measure. In this week’s column I offer, similarly, ten of the strongest critiques of its appropriateness for these purposes, which I can find.
Before proceeding readers should observe that the modern history of computing national income accounts started in the 1930s. This was in direct response to the information gap on such accounts revealed by the Great Depression of the 1930s. Professor Simon Kuznets had pioneered the development of these accounts for the United States (US), through mainly the US Bureau of Economic Analysis. Indeed this was the case to such an extent that US economic authorities claimed at the end of the 20th century, the system of computing its national accounts was “the achievement of the Century” (US Department of Commerce, December 1999). Academics had also proclaimed the same; for example: “while the GDP and the rest of the national accounts may seem to be arcane concepts, they are truly among the greatest inventions of the twentieth century” (P A Samuelson and W D Nordaus)
By 1934, Kuznets had produced the US national accounts for 1929-32, and later extended his work to cover 1919-38, subsequently going even further back to 1869. I mention all this both for readers’ general information and also to inform that Kuznets himself had expressed caution against an over-reliance on the GDP as a measure of either a country’s or a citizen’s well-being/ welfare.
Arguments in opposition (1-5)
The first argument of those who oppose the GDP as an appropriate measure, emphasizes the fact that the GDP is strictly a market-based measure. This means price is used as the only indicator of what is valued in the GDP. Areas of domestic production such as household/family output, which is not marketed would not be measured. Similarly, the underground economy, volunteer work in the community, and other ‘social’ activities, like caring for family and friends without payment, are also excluded. Such exclusions are unacceptable to critics.
Second, critics argue, since price is the sole indicator of value, GDP therefore measures what is produced from a neutral standpoint. It is not concerned with whether what is produced is good or bad for Guyana. Critics say this disregard of what is produced, makes products that are socially harmful to Guyanese (counterfeit products/foods) part of the GDP, in exactly the same way good products (healthy foods) are.
Third, the GDP measure ignores in its computation, whether the production it measures can be sustained or not. Thus, production that depletes Guyanese natural resources (mining) is measured in exactly the same way, without subtraction for these losses, as production from renewable resources.
Fourth, in similar fashion, if in the process of generating production in Guyana for the GDP, the environment is damaged, such environmental damage is not deducted from the value (price) of what is produced.
Fifth, by extension of this logic, one should note that, as a rule, services provided by nature are not captured in the GDP, unless these are sold into a market. Thus if Georgetown continues to be polluted and filth laden, this is not subtracted from the value of Guyana’s GDP, However if payments are made for its systematic clean- up (as they are now) these are added to the value of the GDP. Ironically, however, volunteer (non- paid) activities, which are devoted to this clean-up are not measured as part of the GDP!
Arguments in opposition (6-10)
Sixth, readers would have realized at this stage that if the GDP uses price as the measure of value of goods and services, then fake items, once purchased, are valued in the GDP in the same way as genuine items are.
Seventh, while Guyana’s GDP is normally provided as a total sum or an average per person (capita) value, this provides absolutely no meaningful information on how the GDP, or indeed opportunities for contributing to the GDP, are distributed among individuals, genders, groups, ethnic communities, religions and so on. Specialist surveys are usually required to obtain these types of data, they are not directly observable in the GDP computation of the national accounts.
Eighth, it follows from these observations that per person (capita) GDP only states the average value of resources ‘available’ to individuals. Like all averages, it does not define distribution and therefore cannot pronounce on the well-being of any given individual.
Ninth, because an individual’s well-being will depend on circumstances such as his/her opportunity for earning a livelihood, per person (capita) GDP is plainly an insufficient indicator.
Tenth, the focus of GDP on price as a measure of value clearly indicates that the GDP does not seek to measure areas such as social, political, environmental, cultural, and human rights. In this way critics argue the GDP focuses too narrowly on economic progress, at best.
Conclusion
The ten arguments presented above, opposing the continued standard use of the GDP as a measure of Guyana’s economic size, progress, or well-being are not presented in any form of ranking. Further, several similar arguments have been excluded. The selection given in the column is therefore, entirely my choice.
Next week’s column will sum up this discussion of the pros and cons of the GDP’s appropriateness. And, in the course of this I shall state my position, as well as indicate a few of the emerging alternatives to the GDP. The question to be determined in that column, is whether these alternatives complement/supplement the GDP as an appropriate measure, or challenge to replace it.
