Development: Measuring GDP

Transcription

1 Development: Measuring GDP PROFESSOR RODDY FOX DEPARTMENT OF GEOGRAPHY 1

2 Stanton (2007: 10) The most common measure of aggregate human well-being is now as it has been for over 50 years national income, usually expressed as per capita gross national product (GNP) or per capita gross domestic product (GDP). Criticisms of national income as a metric for social welfare have a long history and are by no means confined to economists UN s System of Statistical Tables shows how to construct national income accounts. 1990s GDP supplanted GNP as the most common measure of national income. 2

3 FORMULA FOR GDP Y = C + I + E + G Y - GDP C - CONSUMER SPENDING I - INVESTMENT MADE BY INDUSTRY E - SURPLUS/DEFICIT OF EXPORTS OVER IMPORTS G - GOVERNMENT SPENDING 3

4 INVESTMENT: INDUSTRY PURCHASING NEW PRODUCTIVE FACILITIES GDP MONEY FLOWS GOVERNMENT SPENDING EXPORTS - IMPORTS CONSUMER SPENDING 4

5 INVESTMENT: INDUSTRY PURCHASING NEW PRODUCTIVE FACILITIES GOVERNMENT SPENDING EXPORTS - IMPORTS SAVINGS INCOME SAVINGS TAXES CONSUMER SAVING 5

6 GDP Calculator Quiz Atoll K is small island nation. Its population total is 400, and it has 100 wage earners who earn an average of $50 per year. Each wage earner spends a total of $40 per year buying goods and services of which $3.00 goes to buying imported goods. The island exports a total of $800 worth of goods. The Government tax rate is 10% and all government money is spent on building infrastructure and supporting schools. There is only one industry (uranium mining) on the island and it employs every wage earner. The industry spends $600 each year on new mining equipment. What is the GDP? Y = C + I + E + G 6

7 Y = C + I + E + G C - CONSUMER SPENDING = I - INVESTMENT = E - SURPLUS/DEFICIT OF EXPORTS OVER IMPORTS = G - GOVERNMENT SPENDING = 7

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9 National Income needs to be assessed per capita. National Income needs to be assessed at purchasing power parity - If we had two atolls both with the same GDP/capita but one had a weaker exchange rate in Dollars it would appear to have lower GDP/capita when it doesn t. 9

10 Conceptual Problems of GDP or GNP measures of well being: Only measure market exchanges; Goods and services may, in fact be bads eg nuclear weapons and warfare; Counts health and illth eg addictions, oil spills; Natural resources are treated as free and limitless; Places no value on leisure time (unless you can be made to pay for it); Ignores freedom and human rights; Ignores income distribution within society. 10

11 Focuses on what we have in a single measure. But... There are many fundamentally different ways of seeing the quality of living, and quite a few of them have some immediate plausibility. You could be well off, without being well. You could be well, without being able to lead the life you wanted. You could have got the life you wanted, without being happy. You could be happy, without having much freedom. You could have a good deal of freedom, without achieving much... (Sen 1987: 1, quoted in Stanton 2007: 5) 11

12 The Humanistic approach focuses on capabilities with multiple measures. Amartya Sen and Martha Nussbaum are together credited with the origination of the capabilities approach to human well-being... Sen and Nussbaum focused attention on what human beings can do, instead of on what they have. Moving the discussion away from utility and towards capabilities allowed Sen and Nussbaum to distinguish means (like money) from ends (like well-being or freedom) (Stanton 2007: 9) 12

13 During the 1980s Nussbaum collaborated with economist Amartya Sen on issues of development and ethics which culminated in The Quality of Life, published in 1993 by Oxford University Press. Together with Sen and a group of younger scholars, Nussbaum founded the Human Development and Capability Association in With Sen, she promoted the "capabilities approach" to development, which views capabilities ("substantial freedoms", such as the ability to live to old age, engage in economic transactions, or participate in political activities) as the constitutive parts of development, and poverty as capability-deprivation. This contrasts with traditional utilitarian views that see development purely in terms of economic growth, and poverty purely as income-deprivation. It is also universalist, and therefore contrasts with relativist approaches to development. Much of the work is presented from an Aristotelian perspective. 13

14 The Human Development Index is an example of the capabilities approach. Capabilities are the abilities to do certain things or to achieve desired states of being. They are empowerment, the power to obtain what you desire, utilize what you obtain in the way that you desire, and be who you want to be. Goods, on the other hand, are merely things that you possess. Capabilities allow you to use goods in ways that are meaningful to you (Stanton 2007: 9) 14

15 Sen and Nussbaum s work stands out from that of their predecessors because of inclusion of human beings role as agents of their own well-being, and because of the centrality of human agency both as an end in itself, and as a means to other important capabilities or freedoms... The UNDP s Human Development Index (HDI) is an attempt to build on the insights of the humanist revolution, in effect developing an applied measure of social welfare... (Stanton 2007: 10) 15