22 Aug 2018

Could we measure wellbeing instead of GDP?

From Afternoons, 1:25 pm on 22 August 2018

Next year's budget will be the Wellbeing Budget, the government says. It wants to focus on how we are doing rather than just gross domestic product (GDP) which measures how much we earn.

It's a nice idea, but can it work? Economic research group BERL is using its inaugural wānanga to explore what this would mean practically, especially given GDP continues to be the standard measurement tool.

View of colorful containers and cargo cranes in a port.

GDP is a narrow measure of a country's performance, Ganesh Nana says. Photo: 123RF

The agency's chief economist Dr Ganesh Nana told Afternoons' Jesse Mulligan that GDP is too narrow a measure to be meaningful.

“Its use is relatively limited in my opinion because there are so many ifs and buts around it.”

GDP is the value of everything the country has earned in a given period - wages, profits, dividends and so on added together.

“It doesn’t tell us who earned that income and who got that income, so it doesn’t tell you anything about the distribution of the cake it just tells you how big the cake is”, says Dr Nana.

This means activities which have a damaging side effect show up as income, but any associated costs remain hidden.

“It doesn’t tell you what you had to do to grow the cake.”

“If you happen to have chopped down a whole lot of trees and polluted the waterways to make your income, that’s not reflected in the GDP measure.”

Activity with no income attached also don't count towards GDP, so voluntary work and parenting for example appear to have no value - when, Dr Nana says, we know the opposite is true.  

“We’re very good at talking about productivity in New Zealand, and we talk about how low it may or may not be and we usually only talk about that in the GDP sense, but the reason our productivity is struggling, in my opinion, is around the social infrastructure.

“Many communities, literally, rely on voluntary labour - and once that voluntary labour dries up, for lots of reasons, we find communities in distress.

"That’s what causes people to become disengaged from an economy, eventually that lowers the productivity of businesses and our own collective prosperity.”

Dr Nana says policy-making is also impoverished as a result of too great a reliance on GDP.

“It assumes that anything not in the market and contributing to GDP is of lower value, so that’s why we get, dare I say, questionable policy decisions.”

It also makes it hard to argue for certain policies that might not at first have an obvious economic value, he says. 

“If you’re running an argument that you want to invest in reinvigorating te reo across New Zealand, it’s a difficult argument to push if you just go down the straight GDP route - that if it’s not going to contribute to GDP how is that going to lift our income?” 

But such an approach looks at only half the story, he says. The sense of belonging and community strengthening effect of such an initiative could have significant benefits.

“It may not show up in GDP figures, but will eventually will show up in overall well-being over the longer term.”

But Dr Nana says there is no other universally accepted measure.

“All economists will admit that GDP is not great but because we’re not courageous enough to venture outside our comfort zones, we haven’t got to the stage where we can look at other indicators.

“It’s something we need to think about a lot more courageously and more positively rather than putting it in the too hard basket.”

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