Needed: a new yardstick

Gross National Product may be an inadequate measure of economic activity when environmental damage occurs

 
Last Updated: Sunday 28 June 2015

a country's national income is taken as a measure of its level of development. Development planners, economists and politicians frequently use components of national income like the Gross Domestic Product ( gdp ), Gross National Product ( gnp ), Net National Product ( nnp ) and so on for many different purposes. The national income is an indicator of the growth of the economy and its structure and also compares the progress of two economies. Yet it is considered to be an inappropriate measure of social welfare because it does not include non-material things.

By and large it is agreed that in order to measure sustainable economic welfare, we are usually interested in nnp not gnp before deduction of depreciation. The composition in terms of commodities and services of the national product include the lower or non-ethical values of some of the commodities and services, incomes from which are considered injurious to moral and mental health. A conspicuous example of this is the consumption of hard liquor and drugs and the use of tobacco. These act as negative factors in the calculation of national income and to that extent, it's role as an index of the size of national welfare gets distorted.

Economic development is a much broader concept than economic growth. A country like India should concentrate more on the development aspects that improve human life, rather than merely to focus on increasing national income. Economic growth is nothing but growth in production. Growing productivity is the engine of development. But what drives productivity has to be answered. The answer is technological progress, which, in turn, is influenced by history, culture, education, institutions and policies for openness in developing and industrial countries.

Technology is diffused through investment in physical and human capital and through trade. Strong evidence links productivity to investments in human capital and the quality of the economic environment. Hence, development demands a better standard of life and better quality of economic environment. India's economic plans assumed that income growth by itself would fail to reach many of the poor.

The social indicators that a country needs to consider are infant mortality, life expectancy at birth, literacy rate, gross primary school enrollment rate, persons per hospital bed, cropping land per capita, urban population, age distribution, persons per physician, access to safe drinking water, per capita energy consumption, per capita daily protein supply and calorie supply.

But these indicators should be dealt with separately or independently of the economic growth or national income. For example, India's per capita income in 1989 was calculated at us $350. But this figure may not explain anything about the welfare of the nation. Even if we have the data for growth rate of gnp it will not give the picture of improvement in the social indicators. Can we infer anything about the social indicators from per capita income of us $350?

The comparison between any two countries should be based not only on the concept of gnp , but also on the social indicators. There are so many cases that income increase is not succeeded by increase in welfare. Politically and economically India is acclaimed for championing the cause of developing countries. But in case of people's well-being, India is nowhere near even small countries such as Sri Lanka. In Sri Lanka, with so much internal disturbance, life expectancy at birth is 71 years, infant mortality per thousand is 21, literacy rate is 87 per cent, persons per hospital bed is 340 (all figures are for 1989). For India, life expectancy is 59 years at birth, infant mortality is 95 per thousand, literacy rate is 44 per cent and persons per hospital bed is 1,300 (figures for 1989).

Hence, for any economy, development should be the main criteria. For this purpose, the government should intervene as market forces fail here. The government should search for measures that lead to the development of social welfare. And this development should not be at the cost of our future generation.

The writer is a research fellow at the Institute for Social and Economic Change, Bangalore

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