Thursday, November 09, 2006

GDP vs GPI

Gross Domestic Product is the total output or total monetized value of all that a nation produces. The success of nations, like corporations, are often judged primarily by the growth of that total output. The value of a company is so linked to the growth of its output that the price of a stock in a company reflects more the rate of growth expected in the future than its actual present output. We are addicted to growth at the expense of overlooking the true costs of growth.

Someone must have tutored Nicolae Ceau┼čescu about the economics of growth. He correctly reasoned that people were the most valuable resource of an economy but incorrectly settled on increasing the quantity of human resources instead of its quality. The 1966 Decree found an easy solution to a wicked problem. He simply instituted bans on contraception and abortion and severely limited the acceptable grounds for divorce. The resulting disaster socially, culturally and economically cannot be overstated.
By the late 1960s, the population began to swell, accompanied by rising poverty and increased homelessness (street children) in the urban areas. In turn, a new problem was created by uncontrollable child abandonment, which swelled the orphanage population and facilitated a rampant AIDS epidemic in the late 1980s. (Wikipedia)
The presumption of scientific certainty being overlaid on amorphous processes has largely been the goal of economic theory and praxis. Such presumptions almost always result in disastrous unintended results. The bigger problem is often the problem that you can't see, not the one you can see.

Adam Smith, followed also by Marx and most economic theorists after them take it for granted that growth is the measure by which success is measured. But when you consider the costs of the effects of growth with an eye on resource depletion and environmental harm, not to mention social and cultural effects then things aren't so easy any more. The blindness to such costs of growth are easy to ignore because their payment often will not come due until after the present government is out of office so that the next government and generation will have inherited the problem. Or not until the current CEO has safely retired with the bonuses earned through bolstered stock prices brought about by growth.

The Genuine Progress Indicator may be a better gauge of real desired economic achievement because some cases of expansion are really examples of uneconomic growth. Under GDP calculations a massive oil spill off the coast of California would be positive for GDP growth since it would result in massive expenditures for services and goods to clean the shores and replace the tanker and the oil. GPI seems to lack the demonstrable calculability of GDP but it's a start towards taking into account the the real complexities of corporate and public policy. Governments and companies would be better to concern themselves with how to design platforms for genuine progress not just blind growth.

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