The last emperor of GDP

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

A Chinese woman repairs shoes in the street. [Claire Backhouse/Flickr]

Gross Domestic Product is a measure of the size of a country’s economy. It represents the value of all goods and services produced over a specific period of time, with year-on-year growth generally considered a sign of good economic health, writes Éloi Laurent.

Éloi Laurent is a senior economist at OFCE (Sciences Po, Paris), a former aide in the French Parliament and for the French Prime Minister.

If one is to believe the latest calculations by the International Monetary Fund, 2015 is beginning with the spectacular news that China has overtaken the US to become the world’s largest economy, measured by its Gross Domestic Product (GDP). Several commentators have rightly pointed out that the method used to account for this new and premature global predominance, “purchasing power parity”, has many flaws. But they miss the bigger picture: GDP itself is deeply inadequate as a measure of societal success. China is actually the perfect illustration of the many reasons why we should go beyond GDP.

To begin with, the size of the Chinese economy tells us very little of the actual economic well-being of Chinese citizens. To account for that, we need a demographic criterion and income inequality indicators. It is then found that the per capita income in China is not only about ten times less than in Sweden for example, because of the relative abundance of mouths to feed, but that income is also twice as unevenly distributed. Once this double adjustment is made, China finds itself way behind developed countries.

But human well-being is obviously not limited to economic well-being. In such critical dimensions for development as health and education, China is significantly behind the group of the most advanced nations (in the middle range of the world’s countries according to the United Nations Human Development Index). More exotic indicators, like subjective happiness, relegate China at about the same rank (troubling fact: even though per capita income has increased fourfold over the past two decades, happiness indicators have tended to decline in China…).

When the focus is broadened to consider social progress, including the decisive issue of civil liberties and political rights, the situation appears even more degraded: China is among the 5% of the least free countries in the world, and its situation has deteriorated relative to other nations of the world in the last ten years, all the while economic growth was becoming exponential.

Finally and perhaps more importantly when sustainable development is considered, the massive environmental degradation that has taken place in China since the early 1990s casts serious doubt on the longevity of the new “first economic power”. The Chinese growth strategy in recent years amounts to self-destruction, with air and water as the direct victims of GDP growth and human health as collateral damage. To put it in the words of Minister Zhou Shengxian in 2011: “If our homeland is destroyed and we lose our health, then what good does development do?”

By growing the biggest GDP in the world, China has finally reached an outdated landmark. In so doing, it has jeopardized the human and sustainable development of part of its population and a significant portion of the planet’s resources. The good news for the future is that Chinese leaders have now accepted this reality: as a result, they are lowering their GDP growth target to enhance their development goals. They may think that developed countries are sore losers that change the rules of the game when they don’t win anymore. But if China no longer believes in GDP, we all win.

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