Tuesday, April 20, 2010

Om namo GDP aya namaha

“This house believes that GDP growth is a poor measure of improving living standards”. That’s the proposition in the live online debate being currently run by The Economist. You can access this debate here. At the time of writing this post 68% of the online voters agree with this proposition.

It seems rather the in thing to agree with the proposition. You can plausibly argue that there’s more to life than GDP. Gross National Happiness, first conceived by Bhutan the world leader in this concept, sounds appealing. Climate Change, Civil society, reduction in inequality – all seem to be nice concepts equally important to “living standards”. You can almost visualize the wrinkling of the nose at GDP, a very base and mercenary measure.

An opinionated blogger, such as this one, has a view, obviously ! And the view is largely based on the marvelous example of China.

The answer in China would be very clear. There is only one measure. GDP. Or rather growth in GDP. Full stop. Nothing else matters. Nothing will come in the way of achieving this. And look at what China has achieved with a single minded devotion to growth – a devotion so profound that it has replaced Taoism, Confucianism, Buddhism, etc as the predominant religion in China. I am not being flippant – the dominant religion in China is GDP.

There are some big advantages to achieving clarity, simplicity and strength in objectives. Deng Xiao Ping’s great contribution to humanity (not just to China but to the entire world) was this. Go for growth. Go for GDP growth. Go hell for it. Once this was clear, everything else flew from it. Dismantle state controls. Dismantle the awful consequences of the Cultural Revolution. Build Infrastructure. Allow migration of labour. Provide incentives to industry. Focus on exports. Keep costs low. Drive employment. I can go on and on. The ability of China to act and implement in such a breathtaking way is not just because of the political system they have chosen. Its also because they are very clear on what they want.

The end result is there for anyone to see. By any yardstick you want to invent, China will score higher than any other developing country. Some 200-300 million people have been lifted from abject poverty to a standard of living that would be the envy of every country in the developing world. And if you compare any yardstick you want (even ephemeral ones such as “happiness”) in terms of change over the last 20 years, arguably China will beat every country in the world including the US.

Back to the proposition – the proposition does not say "where" ? My response could be different based on which country or region we are talking about. The vast majority of humanity lives in the developing world. Therefore if I interpret the proposition to mean for the world as a whole, then it must be more applicable in a developing country setting.

My opinion is clear and unambiguous. GDP is the best measure for improving living standards. Even more than that, it is the ONLY measure. Its all fuzzy, warm and nice to talk about all sorts of objectives. For many many countries, especially India, they should forget about everything else. Just focus on GDP. That’s the only way to improve the living standards of your people.

PS - For the benefit of non Indian readers of this blog; the title of the post is a take on a Hindu religious chant to imply that GDP should be given an almost religious status !