Development: GDP Growth Alone can Never Eliminate Poverty

The World is Blindly Chasing GDP Growth, as Development

The time has never been more opportune to reorient the goal of development towards genuine human happiness and well-being of all life. – Jigmi Y. Thirley, Bhutan

Schumacher - substance of man‘Precarious’ is the word that accurately describes the current status of our planet and its societies. Yet, countries across the world are running their affairs in the business-as-usual approach – for all of them, except Bhutan, development means economic growth described in terms of the gross domestic product (GDP). When we look around all we see is severe pressure on natural resources, eco­logical, societal and ecosystem degradation, potentially catastrophic climate change, excessive consumption of the affluent and extreme poverty on the other end, and growing inequalities both between and within nations. In fact, high poverty and unemployment, by nature, subsidize the business activities of the rich through low wages (usefulness of the poor). Underlying all these crises is the lack of a holistic view of development that would focus on the real well-being of all people and offer them meaningful happiness.

One really wonders: if human life is multidimensional why the hell we are stuck chasing GDP growth year after year in the name of progress or development? What is stopping us to think why we are consuming far too much natural resources than their replenishment rate?

It is Silly to Equate GDP Growth with Development

GDP grows by bad thingsSince GDP is a pure economic number and not an indicator of wellbeing, it cannot provide effective policy-making information. Simon Kuznets, a Nobel Prize winning econo­mist and an architect of GDP, noted that in order to assess the welfare of a nation it is necessary to ask not how much the economy is growing, but what is growing.

The development paradigm relies solely on unrestrained economic growth and GDP as the central measure of progress. The GDP when used as the central measure of progress in the current growth-based paradigm has serious limitations. GDP only meas­ures and aggregates marketed economic activity and does not therefore distinguish between those activities that promote well-being and those that degrade wellbeing. For example, an oil spill increases GDP because money is spent cleaning it up, although it obviously goes against society’s wellbeing. Similarly more crime, more sickness, more war, more pollution, more fires, storms and pestilence can all make GDP grow because they can increase marketed activity in the economy. Ironically, the very depletion and degradation of our precious natural assets to feed market demand frequently shows up as economic gain.

GDP also leaves out important and useful activities that enhance wellbeing but are outside the market. For example, the unpaid work of parenting does not show up as economic activity or GDP growth. But if the parents decide to hire someone for childcare, the GDP increases. Similarly, voluntary work appears nowhere in the GDP, though it contributes to society and the economy, and strengthens democracy through civic engagement.

Therefore, instead of relying solely on undifferentiated income growth as its basis, meaningful prosperity in the new paradigm must directly focus on people and what they require to make their lives worthwhile. It must go beyond material concerns and also deal with intangible dimensions such as the sense of identity, strong social networks, and the ability to participate meaningfully in society.

Poverty can’t be Eliminated in the Current Development Paradigm

GDP cant measure well beingThe world is still unacceptably divided between rich and poor. Around 1 billion people still remain in extreme poverty (income $1.25 or less a day) and there is severe disparity in access to basic services between rural and urban areas. We live in a world of growing inequality; over 80 percent of the global population lives in countries with widening income gap. Inequality damages the social fabric of the whole society – the effects are biggest among those lower on the social ladder, but the disadvantages of greater inequality are experienced to a lesser extent even among the better off. Indeed, countries with bigger income differences between rich and poor seem to suffer a general social dysfunction leading to political instability and conflicts. They are less cohesive, com­munity life is weaker, and people trust each other less. This is also causing international migration.

Poverty alleviation alone, however meritorious and noble, cannot effectively re­duce the widening inequities between and within nations. Poverty is only one side of the present equation of unfair wealth distribution. At the other extreme is the excessive consumption of the rich that is rapidly depleting resources, generating massive wastes, spewing carbon into the atmosphere, and destroying the ecological life support systems that sustain us. The rich are the bigger burden on nature’s resources than the poor; for instance

  • 20% of the world’s people presently consume 86% of its goods while the poorest 20% consume just 1.3 %.
  • The richest 20% use 58% of all energy and the poorest 20% less than 4%.
  • 20% produce 63% of the world’s greenhouse gas emissions while the poorest 20% produce only 2%.
  • 12% of the world’s people use 85% of the world’s water.
  • The richest 20% consume 84% of all paper and have 87% of all ve­hicles, while the poorest 20 % use less than 1 % of each.

Given the reality of living on a finite planet with limited resources, we cannot alleviate the extreme poverty of a billion human beings without curbing the excessive consumption of the billion at the other end of the income spectrum. Put another way, we now need a billion people to live in extreme poverty if we are to main­tain the lifestyles of the affluent. Humanity is already consuming resources and generating waste 60 per­cent faster than the planet can regenerate, absorb and sustain.

So, what is needed? A Holistic Development Model on the line of Bhutan’s gross national happiness. Let’s hope that Bhutan’s proposal on a ‘New Development Paradigm’ to the UN in 2013 would have some meaningful impact on the post 2015 international development agenda.

Explore Further

Redefining Development: From Mere GDP Growth to Holistic Development

Poverty is Multidimensional, So should be Development

About Goodpal

I am a firm believer in healthy people (mind and body both), healthy societies and healthy environment. I also undertake content writing and documentation projects. Please feel free to comment, share and broadcast your views. If you wish to write for this blog, please contact me at vj.agra@yahoo.com Thanks for stopping by. Have a Good Day!
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