The Truth about GDP
Economic policy is heavily influenced by the need to increase productivity and profits. This is related to economic growth. Modern economies are unstable because the profit motive has led businesses to centralise, specialise, automate and expand which has all been heavily reliant on cheap energy from fossil fuels.
Gross Domestic Product (GDP) is the most commonly used measurement of the productivity of a country. GDP is equal to the total expenditures for all final goods and services in a particular period.
GDP is often used as an indicator of a countries’ standard of living because it is assumed that all citizens will benefit from higher economic activity. Politicians and other policy makers use GDP for decision-making purposes. Higher per capita productivity is a goal of most political parties – and in many cases it is the main goal.
There are however many limitations to the concept of GDP especially when relating it to sustainable development. One of it’s limitations is that it includes many unsustainable products and services and doesn’t include many sustainable products and services.
Some unsustainable products/services that are included in GDP are:
- Armed forces – for the defence and waging of wars
- Crime and the justice system (police, courts and corrections)
- Remedies to preventable environmental damage
- Health care for preventable accidents and illnesses
GDP also does not account for the quality and efficiency of production. Products that are made in an an inefficient and wasteful way will likely cost more than ones that don’t and will therefore increase GDP. Badly made products will not last as long and will need to be replaced at additional cost – and higher GDP.
Some sustainable products and services that GDP does not include are:
- Natural resources and services (fresh water, pollination, flood control, soil)
- Voluntary work
- Domestic work (child-care, housework, growing vegetables, DIY)
- Non-market transactions e.g. sharing, bartering and products such as open-source software and shareware
By valuing unsustainable products (e.g. war, crime and pollution) and not valuing sustainable products (e.g. natural services, sharing/bartering, domestic work) economists, and the economy they inform, are perpetuating the notion that ANY economic activity is productive and ANY non-market productivity lacks value and importance.
There are alternatives to GDP which factor for the limitations of GDP and they succeed to various degrees.
Only when all products and services are taken into consideration and valued based on true cost will we have a measurement that actually reflects the health and sustainability of an economy.