The Delusions of Growth

I Satya Sundaram

The book [David Pilling: The Great Delusion: Wealth, Poverty and the Well-being of Nations; Tim Duggan Books, New York, Pp 291. Price: $26] discusses the various dimensions of delusions about economic growth. It is helpful in understanding the obsession with growth.

It is realised increasingly that the GDP does not necessarily translate into well-being. There is nothing wrong with economic growth, but it should be properly harnessed to ensure distributive justice and sustainability. Economist Kuznets [who won Nobel Prize in 1971] is considered the Father of GDP. However, Kuznets was striving for a measure that would reflect welfare rather than a crude summation of all activity [p, 24]. He thought national accounts should measure only economic activity that was good for people [p, 29]. The huge expenditure on advertising, financial and speculative activities is unwarranted.

Countries try to increase the size of the economy by two ways—[i] trying to shift people into paid employment or attracting new labour in the form of immigrants; and [ii] raising productivity by getting those people to work more efficiently [p,50]. Of course, adding people is in many ways easier than raising productivity.

Unpaid work is not taken into account while calculating GDP. This has led to many anomalies. If a person lives in a rented apartment, the monthly rent is a part of the economy; if he lives in his own house, no rent is included in the GDP calculation. Thus, the home owning country would look poorer relative to the home-renting country. However, there is what is called imputation. Though one lives in one’s own house, the rent is calculated as if he is in a rented house. The imputed rent is included in the GDP. Finland is typical in showing unpaid housework as contributing some 40 percent to total economic activity [p, 57].

The story of modern inequality is complex. Inequality is rising within most countries, especially high -income ones. But, at the global level, inequality among some nations is actually declining. The gap between incomes in parts of Asia, on the one hand, and Western Europe, the US and Australasia on the other, has narrowed, particularly since 2000. This is attributed to rapid industrialisation in Asia, especially in China, and more recently in India [p, 96]. This is a welcome outcome as these two countries are important for the size of their population.

According to OECD, at the global level, inequality has increased for three main reasons: [i]wages have risen for those people who were already well paid; [ii] there are fewer jobs for less well educated people who have been dropping out of the job market in large numbers, and [iii] there are more single parent families [p,98].

One issue that has been engaging the attention of economists is: Does economic growth enhance human happiness? The current stress is on happiness studies.One good news is that the results of different surveys tend to match [p, 202]. The shift in stress is because the GDP is not going to tell anything that people want to know about welfare. The World Happiness Report came out in 2012.

Not sufficient attention is paid to unemployment which is a double blow because it affects not only income, but self-esteem and sense of purpose. A fall in income by a third has a negative impact on happiness [p, 207]. Health is also equally important. Layard has observed: “We know that the really big factors that influence happiness are mental health, which is largely important, and the quality of relationships in the family, at work, and in the community.” [p, 208]. He further said: “You will never see any difference in national happiness because of how long it takes to get from London to Liverpool.” [pp, 208,209].

In 1972, the Fourth King of Bhutan, Jigme Singye Wangchuck, a teenage monarch, made his country the first in the world to declare Gross National Happiness [GNH] in place of GDP. GNH is not focused primarily on subjective well-being or self-reported happiness. Instead, it conceives of an objective view of happiness with Buddhist overtones [p, 215].

GNH is related to some factors: psychological well-being, health, time use, education, cultural diversity, good governance, community vitality, ecological diversity and resilience and living standards.

The message of the book is crystal clear. India should give priority, not to huge statues and speed trains, but to basic needs and people-friendly environment.

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Vol 56, No. 1, Jul 2 - 8, 2023