The Growth Delusion: Wealth, Poverty, and the Well-Being of Nations review: Straight talk on numbers

The Growth Delusion: Wealth, Poverty, and the Well-Being of Nations David Pilling Bloomsbury ₹499  

The Gross Domestic Product’s stature is growing. Governments tend to obsess over maximising it. If politicians in office flaunt GDP growth, those in opposition taunt the lack of it. The statistical concept has, much against its inventor Nobel-winning economist Simon Kuznet’s warnings, become a proxy for a country’s well-being. Arguably, few, other than economists, understand what GDP is.

The Growth Delusion, a new book by the Financial Times’ Africa editor David Pilling explains what it is; who invented it and why and how it is estimated. From China to India, Kenya and Iceland, the book is replete with examples of the uninformed pursuit of GDP growth and misguided policies and goals. Witty, chatty and jargon-free, the book speaks to those who ask: why, if the economy is growing at a world-beating rate, does life not feel better? If accumulated growth is a proxy for well-being, then contentment levels should have been at an all-time high, but it is not so.

A narrow measure?

GDP, a narrow measure of the goods and services produced in an economy over a certain period, offers a rather limited view of the world. Much of what is important to individuals — clean air, safe streets, steady jobs, sound minds, peace at home — lies outside its range of vision. Only goods and services bearing a rupee price, an imputed one at least, can enter the GDP. It can count bricks, steel bars, bicycles and other manufactured goods, but becomes fuzzy on haircuts, psychoanalysis sessions or music downloads. It doesn’t count at all, all that is outside of the moneyed economy. A bottle of Evian in the supermarket it can count, but the economic impact of a girl in Ethiopia who trudges for miles to fetch water from a well is statistically invisible to it.

Pilling neatly details many of GDP’s limitations. It’s a poor judge of value: To it, an antibiotic is worth pennies, even though a syphilitic billionaire from a century ago might have parted with a fortune for a seven-day course. It’s so crude that someone stuck in traffic for an hour would contribute positively to the GDP, but a mother raising children and keeping home doesn’t count.

GDP cannot distinguish between good and bad activity. If hospitals overcharge for supplies, that unethical behaviour boosts growth. Colombia that has traditionally counted drugs as part of its economic activity found its GDP decline following the demise of Pablo Escobar’s Medellin cartel. In 1987, Italians awoke to find that their economy had overtaken that of Britain’s to become the fifth largest in the world, on the Italian statistical agency’s improved measurement of the untaxed grey economy, including the mafia.

That an economy is growing says nothing about distribution of wealth. GDP growth can be achieved with endless production and endless consumption, but that does not imply that the growth’s fruits are evenly shared among the population. An economy may be growing solely because the rich are getting richer, even as the common people work harder and harder just to maintain their living standards.

The realisation that GDP growth alone is not sufficient led former British prime ministers Tony Blair and David Cameron to launch (not very successful) projects for measuring well-being. Blair’s Delivery Unit, aimed at measuring public services efficiency, was to have helped generate alternative measures, but public-sector staff started gaming the system. Hospitals improved waiting times by not letting patients through doors, since only on entering could they be deemed to be waiting. Targets for heart patients were met by treating the easy cases and shunning the harder ones. Schools were reluctant to admit the less gifted children. The problem with statistics is that they can create perverse incentives; they can be made to look good without necessarily improving the quality of service, Pilling writes.

What is the alternative?

If GDP is imperfect, then what is the alternative way to measure well-being? There isn’t one, Pilling concludes.

The book’s aim, he writes, is not to declare war on growth but to knock it from its pedestal. He argues that the advantage with GDP is that it aggregates and summarises economic information into a single number.

Despite its limitations, Pilling believes, GDP growth remains a useful policy tool. Rather than replace it, we ought to use a dashboard of metrics. After all, even Alan Greenspan, former chairman of the Federal Reserve, relied on men’s innerwear sales as a proxy for growth.

Pilling suggests using GDP per capita, the median income, which picks out the person right in the middle, the typical specimen, and inequality — because it’s not enough to know the status of the typical person but to get a sense also of those left behind.

He also recommends using quality-of-life indicators such as CO2 emissions. His point is that growth can only be the means, not an end by itself. Well-being needs more than growth.

The Growth Delusion: Wealth, Poverty, and the Well-Being of Nations; David Pilling, Bloomsbury, ₹499.

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Printable version | May 5, 2021 2:34:58 PM |

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