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What is the best indicator of development?

Ekaphone Phouthonesy
COUNTRIES across Asia have been affected by serious floods, earthquakes and other disasters and the first question that many journalists, economists, policymakers and the business community would like to ask is whether these disasters will have any effect on a country's GDP growth.
This indicates that economic data plays a crucial role in the framing of development plans. Former US presidential adviser Paul Samuelson agreed with this concept when he described GDP as "one of the great inventions of the 21st century’ that helps guide policymakers to set development priorities.
Although GDP is widely viewed as essential information and some suggest that governments should use it as the single indicator of national development, I will argue that governments shouldn't look at GDP growth alone as it cannot represent the real prosperity of countries.
In addition, I would suggest that development should be measured by the Human Development Index (HDI), which not only targets GDP growth but also makes sure that economic growth leads to improvements in people's lives. This UN sponsored development concept features the true essence of national development.
To argue that governments should adopt HDI as the main development measurement tool instead of GDP, I would like to discuss what GDP is and why it fails to represent national development and the reason why HDI is better than GDP.
What is GDP?
GDP was invented in the early 1930s by the Belarusian-American economist Simon Kuznets and his team as a tool to calculate the amount of goods and services produced in an economy over time. This economic data provides policymakers with a big picture on whether a national economy is expanding or contracting, so they can make the right decisions on development priorities.
Basically, GDP only tells us the amount of wealth that a nation generates but not the amount of happiness and quality of life that people gain. American politician Robert Kennedy criticised GDP, saying it acts as a tool which measures every economic activity but not what makes lives better.
Let's take a look at the GDP of some countries. In 2013, the US had a GDP value of USD 16.7 trillion while China and Japan had GDP values of USD 9.2 trillion and USD 4.9 trillion, respectively. Although the data shows the US is the largest economy in the world, it does not tell us whether the American people have better lives than the Japanese and
Chinese.
As GDP is the indicator of only the wealth of a nation and not the quality of life and sustainability, I think we should stop using GDP as the main development measurement tool.
What is HDI and why is it better than GDP?
HDI can replace GDP as the national development indicator for many reasons. The first one is that this UN-sponsored indicator does not only recognise economic growth but also measures quality of life. This new development theory stems from a belief that economic growth should be translated into the wellbeing of people.
The HDI specifically measures life expectancy and access to educational opportunities in countries around the world.
One of HDI's founders, Mahbub-ul-Haq, argued that economic growth should be a central component of national development. However, growth should not be an end in itself, it should be the means to improve people's lives.
Many countries have achieved success in ensuring that their economic growth is translated into the well-being of their people. One of best examples is Norway. Although this northern European nation had a GDP value of several times less than the GDP value of the US, which has the largest economy in the world, it was able to win first place in the 2016 HDI ranking while the US took 10th place.
When looking at some social aspects, Norway has a better life expectancy than the US. The average life expectancy of females in Norway is 83 years while for males it is 79 people, while life expectancy in the US is 81 for females and 76 for males, according to HDI Report 2016. Other evidence in this report shows that the Norwegians have a higher average income than Americans. This shows Norway is more developed compared to the US.
The second reason that makes HDI more suitable than GDP, is that HDI encourages governments to change their budget priorities away from things such as military spending and into education and healthcare, so that they can go higher in the ranking.
The most significant reason to focus on HDI is that improvement in education has the potential to promote sustainable economic growth.
An alternative view is that that if governments invest in human resource development, in particular in subsidising education and healthcare, countries will face an economic slowdown as authorities will need to increase business taxes to obtain enough financial resources to fund human resource development.
This perception is not accurate as it is too narrow. The fact is that although the government will have to spend a lot of money on education, improved human capacity would lead to sustainable growth of the economy.
I would like to emphasise that
supplying skilled and healthy labour is identified as a key factor that will not only help countries reform their economies but also actually sustain their economic growth.
HDI Report 1992 showed that Japan, Singapore, South Korea, China, Malaysia and Thailand are good examples in applying this development concept. These countries invest large amounts in education and health, which has enabled them to reform their economies into major exporters in the world market.
In conclusion, although GDP plays a significant role to help policymakers to define their development priorities, it should not be used as the main development indicator as it captures only a part of development features. Governments should use HDI as the development indicator because it values both GDP growth and human development, which is the true essence of national development.
This development concept also strongly emphasises that economic growth and human development are inseparable. Improvement of human resources will lead to the strong and sustainable economic growth of a country while strong economic growth will lead to better living conditions for its people.
Ekaphone Phouthonesy is a journalist at the Vientiane Times. He holds a Master’s degree in Public Administration from Flinders University, Australia.
Copyright: Vientiane Times/Asia News Network