Let Us Reconsider the Way that Economic Welfare is Measured

Context: There is a need to go beyond calculations of gross national output to take into account concerns of inclusive growth and climate impact.

Need for the shift from Gross Domestic Product (GDP) based growth calculations: Current economic growth measuring model has not been able to tackle the following challenges -  

• Livelihoods, savings and discretionary spending have been threatened during the Global Financial Crisis and the current pandemic.
• Rising Inequalities in almost all countries.
• Long term challenge of climate change.

• Climate change wreaking havoc through hurricane Amphan in West Bengal, 
• The hottest summer in six decades in the UK,
• A locust attack in Pakistan, and 
• A longer season of wildfires in the western United States.

• Often Misleading in nature: Nobel Laureate Simon Kuznets pointed out that the definitiveness of the results from GDP calculations is often misleading.

Exploring Alternate Models: A new language of “prosperity” and “welfare” will have to be explored rather than just relying on just growth.

• Gross national happiness (GNH): It embeds interesting ideas of harmony with nature and other such “domains” of happiness.

• Doughnut Theory off Economic Welfare: by Kate Raworth:

• The destination of economic welfare is reached when the goals of seven economic foundations are met without overshooting nine environmental ceilings.
• The inner ring of the doughnut represents the minimum social foundations to be met, and the outer ring of the doughnut represents a boundary or ceiling on environmental impact.
• It thus reduces risks and optimizes fuel usage.

• Attempts by the governments to enlarge the meaning of growth:

• The idea of “inclusive growth” is an attempt to focus on social foundations at the same time as increasing the growth of GDP.
• For E.g. A sectoral policy of emphasis or subsidy for solar power is an attempt to balance a country’s energy sources with more environmentally favourable alternatives.

• Decoupling: which means continued economic growth with continually declining material throughput.

• The decoupling refers to a situation where resource impacts decline relative to GDP in growth terms.
• For E.g. This is the case with declining crude oil usage growth as a function of GDP growth.
• Physical and mental health matters: Trust, security and a sense of community are vital to social wellbeing

Conclusion: The very word prosperity is made up of “pro” in Latin, meaning going well for us, and “speres”, in accordance with our expectations. we will have to add nuance to it in order to more accurately measure the welfare of individuals and communities.

P.S: “The welfare of a nation can scarcely be inferred from a measurement of national income as defined by the GDP,” said Simon Kuznets.