Why GDP is never enough
In my previous article, “Blindsided By The Market,” I explained the need for robust institutions and a socially-oriented mindset to counter two side effects of the neoclassical market model—devaluation of the priceless and inequality of wealth. These side effects are called externalities. Left alone, the market has no mechanism to explain and support them. The idea of economic man is also precarious, not because it is useless but because it is incomplete. Yes, we’re individualistic, utilitarian, and rational, but we’re also social, altruistic and emotional.
Economic well-being and national economic growth have been preoccupations, if not the primary concerns, of individuals and societies. We’ve come to measure progress predominantly through gross domestic product (GDP). In the frenzy of economic activity, we forget that our holistic well-being lies in economic achievement and beyond. Therefore, we should enrich our GDP yardstick with measures that internalize the externalities and reflect our social, altruistic and emotional nature.
Unfortunately, not enough attention is paid to noneconomic indicators in the press or public discourse because GDP is what gets you a privileged seat at the table, whether at the G20 (a forum of the largest global economies) or Asean (Association of Southeast Asian Nations). We must complement GDP with measures that track the abilities of the state and society to provide the basic conditions for holistic human flourishing while keeping within ecological limits. Basic conditions include food, health care, education, water and sanitation, work, housing, and security. Ecological limits stop climate change, chemical pollution, ozone depletion and air pollution.
Researchers and advocates who believe that GDP is lacking have identified indices that include or focus exclusively on noneconomic outcomes that reflect human flourishing or floundering. Here are three of those indices:
ʎ UNDP’s Human Development Index (HDI) includes indicators on life expectancy, knowledge, and GNI (gross national income) per capita. Norway is the top country. The Philippines is 107th out of 189.
ʎ World Happiness Index (WHI) by the Sustainable Development Solutions Network covers GDP per capita, social support, life expectancy, freedom to make life choices, generosity and perceptions of corruption. Finland, another Scandinavian country, tops it. Norway is No.5. The Philippines is 52nd out of 153.
ʎ Social Progress Index (SPI) by the Social Progress Imperative measures basic human needs, like: health care and water; foundations of well-being, like education and environment; and opportunity, like rights and freedom. Again, Norway is on top. Finland is the 3rd. The Philippines is 98th out of 163. I prefer SPI because it excludes GDP from its indicators. As such, SPI allows studies of how social progress varies relative to GDP (and other economic indicators) and vice versa.
HDI, WHI and SPI are supportive of the 17 UN Sustainable Development Goals (SDGs). In the Philippines, at the enterprise level, multinational corporations Unilever, P&G, Nestlé and Colgate-Palmolive, and locals Ayala, Metro Pacific, and SM have declared their support for SDGs. The Securities and Exchange Commission released its sustainability reporting guidelines for publicly listed companies in 2018. The Bangko Sentral ng Pilipinas, through Circular No. 1085, paved the way for banks’ environmental and social reporting. Corporate responses to SDGs vary. Some are indifferent.
Others pretend to adopt sustainability practices for image-building alone. This pretension is prevalent enough to deserve its own label: greenwashing, the whitewashing of sustainability practices.
Some do only what contains costs or generates revenue. Finally, others move toward zero impact or even take an exemplar role in social and ecological sustainability.
The pursuit of most SDGs is either mandated by law or adopted through self-regulation. As consumers and producers, and in our noneconomic roles as spouses, parents, children, caretakers, friends, citizens, voters, collaborators and volunteers, we are catalysts for the broad adoption of sustainability practices. This pursuit is as much a collaborative effort as it is an individual one. The Pasig River will never get cleaned up if only some manufacturers treat their wastewater while others don’t. Basic human sustenance will stay beyond reach if only some pay minimum wages while others don’t. Corporate tax havens will continue if only some countries abide by a global minimum tax rate while others don’t. Worse, the select do-gooders turn uncompetitive, and the market punishes them.
I recognize that the ideas in this article and the previous one bear on many policies—cash transfer, universal health care and education, progressive taxation, labor, competition, corporate reporting, investments and credit, environmental and safety compliance, corruption, and much more. I don’t attempt to put forward any policy recommendations here. But, I do attempt to shine the light on the following:
1. Robust institutions and a socially-oriented mindset should inform the roles of markets, government, institutions, and our identities and values. They should enrich the way we think about our society’s challenges, priorities and solutions.
2. GDP is not and never enough. We are both individualistic and social. Our fulfillment heavily relies on understanding ourselves, so we must pursue a balanced mix of goals and hold ourselves accountable to holistic indicators.
3. Many social and ecological problems I mentioned are like COVID-19. We can’t solve them anywhere if we don’t work to solve them everywhere. Our futures are inseparably bound on these ones and can be solved only through collaboration.
Share, speak up, show the way
In closing, I invite you to share successes of good governance and strong institutions. Share successes of socially-minded initiatives for poverty alleviation, education and health care. Speak up against mismanagement, social inequity and ecological abuse. Pick your fights, but speak up. Show the way to providing basic conditions for holistic human flourishing within ecological limits. Good governance, social concern, environmental care start with the individual but inspire others only when authentically displayed. INQ
The article reflects the personal opinion of the author and not the official stand of the Management Association of the Philippines or MAP. The author is a member of MAP NextGen Committee, founder and CEO of technology firm Synerbyte Ltd., and author of the book “Sh*tty Places & Selfish People: 7 Rules of Engagement.”
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