Increase in Economic Growth does not Necessarily Lead to an Increase in Human Well-Being - Essay Example

? A Critical Evaluation on the Claim that an Increase in Economic Growth does not Necessarily Lead to an Increase in Human Well-Being Institution: Course: Tutor: Date: A critical evaluation on the claim that an increase in economic growth does not necessarily lead to an increase in human well-being Economic growth as a measure of the economic activity has been in existence since the times of ‘wealth of the nations’ by Adam Smith. There are many definitions to the term economic growth; however, economists agree that economic growth refers to the growth in goods and services that a country produces over a period of time; this growth is measured in gross domestic product (GDP) (La Grandville, 2011, p536). GDP includes the goods and services that a country produces, that is to mean the personal expenditure of the people in the country added to the government expenditure and the net exports, which is the value of exports minus imports (Contanza, Hart, Posner and Talberth, 2009, 3). There have been various concerns by economists of how well GDP measures the well-being of individuals in a country with most of them arguing for differentiation between economic growth and economic well-being. This paper will therefore analyse critically the claim that an increase in levels of economic growth does not necessarily translate to increase in the well-being of individuals. The idea of well being of an individual can be either objective or subjective. In the objective well-being, individuals use material goods that are measurable such as buying a new house or car among other material gains. However, economic growth is not usually associated with improved material well being because some of the factors that cause the economic growth also cause negative impacts in the society such as exploitation, environmental degradation or unequal spread of the wealth. GDP as a measure of well being of individuals’ measure the value of intermediate goods, which are not enjoyed by people rather they are used to produce other goods and services. In addition, the exclusion of military expenditure from GDP since there is no measurable output undermines the improvement in the quality of life that people enjoy due to military operations to secure the boarders of a country hence reducing criminal activities (D’acci, 2011, 49). The subjective well being of is the state of happiness that is usually brought about by the enjoyment of the material wealth. In most of the instances, the subjective well-being, which is the psychological utility of the good that an individual has, is used to measure the variations in the objective well being of the individual. Research has found out that in some instances even with improves material wealth of a country, the happiness levels do not improve , however this claim has been refuted as in most instances the wealthier a country becomes the happier the residents are as wealth leads to increased levels of expressed happiness (Oswald ,1997, 1815). In addition, the levels of happiness that an increase in material wealth brings are usually attached to the social expectations and aspirations. Therefore even if economic growth increased the material wealth of an individual, the economic standards benchmark will rise, the individual will therefore remain at the same position or be worse off relative to the new economic standards and expectations which in return does not making him any happier. In addition, the increase in employment that is brought about by economic growth does not necessarily lead to increased well being of an individual (Kenny, 1999, 6). Research conducted by the international labour organisation has showed that over 40% of workers are classified as poor, this happens when the employment increases without accompanying increase in productivity of each worker, it has been confirmed in East Asian countries such as Vietnam where increased levels of productivity among employees have led to reduction in poverty levels in the country. The idea that economic growth does not necessarily lead to the improved well being of individual is supported by several factors, the main argument that dispute the claim that economic growth leads to economic well-being is the measure of economic growth, which the GDP, does not capture activities that do not appear in the market Brinkman and brinkman, 2011, 451). These activities included things such as services of homemakers, relief and charity work, underground transactions that include both legal and illegal activities that are not captured in the government records Mcdowell, 2012, p456). Economic growth does not measure the non-market activities in any economy, which might lead to improved well being of people in the respective economy. As stated earlier, in the calculation of GDP, statistics on non-market activities do not count, however these activities might have contributed to the improvement in the well-being of individuals. These activities are more common in poor economies, for instance, the people may help each other in their gardens without the expectations of monetary consideration, children helping their parents in taking care of their babies. In addition, in the villages people tend to be self-sufficient where they grow crops for their own subsistence use and provision of other essential services. Since such information is not captured in the calculation of GDP, it may lead to underestimation of the economic activities that are in a certain countries. Another issue that inhibits economic growth as an accurate measure of economic growth is the fact that economic growth lead to environmental degradation, according to Paul and Ann Ehrich formula I=P?A?T. The formula suggests that environmental quality (I) is a function of population (P), the GDP per capita (A) and technology (T) where GDP per Capita would be the levels of economic activity if the environmental quality was measurable in monetary terms (Dodds, 1995, p53). This would mean that the higher the economic activity in a country, the more the levels of economic degradation would be experienced in the country, for instance in the recent past, China has experienced tremendous growth in its GDP through the expansion of the manufacturing industry. However due to the environmental degradation that has increased with the increase in the manufacturing industry, the quality of air and water in the country has reduced drastically, these reduced qualities which reduces the well being of the individuals consuming them, this however has not been reflected in the GDP of China. Increased of exploitation of non-renewable mineral such as iron ore from the environment increases the GDP of a country, however this makes the country poorer with the quantity of the mineral that has been extracted. In order to capture the overall well-being using the economic growth levels, this reduction in the reserves should be included in calculation of the GDP however, it is usually not included, this therefore leads to over estimation of the well being of the individuals in the country. Attempts to include environmental issues such as air quality or resource depletion in calculating GDP have not bore any significance as there is a huge challenge of quantifying intangibles in monetary form. One of the ways that was brought forward was the taxation of the firms that were responsible for pollution however since environmental pollution affects different generations and regions, the people who may be forced to pay these taxes may not have contributed to the environmental degradation therefore unfair to them. Most of the neoclassical economists have argued that ecological inconveniences are not a constraint of economic expansion, but they can be handled with continued expansion. These economists have used the environmental Kuznets curve to support their claims; the curve shows that although in the initial stages of development environmental degradation will take place, when countries become wealthy they can use the money they have made to clean the economy. This proposition was found to have several limitations, the U shaped Kuznets curve was only found to apply in some regions, in addition some of the pollutants such as carbon dioxide were found not to reduce with increased levels of GDP (Xue, 2010, p9). The shape of Kuznets may also be attributed to the changes in international trade where instead of the rich nations using the wealth to create the environment, they may decide to import the pollutant intensive goods from other countries thereby reducing the environmental quality in the exporting nations. In measuring the GDP of a country, the statistics takes into consideration all the goods that are produced and consumption in the economy, however information on who produces or gets to consume the good is not measured. This means that the levels of GDP may be increasing and meanwhile the levels of inequality in the economy may still be increasing which in essence means the improved economic welfare is not spread proportionately. Economists have for a long time believed that increasing economic growth of countries will lift all the people in that country from poverty levels. World Bank has also supported this view by encouraging the developed countries to increase their consumption of good from the developing world, which will in turn spur economic growth thereby improving the living standards of the people (Durlauf & Blume, 2010, p 96). Recent research has however proved to the contrary where they have found out despite the levels of extreme poverty ( based on $ 1.25 a day) having reduced, relative poverty which is the gap between the rich and the poor has increased showing that the increase in economic growth has been more beneficial to the rich than the poor. This proposition is disputed by the idea that not economic growth that causes the gap between the rich and the poor to expand, rather other factors contribute such as the institutional weaknesses that increase the vulnerability of the poor by opening more loopholes for them to be exploited (European Commission, & European Parliament. 2009, p5). Universal access to education and health, which reduce equality, has been found to have a positive impact on the GDP of a country, which has been a result of increased economic growth in the economy. The idea that increase in economic growth increases the well being of individual has for a long time been controversial among economists which some supporting the proposition while others refute it, however with more studies it has been found out that increase in economic growth does not necessarily mean improvement in well being of individuals. The arguments that have been brought forward have been that the levels of happiness which is a measure of well being may decrease with increasing economic growth, the non market sources of income which improve the well being of individuals are also not captured in calculation of economic growth. Another proposition that shows that improved well being is not necessarily caused by increasing economic growth is that with increased economic growth the levels of environmental degradation that lowers the well being in an economy. Increase in economic growth of has been also seen to increase the levels of inequality however, different studies in different regions have produced conflicting results. References Mcdowell, M. (2012). Principles of economics. New York, McGraw-Hill Higher Education. D’acci, Luca. (2011). “ measuring well being and progress”. Social indicators research. 104(1). P47-65 Xue, Jin. 2010. Arguments for and against economic growth in: Department of Development and Planning, Aalborg University, Denmark. Second conference on economic degrowth for economical sustainability and social equity. Barcelona, 26th to 28th Mar 2010 La Grandville, O. D. (2011). Economic growth and development. Bingley, Emerald. http://lib.myilibrary.com?id=340641 Dodds, Steve. (1995). “Economic Growth, Environmental Quality and Human Well-Being: An introduction”. Social Alternatives. Vol 14(2). P53-59 Kenny, Charles. (1999). “ does growth cause happiness or does happiness cause growth?”. Kyklos. Vol 52(1). P3-26 Brinkman, Richard L and brinkman, June E.(2011) “GDP as a measure of progress and human development: a process of conceptual evolution”. Journal of economic issues. Vol XLV(2). P447-456 Oswald Andrew J. (1997). “Happiness and economic performance”. The economic journal. Vol107(11). P1815-1831 Contanza, Robert, Hart, Maureen, Posner, Stephen and Talberth, John. (2009). “Beyond GDP: The need for new measures of progress”. The Pardee papers. Vol4(1). P1-38 European Commission, & European Parliament. (2009). Beyond GDP: measuring progress, true wealth, and the well-being of nations : 19-20 November 2007, European Parliament, Brussels. Luxembourg, OOPEC Durlauf, S. N., & Blume, L. (2010). Economic growth. Houndmills, Basingstoke, Hampshire [England], Palgrave Macmillan. Read More