Of Economy, Environment and Human Development: Failure of the GDP concept!

Gross Domestic product (GDP) as a progress indicator/paradigm was a part of the post 1940s era world reconstruction. Over the last 70 years GDP has become a construct for mesauring guman progress and all economic policy making is directed squarely at increasing/maximizing GDP! GDP as a part of national accounts was created by Richard Stone and James Meade with support from John Maynard Keynes as a means to keep track of the economic activity in a state.

However, the challenges faced by the world have now grown from economic/financial to environmental in nature. Then there are challenges on the human development side of things as well. Unfortunately, both the environment and the socio demographic human state is not measured as a indictator of progress. For example, the rich oil producing countries in middle east are the richest in nature and yet most parts of it have people living in the 17th century with no access to basic amenities. Likewise, China is a model for economic growth and yet its Human rights index and environment development index is amongst the poorest!

Interestingly Richard Stone, in his Nobel Memorial Speech in 1984 had himself stated that apart from economic growth, the analysis of a society's progress has to be based on socio demographic as well as the environmental phenoma. To be quoted "...environmental issues, such as poluution, land use and non renewable resources offer plenty of scope for accounting". Unfortunately, the world has continued to pay attention to the economic activity side stepping the environmental and human issues.

Given the socio demographic and environmental issues faced, the world today needs to create additional metrices such as Human Developmental Index and Carbon Footprint. There is a possibility that three metrics may not be preffered, in which case GDP has to be recaliberated to reflect genuine values to things like air and water pollution, deforestation, land degradation, use of alternate energies, health, education, crime etc. The result would be a new GDP number that would truely reflect value generated/consumed by human activities. A striking instance of how the new GDP calliberation would affect the old GDP system is the case of Uttar Pradesh. In just accounting for water quality in rivers in UP, 17.5% of the old GDP would be reduced! Imagine China going from a 11% GDP growth economy to 3% economy GDP growth economy because of the heavy inductrial pollution and bad human development indicators! US would go negative by two digit decimals!

What this would also mean is viability studies that are more rounded. For instance the economic surplus because of a new dam could get negated fully and more by the deficit in the ecological shifts and change in population demographics! That would provide an excellent allround development metric. It is time to move towarsd this sooner!