Measuring social welfare:
GDP or HDI?
FULL NAME: Bui Lan Phuong- 1111150187
Nguyen Thi Hoa- 1111150099
FACULTY: Economics and International Business
For the past few years, interest in aggregate or composite indicators of economic and social well-being at the community, national and international levels has grown greatly. For example, the annual release of the United Nations’ Human Development Index (HDI) generates considerable media interest, particularly in Canada. It is, therefore, often in debates on the inadequacies of Gross Domestic Product (GDP) as a welfare measure. The main question is that whether GDP, which is already and frequently used, or HDI, which consists of more factors including GDP, more suitable and accurate to rank countries in terms of social well-being. To start with, social well-being is an end state in which basic human needs are met and people are able to coexist peacefully in communities with opportunities for advancement. This end state is characterized by equal access to and delivery of basic needs services (water, food, shelter and health services), the provision of primary and secondary education, the return of resettlement of those displaced by violent conflict, and the restoration of social fabric and community life. This term, consequently, is the leading comprehensive to rank countries. Taking GDP into account, it is the market value of officially recognized final goods and services produced within a year. GDP is equal to Consumption + Gross Investment + Government Spending + (Exports – Imports), or GDP = C + I + G + (X – M). GDP per capita is often considered an indicator of a country‘s standard of living. To be more specific, GDP does not measure people’s well-being, but rather, as everyone has already reckoned, the well-being of the economy. In addition, it indicates the value of what has been produced in the economy over the year, thus, telling how much stuff the nation has. GDP is, apparently, the easiest measurement thanks to readily available data. However, it only illustrates how well off people are in the sense of material prosperity, not the quality of environment, wealth or average level of education. Conceivably, there is no other headline that captures the essence of GDP better than the Reuters headline after the catastrophes of hurricanes Katrina and Rita. The disasters ravaged the citizens, over 850,000 homes damages, thousands of people becoming refugees, devastation of over 1.3 million acres of forests, avoidable deaths of 1,836 men, women and children, and more unthinkable residual destruction. This damage through the GDP prism injected billions of dollars into the economy and is seen as economic benefit, completely ignoring the negative impact upon people and the environment. Another instance, America borrows money from abroad to sustain the economy. The main avenue for economic sustainability is by producing cash through debt, by sale of US Treasuries. This activity contributes to the GDP, alas, the debt has to be repaid. Americans mainly go into debt for consumption not capital investment. Herein, this national and personal debt must ultimately be paid back; this downside of excessive debt is not reflected in GDP. One more disadvantage is that GDP does not include any services of non-financial transactions like volunteer work, elderly parental care, child care and such are not measured. Whereas, the initial economic activity used to generate the waste was added to the GDP, the ensuing clean-up will again add to the GDP which is apparently seen in the American Environmental Protection Agency’s Clean-up Program. China, for instance, was the world’s number one emitter of toxic carbon dioxide during the year 2006 as a result of its manufacturing and industry-related activities. While this contributed to overall GDP of China, its people were still suffering working and living in polluted areas.Regarding HDI, it is a composite statistic of life...
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