Monday, November 23, 2009

Is GDP a good measurement of life quality?

Consider the following (excerpted) statement by Robert Kennedy in 1968

“…And if the Gross National Product includes all this, there is much that it does not comprehend. It does not allow for the health of our families, the quality of their education, or the joy of their play. It is indifferent to the decency of our factories and the safety of our streets alike. It does not include the beauty of our poetry, or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials… the Gross National Product measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile….”

In Singapore, the government’s competency is assessed based on its ability to grow GDP year on year, quarter on quarter. Every civil servant’s bonus and salary increment depends largely on it. Does high GDP reflects high quality of living?

Consider that GDP is calculated using the following formula: Investment + Consumption + Government Expenditure + Net Exports

GDP measures the total income and total expenditure (since total income will equals total expenditure). It is also the total market value of all final goods and services provided within a country in a given period of time.

Intuitively if we compare countries with high GDP per capita over lower ones, we can see and feel the difference. If you have been to Japan, you will definitely find the quality of life there to be higher than Singapore. The reverse is true for Malaysia or China.

So how does GDP which is quantifiable able to measure quality of life which is not easily quantified?

GDP does not measure the health of Singaporeans. However, because of a larger GDP and high savings rate, Singaporeans are able to afford better quality healthcare. The budget for education has been growing (2nd largest after defence), thanks to high GDP.

This results in bright students becoming top surgeons, enhancing our pole position as medical hub in Asia. With good education infrastructure in place, quality teachers are employed to produce bright students in local institutions. This in turn helps to increase the production output of our labour, thus increasing our GDP.

High GDP countries allow citizens to access to quality education systems, thus many would be able to admire the beauty of poetry, humanities and arts when given the opportunities and education.

Marriages in high GDP countries though tend to be more fragile as there are more interaction and distractions among people. In fact, high GDP countries tend to have lower birth rate (though not always). This by economics theory might suggest that children are in fact inferior goods! Do not forget that as income rises, consumers switch from inferior goods to normal goods. In our local context, Singaporeans switch from having babies to having pets. Hence humorously, children are inferior goods and pets are normal goods (at least for some people!). I do believe that some pets cost much more to keep than children though!

That said, GDP does not also take into account our wisdom, compassion and our devotion to our country. However, with our basic needs being fulfilled (due to high GDP), we will be able to move up the hierarchy of human needs and foster the above attributes.

There are many arguments that GDP is NOT an accurate or good tool of measurement of well being. I will leave the points of discussion for another day.


Royston said...

I would think GDP does not accurately measure quality of life. I think quality of life should be measured by happiness. So GDP does not take into account work-life balance, healthy lifestyle, sensible expectations etc. I think as our GDP increase, many pple are actually less happy due to numerous reasons. Hence its really worth pondering if always striving for higher GDP is the way to go. And more importantly, at what expense to achieve the higher GDP

Marvin said...

Our standard of giving is more important than our standard of living.

As the quote from Kennedy says very well, GDP does not measure the level of a society's compassion.

TerraNova said...

I agree with you.
Someone is maybe poor, but maybe does not understand he has higher quality of life than maybe someone who has fancy car and house and maid and boat and 100000usd kitchen and biturbo brand new car...
Is one who is always striving for more satisfied? Is he truly happy? Does he then have quality of life?
For whom are we working? Are we working to survive, or has this gone somewhere else?
I agree with you. GDP is not measure of quality of life.