Pros and Cons of GDP and HDI

Topics: Human Development Index, Gross domestic product, Quality of life Pages: 5 (1726 words) Published: April 5, 2013
Difference people do difference things but have the same goal. That is to improve standard of living or human well-being for instead. So we need an index to indicate what we have achieved, what is the limitation that needs to be adjusted to orient the growth trend that makes the life better in the future. To meet up with this expectation, Gross Domestic Product (GDP for short) has been used as a method of evaluating the human well-being for a long time all over the world. But with the introduction of Human Development Report in 1990, the Human Development Index (HDI) has attracted great attention of policy and academic circles, as well as broader community around the world. This appearance also helps raising the question: Is GDP still an adequate measure of societal well-being and should it be replaced by HDI? This question has attracted a lot of people and cause a controversy among them. So let’s have a look at that matter of argument. As you know the standard well-being varies from time to time, from place to place so we should at first understand: What is well-being? In general, well-being is the pursuit and fulfillment of personal aspirations and the development and exercise of human capabilities, within a context of mutual recognition, equality and interdependence. To make it more detailed here are some key criteria that we should include to valuate well-being: Material living standards (income, consumption and wealth); Health; Education; Personal activities including work; Political voice and governance; Social connections and relationships; Environment (present and future conditions); and Insecurity, of an economic as well as a physical nature. That is the overview of well-being. What about the effectiveness of GDP in measuring societal well-being? To answer this question we should have a quick look at: How GDP covers overall the development of a country? Frankly to define, GDP is the market value of all final goods and services produced within a country in a given period of time. It basically has 4 components: Consumption(C), Investment (I), Government Spending (G) and Net Exports (NX) and its task is to look at the total income (which everyone is earning in the economy) and the total expenditure on the output of goods and services. Therefore with only 4 components is it sufficient to fulfill comprehensively wellbeing’s factors? The answer is not. As the definition above, it is easy to find out that GDP is expressed totally in figure about consuming, investment, government purchase and net export. So how can it reflect the things that cannot be transferred into number such as health, quality of education, Political voice and governance; Social connections and relationships; Environment and so on? Yet, the people who support for GDP debate that GDP does not include these things but all of them can be referred to by GDP. Because GDP is about the market value so in other word it measures the prosperous of a country. Therefore, a country with large GDP can afford better education; better health care or support for political voice and governance, strengthen the social connections and relationship (because people don’t have to keep in mind the self-interest) and expenditure on environment’s improvement while country with small one cannot. In short, GDP doesn’t directly measure those things that make life worthwhile, but it does measure our ability to obtain the inputs into worthwhile life. However, whether or not you want to recognize, GDP also has some other drawbacks that are very popularity. Firstly, GDP doesn’t include household domestic and volunteer work. It means that all the chores and volunteer work you have done weren’t calculated into GDP because they are not expressed in term of money although they helped the social better. Moreover, it doesn’t concern the black market arena while this accounts for a considerable amount of money. Therefore, by excluding the black market value, the GDP has decreased a lot....
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