BtH: Does GDP Measure Human Progress?

Pardee School Dean Adil Najam, author Ehsan Masood, Professor Kehinde Ajayi and Professor Cutler Cleveland.

The Beyond the Headlines, or BtH, series at the Fredrick S. Pardee School of Global Studies at Boston University continued on October 26, 2016 with a panel discussion on whether Gross Domestic Product (GDP) is an accurate measurement of human progress. 

Panelists included Ehsan Masood, author of  The Great Invention: The Story of GDP and the Making and Unmaking of the Modern World, Professor Kehinde Ajayi from the Boston University Department of Economics and Professor Cutler Cleveland from the Department of Earth and Environment at Boston University. The conversation was moderated by Dean Adil Najam.

“We want to talk about how GDP came about, why it grew and why the various attempts at questioning it have really not been as successful as this rather hurriedly put together idea that was developed at a particular moment in time,” Najam said. “Why does this idea have legs when many similar ideas haven’t?”

Masood discussed whether GDP is in fact the great invention of the 20th century, and how the term GDP has become synonymous with words like progress and prosperity.

“It certainly was a great invention in terms of what it was trying to achieve, but whether this is the thing that has created prosperity is certainly something I don’t agree with,” Masood said. “GDP has become a byword for prosperity. That was certainly not the intention of its inventors, and yet by proxy and design it’s now become the one metric we look at to denote prosperity.”

Ajayi said that while economists widely recognize the flaws of GDP as measurement for prosperity, as a crude measurement it can be a useful indicator of progress.

“Economists themselves are very critical and have recognized a lot of the weaknesses of GDP. There are a lot of things inherently wrong with it,” Ajayi said. “One is just measurement, and even if you measure it well there are all  of these other issues because we’re just saying what is the aggregate amount produced by an economy, not what does the average person get. On the flip side — on average GDP is strongly correlated with all the things that we might think matter — life expectancy, literacy rate, well-being in terms of how much time people spend on leisure and quality of life in terms of environmental factors. As a crude measure it has its benefits.”

Cleveland said environmental factors that are difficult to quantify and measure, but are crucial to human and economic life, are largely ignored by GDP.

“The way it treats non-renewable resources is fundamentally wrong, and is inconsistent with the way it treats manufactured capital,” Cleveland said. “There is a suite of things that are completely off the radar screen. These are a number of broader ecosystem services that are not traded in market, but underpin life itself, including our economic life — a stable climate, protection of the ozone layer, the provision of fertile soil, crop pollination. All of these things, the glue that holds the planet together and sustains human life, are very difficult to measure monetarily. What’s the value of the ozone layer — well, it’s infinite in the sense that if it wasn’t there we’d all be dead. I think what we’ve seen is this fundamental problem with GDP that it leaves out and misrepresents the role that nature plays in sustaining human life.”