Gross Domestic Product and Gross National Happiness - Essay Example

? National Income, Gross Domestic Product, and Gross National Happiness BSC Level 4 – Business Economics Susana Rute I. Introduction Simon Kuznets, Harvard Economist and Nobel Prize winner, is credited historically with pioneering both the definition and calculation of Gross Domestic Product (GDP) as a method to measure economic growth, development, and patterns of activity within national economies. This has subsequently become the foundation of modern economic analysis, and is used in financing budgets, bond rates, international loans, and economic development plans of nations across the globe. The accuracy of these statistics is based in government record keeping and private accounting measures and includes the sum of all economic activity in the country generated by the various sectors of production and services as a guide to the economic activity of a nation. More recently the King of Bhutan has promoted a policy of Gross National Happiness (GNH) in opposition to GDP, arguing that the latter did not reflect the important intangible aspects of society and culture such as religious belief, harmony with nature, spiritual peace, and transcendent wisdom. In using GDP only as a measure of national worth and as a guide for planning risks the deterioration of these important intangible aspects globally, and this is most harshly reflected in the destruction of indigenous cultures with philosophical foundations and beliefs different from Western capitalism. II. National Income & GDP Institutions such as the World Bank, IMF, and UN agencies frequently use GDP statistics to determine international aid, finance for development projects, and in the calculation of the distribution of wealth within a society for analysis. These records are drawn from tax accounts primarily as recorded income, leading to the question of differences in accounting standards between nations and the variance of business standards between cultures. Yet, a larger question has developed as to whether GDP as calculated includes the subtle economic and social factors that are important to community welfare. “Simon Kuznets is best known for his studies of national income and its components. Prior to World War I, measures of GNP were rough guesses, at best. No government agency collected data to compute GNP, and no private economic researcher did so systematically, either. Kuznets changed all that. With work that began in the 1930s and stretched over decades, Kuznets computed national income back to 1869. He broke it down by industry, by final product, and by use. He also measured the distribution of income between rich and poor.” (Econlib, 2011) GDP provides a portrait of the economic activity of a nation by measuring the sum of all economic activity within the sovereign during a given time frame, generally annually. Weight is given to each sector by the total amount of commercial activity involved, but this does not inherently coincide with the hierarchy of values within a society. Instead, it promotes the economic and commercial criteria to the determinant force of national development by defining material prosperity, ever increasing, as the key to a higher standard of living. While in most instances this correlation of economic activity does reflect advanced technological development, improvements in medicine, architecture, public utilities, and the comfort level of society, some critics claim it is not complete or balanced in reflecting the overall values of a culture empirically. Whether or not this can be done is reflected in the debate around Gross National Happiness (GNH), a term instituted by the Bhutanese King Jigme Singye Wangchuck in his coronation address in 1972. III. Gross National Happiness Gross National Happiness is developed from a Buddhist view of the interconnectedness of all life and the need for renunciation of selfishness and ego in order to cultivate enlightenment. The Buddha taught an Eightfold Path that included interrelated tenets on awareness, morality, behavior, etc. intended to bring about the perfection of the individual in body, speech, and mind. The Bhutanese King was a great patron of Buddhism, and Bhutan was one of the only remaining Buddhist Kingdoms in the world when Jigme Wangchuk made his first emphasis of Gross National Happiness as a contribution to the discussion of development issues internationally. This resonated in the West with intellectuals seeking new ways to include the subjective aspects of culture and environment into the economic discussion. “The term Gross National Happiness (GNH) was coined by Bhutan's King Jigme Singye Wangchuck when he ascended the throne in 1972. It signaled his commitment to building an economy that would subserve Bhutan's unique culture permeated by Buddhist spiritual values. Today, the concept of GNH resonates with a wide range of initiatives, across the world, to define prosperity in more holistic terms and to measure actual well-being rather than consumption. By contrast the conventional concept of Gross National Product (GNP) measures only the sum total of material production and exchange in any country.” (Bakshi, 2004) Gross National Happiness proceeds from a different fundamental basis than traditional Marxist dialectic about the evils of capitalism. In many ways it can be related to the “third way” of non-aligned international politics established by Nehru in India, and with the Nepal King’s plans for a “Zone of Peace” in the Himalayas. The majority of the population of Bhutan practices Vajrayana Buddhism as the main aspect of their lives, supporting a large percentage of the population who become monks and nuns through charity. The main point of the Buddhist King in positing Gross National Happiness is that he felt that the true wealth of the Bhutanese people was not fully valued in terms of GDP. For example, how much is the value of enlightened wisdom? For the Bhutanese, it is more priceless than gold yet it cannot be measured in economic statistics. Similarly, how valuable is an unspoiled natural environment, vibrant with biodiversity, where endangered species are preserved and live freely, and the monks pray for the enlightenment of all sentient beings? In comparison to the wealth generated by the exploitation of natural resources, the value of non-development is absent in GDP, signaling a major problem in its value and accuracy according to critics. “King Wangchuck’s idea that public policy should be more closely tied to wellbeing — how people feel about their lives — is catching on. ‘There is a growing interest in some policymaking circles in looking at these measures,’ says Richard Easterlin, economics professor at the University of Southern California. ‘We have been misguided in dismissing what people say about how happy they are and simply assuming that if they are consuming more apples and buying more cars they are better off.’ There are efforts to devise a new economic index that would measure wellbeing gauged by things like satisfaction with personal relationships, employment, and meaning and purpose in life, as well as, for example, the extent new drugs and technology improve standards of living.” (Mustafa, 2005) The defeat and discrediting of Marxism popularly in the West, and the marginalization of academics that espoused Marxism during the Cold War, can be seen as possibilities as to why reformers sought to build upon the Bhutanese idea of GNH in opposition to GDP. Yet, even more, this idea resonated as part of a great interest in the West to study Buddhism and to integrate holistic moral criticism into the discussions of globalism. Even non-Buddhists could see the reasoning and logic in the Bhutanese position, creating a vibrant debate over the two models of development in the sectors of international aid and governance. Nevertheless, for Kuznets this is nothing new or unusual historically. IV. GDP related to GDH Certain aspects of the GDP model that are taken for granted popularly among economists and government officials must be re-examined in light of the moral perspective advocated by the GDH position. The first relates to natural resources and the preservation of the environment. GDP values the exploitation of natural resources by industry as one of the most important aspects of national development, yet from the Buddhist viewpoint, this is one of the most destructive. The actual justice and logic of the contemporary commodities markets are also questioned when the limited nature of these resources is related to the time that it takes naturally to create them. For example, where oil and coal may take millions of years and untold number of human generations to form in nature, is it fair for one generation to seize and use these resources so wastefully that future generations may suffer? Natural biodiversity reflects billions of years of plant and animal evolution yet can be destroyed in mere decades by a selfish few, such as in the Amazon, where deforestation is seen as a key manner in which GDP is improved. Where in the calculation of GDP is the cost of the loss of natural biodiversity listed or the pollution of the environment factored in? Most generally, these environmental issues are not included at all in GDP calculations, nor is the value of a pure and unspoiled environment to future generations weighed against the short term gains enjoyed by a minority of corporate ownership. Where the exploitive aspects of capitalism meet the traditional Marxist critiques of alienation, inequality in the ownership of industry, inequality in the distribution of wealth, disproportionate suffering and gains as an inherent aspect of capitalist hierarchies, as well as other forms of criticism, there is considerable literature and debate historically including advanced socio-economic analyses. The Buddhist influenced GNH critique proceeds from a different philosophical basis but with similar utopian goals. “Happiness has usually been considered a utopian issue,” acknowledged Bhutan's foreign minister, Lyonpo Jigmi Thinley, at a United Nations Development Programme (UNDP) meeting in Seoul, Korea, in 1998. But he emphasized that because an “individual's quest for happiness and inner and outer freedom is the most precious endeavor, society's ideal of governance and polity should promote this endeavor.” (Schell, 2001) Thus, the Gross National Happiness critique is more oriented to the reform of Western democratic institutions and policies through changing the minds of individuals to holistic spiritual goals. As greater numbers of the populations of these democratic societies adopt a progressive standard of reform as a demand in political leadership, public policy and calculation of GDP could change to incorporate different methodologies intended to reflect the value of intangible cultural assets or natural resources. The concept behind Carbon Trading is similar to this in theory, though it also remains controversial and unimplemented as international policy. What is important about the dialog between GDP as posited by Kuznets and GNH as advocated by the Bhutanese is the fact that there is the possibility to change and revise policy based upon new awareness of issues or patterns of belief in a society. For example, “The independent London-based think tank New Economics Foundation is pushing the implementation of a set of national wellbeing accounts that would tote up life satisfaction and personal development as well as issues such as trust and engagement. The accounts would also include liabilities, such as stress and depression. The logistics won’t be hard, says Hetan Shah of NEF, because much of the data is already captured by the government.” (Mustafa, 2005) If stress and depression, aspects of alienation in the Marxist critique, become liabilities to capitalism, so too could natural destruction be penalized financially and economic relations reformed to reflect a new valuation of costs. To some it may seem superficial and artificial to add these measures to “pure” economic analysis, but this is reflective of the lack of critical awareness and self-reflection among economists who are often paid to provide justification for the status quo. “We have to think of human well-being in broader terms," said Lyonpo Jigmi Thinley, Bhutan's home minister and ex-prime minister. "Material well-being is only one component. That doesn't ensure that you're at peace with your environment and in harmony with each other.” (Revkin, 2005) That economics can be a moral issue is something that is encouraged or discouraged depending upon the school of thought one follows historically. For economists who wish to elevate their discipline to the status of a science, there may be an incentive to believe that statistics are without bias or refuse to accept a moral revaluation of costs based upon Buddhist or Marxist critiques. V. Conclusion The academic debate over the use, calculation, and validity of GDP in national discourse needs to address the criticism of the holistic approach as part of a greater effort to change the destructive policies of governance as they relate to global economic development, poverty issues, and environmental preservation. As Simon Kuznets writes in “Modern Economic Growth: Findings and Reflections”: “A country's economic growth may be defined as a long term rise in capacity to supply increasingly diverse economic goods to its population, this growing capacity based on advancing technology and the institutional and ideological adjustments that it demands.” (Kuznets, 2003) What is left unspoken is the primacy that this view gives to the commercial path or life over other moral or religious foundations for society. For example, the GDP calculations include an almost metaphysical bias as to the importance of technological development, and see the multiplicity of products in the society as an expression of freedom. The Marxists deconstruct this from various angles highlighting the unequal distribution of wealth, resources, and ownership in the society and the way that structures such as education, consumerism, and government are used by capitalists to perpetuate their minority control of society. The Buddhist critique rejects the fundamental materialism of Marxism by positing that the main goal of human life is to seek enlightenment and help other beings, with renunciation and non-attachment used as means to this goal along with meditation and other practices. From the holistic perspective, the loss of natural biodiversity and the pollution of the environment is a criminal aspect of capitalism that goes unpunished, while the statistics that are used to prove economic development only mask the controlling and life-depriving aspects of wage-slavery. Thus, the ideological debate proceeds from different foundations to challenge what is accepted as fact and understood to be true in economics just as in other disciplines of knowledge. VI. Sources Cited Bakshi, Rajni (2004). Gross National Happiness. Post-autistic Economics Review, Issue no. 26, 2 August 2004. Web. 4 April. 2011. ‹http://www.paecon.net/PAEReview/issue26/Bakshi26.htm›. Econlib (2011). Simon Kuznets (1901-1985). The Concise Encyclopedia of Economics, Liberty Fund, Inc., 2011. Web. 4 April. 2011. ‹http://www.econlib.org/library/Enc/bios/Kuznets.html›. Kuznets, Simon (1955). Economic Growth and Income Inequality. The American Economic Review, Vol. 45, No. 1 (Mar., 1955), pp. 1-28. Web. 4 April. 2011. ‹http://www.jstor.org/pss/1811581›. Kuznets, Simon (1973). Modern Economic Growth: Findings and Reflections. The American Economic Review, Vol. 63, No. 3 (Jun., 1973), pp. 247-258. Web. 4 April. 2011. ‹http://www.jstor.org/pss/1914358›. Kuznets, Simon (1971). Modern Economic Growth: Findings and Reflections. The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 1971. Web. 4 April. 2011. ‹http://www.jstor.org/pss/1811581›. Kuznets, Simon (1963). Quantitative Aspects of the Economic Growth of Nations: VIII. Distribution of Income by Size. Economic Development and Cultural Change, Vol. 11, No. 2, Part 2 (Jan., 1963), pp. 1-80. Web. 4 April. 2011. ‹http://www.jstor.org/pss/1152605›. Landefeld, Steven (2000). GDP: One of the Great Inventions of the 20th Century. Bureau of Economic Analysis, SURVEY OF CURRENT BUSINESS, 2000. Web. 4 April. 2011. ‹http://www.bea.gov/scb/account_articles/general/0100od/maintext.htm›. Mustafa, Nadia (2005). What About Gross National Happiness? Time Magazine, Published: Jan. 10, 2005. Web. 4 April. 2011. ‹http://www.time.com/time/health/article/0,8599,1016266,00.html›. Revkin, Andrew C. (2005). A New Measure of Well-Being From a Happy Little Kingdom. New York Times, Published: October 4, 2005. Web. 4 April. 2011. ‹http://www.nytimes.com/2005/10/04/science/04happ.html›. Schell, Orville (2001). Gross National Happiness. Henry Holt & Company, 2001. Web. 4 April. 2011. ‹http://www.pbs.org/frontlineworld/stories/bhutan/gnh.html›. Schumacher, E. F. (1999). Small Is Beautiful: Economics As If People Mattered : 25 Years Later...With Commentaries. Hartley & Marks Publishers, 1999. Read More