Prelims Capsule: Beyond GDP – Other Measures, MDGs and SDGs

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We began with basics of Macroeconomics, and in the previous post, we discussed about GDP and how it is calculated. As enumerated in that post, there are many challenges and drawbacks to using the GDP as a standalone metric.

GDP is like a speedometer: it tells you whether your economy is going faster or slower. As in cars, a speedometer is useful but doesn’t tell you everything you want to know. For example, it won’t tell you whether you are overheating, or about to run out of fuel.

Above all, the speedometer doesn’t tell you whether or not you’re going in the right direction. If you suggest to a car driver that you might be on the wrong road, and the response is “then we must go faster”, you might think that’s pretty stupid. Yet this is what happens whenever complaints about the state of the economy elicit a commitment to boost growth.

GDP does NOT measure:

• Health indicators: infant mortality, morbidity, suicide rates;
• crime
• poverty and inequality in income gap (women/men; poor/wealthy)
• Environmental health/decay and destruction of the natural environment, lack of concern for future generations.

Therefore several other indicators beyond GDPhave been developed by leading economists to be able to cover the other aspects of economy and get an overall picture of its growth and development.

Some of them are as follows.

• Index of Sustainable Economic Welfare (ISEW) and Genuine Progress Indicator (GPI)
• Inclusive Wealth Index
• Australian Unity Well-being Index
• Gross National Happiness (GNH)
• Green GDP
• Human Development Index (HDI)
• Happy Planet Index
• OECD Better Life Index etc.

Let us see some of them in detail.

1. Genuine Progress Indicator (GPI) – 1994

• Attempts to shift prevailing definition of progress from economic growth to people’s sense of quality of their lives.
• The GPI assigns value to the life-sustaining functions of households, communities and the natural environment so that the destruction of these, and their replacement with commoditized substitutes, no longer appears as growth and gain.
• GPI accounts for:
  • Unpaid work (housework, parenting, volunteer work and care giving) – Care Economy
  • crime and family breakdown
  • income distribution
  • resource depletion, pollution and long term environmental damage (wetlands, ozone, farmland)
  • defence expenditures
  • life span of consumer durables and public infrastructure and services
  • dependence on foreign assets
  • costs of road accidents, under-employment
• Quality of life has deteriorated at an accelerating rate since 1970 – the GPI went down as the GDP went up in the US.
• In Canada, as the GDP went up, the GPI has not risen but has stayed constant.
• The GPI does not yet measure human capital, social infrastructure/cohesion, genetic gene pool diversity, workplace environment, underground economy, or life-style induced disease.

2. Gross National Happiness (GNH)

• Gross National Happiness is a term coined by His Majesty the Fourth King of Bhutan, Jigme Singye Wangchuck in the 1970s.
• The concept implies that sustainable development should take a holistic approach towards notions of progress and give equal importance to non-economic aspects of wellbeing.
• The concept of GNH has often been explained by its four pillars:
  • good governance,
  • sustainable socio-economic development,
  • cultural preservation, and
  • Environmental conservation.
• Lately the four pillars have been further classified into nine domains in order to create widespread understanding of GNH and to reflect the holistic range of GNH values.
• The nine domains are: psychological wellbeing, health, education, time use, cultural diversity and resilience, good governance, community vitality, ecological diversity and resilience, and living standards.
• The domains represents each of the components of wellbeing of the Bhutanese people, and the term ‘wellbeing’ here refers to fulfilling conditions of a ‘good life’ as per the values and principles laid down by the concept of Gross National Happiness.

The GNH Index: What is it?

• The Gross National Happiness Index is a single number index developed from 33 indicators categorized under nine domains.
• The GNH Index is constructed based upon a robust multidimensional methodology known as the Alkire-Foster method.
• The GNH Index is decomposable by any demographic characteristic and so is designed to create policy incentives for the government, NGOs and businesses of Bhutan to increase GNH.

3. United Nations Human Development Index (HDI)

 

• The HDI is based on the assumption that economic growth/development does not necessarily equate to human development or increased well-being. This index measures the impact of growth (or lack thereof) on people rather than on the economy.
• The Human Development Index (HDI) was created to emphasize that expanding human choices should be the ultimate criteria for assessing development results. Economic growth is a means to that process, but is not an end by itself.
• The HDI can also be used to question national policy choices, asking how two countries with the same level of GNI per capita can end up with different human development outcomes. For example, Malaysia has GNI per capita higher than Chile, but in Malaysia, life expectancy at birth is about 7 years shorter and expected years of schooling is 2.5 years shorter than Chile, resulting in Chile having a much higher HDI value than Malaysia. These striking contrasts can stimulate debate about government policy priorities.
• It was developed by the UN Development Program. The rating can range from 1.000 (highest rating) to 0.000 (lowest rating).
• A high rating is above 0.890. Canada has rated first for the last four years (0.960) followed closely by US (0.942) which is ranked fourth, slightly behind Norway and France and tied with Iceland.
• The HDI measures health, education and income:
  • life expectancy
  • access to education and adult literacy
  • years of schooling
  • equitable distribution of income
  • GDP per person (gauges command over resources) is adjusted to reflect Purchasing Power Parity (PPP)
  • achievements in health
  • gender equity

Other Sub indicators generated by HDI are:

1. Inequality-adjusted Human Development Index (IHDI)

• The HDI represents a national average of human development achievements in the three basic dimensions: a long and healthy life, knowledge and a decent standard of living. Like all averages, the HDI conceals disparities in human development across the population within the same country. Two countries with different distributions of achievements can still have the same average HDI value.
• The IHDI takes into account not only the average achievements of a country on health, education and income, but also how those achievements are distributed among its population by “discounting” each dimension’s average value according to its level of inequality.

 

1. Gender Development Index (GDI)

The GDI measures differences between male and female achievements in three basic dimensions of human development: health, measured by female and male life expectancy at birth; education, measured by female and male expected years of schooling for children and female and male mean years of schooling for adults ages 25 and older; and equitable command over economic resources, measured by female and male estimated earned income.

1. Gender Inequality Index (GII)

The GII is an inequality index. It shows the loss in potential human development due to disparity between female and male achievements in two dimensions, empowerment and economic status, and reflects a country’s position relative to normative ideals for the key dimension of women’s health. Overall, the GII reflects how women are disadvantaged in these dimensions.

There is no country with perfect gender equality – hence all countries suffer some loss in achievements in key aspects of human development when gender inequality is taken into account.

1. Multidimensional Poverty Index

• The Multidimensional Poverty Index (MPI) identifies multiple deprivations at the household and individual level in health, education and standard of living.
• It uses micro data from household surveys, and—unlike the Inequality-adjusted Human Development Index—all the indicators needed to construct the measure must come from the same survey.
• Each person in a given household is classified as poor or non-poor depending on the number of deprivations his or her household experiences. These data are then aggregated into the national measure of poverty.
• The MPI reflects both the prevalence of multidimensional deprivation, and its intensity—how many deprivations people experience at the same time. It can be used to create a comprehensive picture of people living in poverty, and permits comparisons both across countries, regions and the world and within countries by ethnic group, urban or rural location, as well as other key household and community characteristics.
• The MPI offers a valuable complement to income-based poverty measures.

4. Green GDP

• Green GDP is a measure of the growth, calculated by adjusting the environmental implicationslike costs of depletion and degradation of natural resources of the growth in the conventional GDP.
• It takes into accountif the economy is prepared for the sustainable development.
• China was the first to have experimented with green accountingin 2004. China launched the processof Green GDP by replacing the traditional GDP as a financial productivity but dropped it in 2007 because factoring in environmental costs had a significant impact on the China’s perceived “economic growth”.
• In 2006, the Chinese Green GDP showed that the financial loss caused by pollution in China was 511.8 billion Yuan ($66.3 billion), which was 3.05% of the nation’s economy.

Green GDP in India

• The Ministry of Statistics and Programme Implementation set up an expert group in 2011 led by ParthaDasgupta from Cambridge University, to work out a framework for green national accounts in India.
• The Dasgupta-led expert group had submitted its report in March 2013, recommending that economic evaluation be made on the basis of a comprehensive notion of wealth, including aspects such as infrastructure and capital equipment, human capital and natural capital.
• This process was supposed to be culminated in 2015 but is still pending.

Accounting of Green GDP

• The System of National Accounts (SNA) is an accounting framework for measuring the economic activities of production, consumption and accumulation of wealth in an economy during a period of time. When information on economy’s use of the natural environment is integrated into the system of national accounts, it becomes green national accounts or environmental accounting.
• The process of environmental accounting involves three steps viz.
  • Physical accounting: determines the state of the resources, types, and extent (qualitative and quantitative) in spatial and temporal terms.
  • Monetary valuation:is done to determine its tangible and intangible componentsand
  • Integration with national Income/wealth Accounts: the net change in natural resources in monetary terms is integrated into the Gross Domestic Product in order to reach the value of Green GDP.

5. Gross Sustainable Development Product (GSDP)

• It measures the cost of growth and development developed by the Global Community Assessment Centre and the Society for World Sustainable Development(WSD)
• It is defined as the total value of production within a region over time and is measured using market prices for goods and services transactions in the economy. It is designed to replace the GDP.
• The GSDP measures:
  • economic impacts of environmental and health degradation or improvement
  • resource depletion, depreciation or appreciation or finding new resources (stocks)
  • impact of people activity on environment, on availability of resources and economic development
  • impact of global concerns on the economy
  • welfare, quality of life and economic development of future generations
  • expenditures on pollution, health, floods, car accidents
  • the impact of economic growth on biological diversity
  • impacts of social costs, health costs, on future generations and the nation’s income

Thus drawbacks of the GDP have led to development of several indicators creating further confusion as to which one is to be chosen for monitoring the progress. There was a need for an agenda to move in a direction for betterment of the world.  Thus the Millennium Development Goals were conceived.

Millennium Development Goals

• At the Millennium Summit in September 2000 the largest gathering of world leaders in history adopted the UN Millennium Declaration, committing their nations to a new global partnership to reduce extreme poverty and setting out a series of time-bound targets, with a deadline of 2015 that have become known as the Millennium Development Goals.
• The Millennium Development Goals (MDGs) are the world’s time-bound and quantified targets for addressing extreme poverty in its many dimensions.
• There were 8 Goals that were decided upon.
  • Goal 1: Eradicate Extreme Hunger and Poverty
  • Goal 2: Achieve Universal Primary Education
  • Goal 3: Promote Gender Equality and Empower Women
  • Goal 4: Reduce Child Mortality
  • Goal 5: Improve Maternal Health
  • Goal 6: Combat HIV/AIDS, Malaria and other diseases
  • Goal 7: Ensure Environmental Sustainability
  • Goal 8: Develop a Global Partnership for Development

The MDGs helped to lift more than one billion people out of extreme poverty, to make inroads against hunger, to enable more girls to attend school than ever before and to protect our planet. Yet for all the remarkable gains, inequalities persist and that progress has been uneven.Around 1.5 billion people in conflict affected countries and on the extreme margins of society were unreached by the goals and unable to benefit from the tide that lifted their neighbours.

Some goals were met and some fell short. So, the MDG’s successor – the Sustainable Development Goalswere adopted by world leaders at a summit in New York.

Sustainable Development Goals

• On 1 January 2016, the 17 Sustainable Development Goals (SDGs) and 169 targets of the 2030 Agenda for Sustainable Development — adopted by world leaders in September 2015 at an historic UN Summit — officially came into force.
• The SDGs, also known as Global Goals, build on the success of the Millennium Development Goals (MDGs) and aim to go further to end all forms of poverty.
• The SDGs are not legally binding, but governments are expected to take ownership and establish national frameworks, follow-up and review, at the national, regional and global levels, with regard to the progress made for the achievement of the 17 Goals.
• The Addis Ababa Action Agenda that came out of the Third International Conference on Financing for Development provided concrete policies and actions to support the implementation of the new agenda.Multi-stakeholder partnerships have been recognized as an important component of strategies that seek to mobilize all stakeholders around the new agenda.
• The global indicator monitoring framework, to be developed by the Inter Agency and Expert Group on SDG Indicators (IAEA-SDGs), will be agreed on by the UN Statistical Commission by March 2016. The Economic and Social Council and the General Assembly will then adopt these indicators.

I have memorised these 17 goals from a simple trick by imagining scenes from the movie 3 Idiots in which all three protagonists go to RajuRastogi aka Sharman Joshi’s home. Watch and connect the dots 🙂 Modify according to your convenience. Not that it is very important to memorize, but why take a chance with UPSC. They have asked MDGs once, they may ask SDGs too.

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