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October 2021, No. 98


Hall of Fame

Character 

Among the countryís senior economic and banking managers, there are intellectuals and international managers who are up-to-date.

Dr. Seyed Ahmad Taheri Behbahani is one of the unique personalities in the world of science and practice.

I regret not paying homage to his recent book, "Mismeasuring Our Lives".

Dr. Taheri is on the verge of turning 90 and I wish him good health and happy days.

Seyed Hussein Sanaei
Chairman & Editor-in-Chief, Iran International Magazine

 

Mismeasuring Our Lives

All over the world people believe they are being lied to, that the figures are false; that they are being manipulated.

And there are good reasons for feeling this way. For years people whose lives were becoming more and more difficult were being told that living standards were rising. How could they not feel deceived?

ďNothing Is More Destructive of DemocracyĒ

ó Nicolas Sarkozy,
Mismeasuring Our Lives: Why GDP Doesnít Add Up
(2008)


As we have seen from the crash of 2008, GDP can mask poverty and or social unrest, as it is unable to record the number of people being in debt or out of job.


Several years ago, by chance I had an opportunity to see a fascinating book written by professor Ehsan Masood entitled ďThe Great Invention, The Story of GDP and the Making and Unmaking of the Modern WorldĒ. This marvelous book made me interested in the subject and urged me to translate the same into Persian for the benefit of the academia, central bankers, policy makers and the media.

This book is an interesting story about the history of appearance of GDP and the motivations of those who first created this economic index for measuring the growth of economy, hence it is claimed to show the development and prosperity of the nations, so they called it ďThe Great Invention of the CenturyĒ.

Despite the fact that since the end of the Second World War, GDP has been recognized and adopted as the favorite and principle index, by the world leaders and the major influential international bodies, as the most prominent and well accepted index for the measurement of the economic development and prosperity of the nations, but this scale, ever-since, has been challenged for its deficiencies, by the famous and prominent economists, who believed that this was not an adequate measure to cover all the major aspects of peopleís lives and to show the degree of their prosperity and or their poverty and depravations.

As we have seen from the crash of 2008, GDP can mask poverty and or social unrest, as it is unable to record the number of people being in debt or out of job. The most powerful example of a country where attractive GDP figures covered up deep social and economic problems was the well- known story of Tunisia. The country which was famous as the crucible for the unrests and the uprisings in 2011, known as the Arabs revolutions, and were frequently called as the ďArabian SpringĒ.

These revolutions started in various Arabian countries, when a young street vendor, named Mohamed Bouazizi, set himself a light on 17th December 2010 because of poverty. The man who was the sole breadwinner for his family, took such an extreme decision as he did not have enough money to bribe the cityís corrupt police to allow him to continue his trading.

 Until the day Bouazizi committed suicide, it was believed by the economists that Tunisia under the rule of Zine El Abidine Ben Ali was a prosperous and growing economy with opened markets to international trade. Tunisia per capita GDP was $4,169.00 in 2010, much higher than the years before, for which the government was admired by the major international bodies, including European Union and the OECD. The policies of Ben Ali were enriching a small Tunisian middle class, which had enough money to spend on more expensive things. This situation led to an increase in consumer spending. The businesses were also investing and income from exports was going up, particularly in clothing, crude oil, and high technology. What they could not see in this scenario was that about one person in eight of working age had no job. Because the figures of unemployment are not recorded in the GDP formula, and it has no means to measure the prosperity, happiness and the contentment of the people or otherwise. Therefore, Tunisia seemed to be the model of growing economy.

This example demonstrates another deficiency in GDP. This index doesnít show that there is rising inequality in a society. Even in the rich countries where GDP has been steadily growing, average household income has not been growing at the same rate. The resultant situation has shown that, since 1999, the growth and development in those economies has not translated into prosperity for the middle and lower classes. According to the sources, on 16 September, 2014, The New York Times warns in its headline that:

ďYou Canít Feed a Family with GDPĒ

Here are other examples of the negative aspects of the GDP formula:

The destructions and the ruins resulted from the natural disasters like floods and earthquakes, have positive values for raising the level of GDP of a country, due to the amounts of expenditures incurred for the reconstructions.

Heavy traffic jams on the roads which cause pollutions and poisonous smokes in the air which create respiratory diseases, counts positive in terms of GDP, as you spend more on gas being consumed in the cars, and a lot of expenses on doctors, hospitals and medication to cure the respiratory problems.


Sarkozy decided to have a meeting with three prominent and respectable thinkers all on the left of economic policy to ensure whether they would agree with his thoughts on GDP.


On the whole, this index was designed and adopted by the wealthy nations just to show the growth of the volume of their productions, the amounts of money spent on the daily consumptions by the households and also the amount of funds spent on the various governments projects. Above all, the wealthy governments are very keen and proud of seeing their names to appear at the high positions of the prestigious table of the worldís league. Hence, they never agree to change GDP with another index which might show their countries at the lower positions on the league table.

A great personality who seriously revolted against GDP and turned his back to what he had learnt at the macroeconomics class of Cambridge University at the time of John Maynard Keynes, was a young Mahbub-ul-Haq, who first serves as the Pakistanís chief economist and later on as the Finance Minister of his country. He was looking for an index that could take into account quality of life, citizensí level of education, and their life expectancy at birth. He later writes: ďAny measure [GDP] that values a gun several hundred times more than a bottle of milk is bound to raise serious questions about its relevance to human progressĒ.

Later on, when Mahbub-ul-Haq moves to USA to take up a position at the UNDP, he invites his old friend of the old days of Cambridge economics class, Amartya Sen, the prominent economist and later a Nobel Laureate, who was too, against GDP, to join him in designing the ďUnited Nationsí Human Development IndexĒ which has so far come closest to ďdethroning GDP.Ē

A canny and clever European politician who also was very much concerned of the effects of GDP, was President Nicolas Sarkozy of France, who strongly believed that GDP does not value those aspects of life that French culture represents for, and even it does not value those aspects of life that have no relations with money. Being impressed by the poor standards of living and the discontent and doubt of the people all around the world, of the economic data published by the authorities, he not only tried to discover the problems and the deficiencies of GDP, but also to find a remedy for them. His aim was ďto take a shot at no less than GDP itself.Ē

Sarkozy decided to have a meeting with three prominent and respectable thinkers all on the left of economic policy to ensure whether they would agree with his thoughts on GDP. He invited Joseph Stiglitz, the Nobel Prize winner and an influential personality in support of reducing inequality; also Amartya Sen, the co-inventor of the Human Development Index and now a Nobel Laureate too, and also Jean-Paul Fitoussi, Sarkozyís economics professor at Sciences Po, Paris.

In 2007, Sarkozy asked these economists to invite more of their colleagues and organize a committee and discuss the issue of measuring the economies and to summarize for him the latest possible alternative ideas for the present GDP index. This committee was set up under the name of ďThe Commission on the Measurement of Economic Performance and Social ProgressĒ comprising thirty university professors and various experts and prominent personalities from different influential world bodies. They spent eighteen months to study and analyze, and finally prepared a comprehensive report for President Sarkozy, on the ideal components of the indices and the criteria for measuring of economic performance and quality of Life. The committee members believed that the kind of metrics that are being used in measuring our economic performances, will shape our beliefs and our inferences on our standards of living. They recommended that we should shift our emphasis from production to well-being and quality of life.

The concerns raised by President Sarkozy and the creation of this Commission had attracted a global attention. There has been a resonance throughout the world; even before the work of the Commission, as Bhutan had created in this direction, a measure of GNH (Gross National Happiness), a symbol of total happiness for its nation.

The Commission has identified the following key dimensions for the standards of living and it has recommended that these standards should be taken into account simultaneously:

i. Material living standards (income, consumption and wealth);

ii. Health;

iii. Education;

iv. Personal activities including work;

v. Political voice and governance;

vi. Social connections and relationships;

vii. Environment (present and future conditions);

viii. Insecurity, of an economic as well as a physical nature.

All these dimensions, shape peopleís well-being, and yet many of them are missed by conventional income measures.

The Commissionís report covers in minute details all aspects of standards of living and the various dimensions of the indices, necessary for the measurement of wellbeing and the prosperity of the people and how to organize the economies of the nations.

The Commission concludes its report with a comprehensive list of recommendations on a wide variety of indicators for the assessment of sustainability on various aspects of the standards of living.

The Commission believed that their study was neither the beginning nor the end of a journey. They hoped that, what they have mentioned in their report would be a sort of motivation for the concerned economists and policymakers from different parts of the world to join them in this effort and come up with any other solutions for creating a better and acceptable index for the measurement of all aspects of the human life.

Let us hope that this would be a motivation for the Honourable academia, economists, statisticians and the media who are concerned for the social justice and the economic development in our country, and perhaps they would join these discussions and complete the unfinished journey of the selected Commission of President Sarkozy.

 

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