Leader in you - First Talk - GDP and happiness

17/04/2013 Gianmarco Rossi 1


GDP and happiness 17° April 2013 AIESEC Padova

Gianmarco Rossi


Agenda

• Why? • What is GDP?

• Why is it so used? GDP and welfare

• Limits of GDP

• Beyond GDP • Measuring happiness

• Conclusion


Why?


What is GDP?

The Gross DomesNc Product (GDP, PIL in Italian) is a measurement of the aggregate producNon of a naNonal country.

“GDP is the market value of all final goods and services produced within a country in a fixed period of Nme“


Why is it so used? GDP and welfare Economic theory: economic welfare is considered as “abundance”, the quanNty of goods and services that can be consumed.

– People preferences are given and not explained by the theory, they are not historically determinated.

– More consumpNon means more well-‐being, there is not the idea of “enough”.

– The well-‐being of every single person is only funcNonal to his own consumpNon, and doesn’t depend on others.

– Every person maximizes his consumpNon (and so his welfare), there are no other criteria for this behaviour.


Why is it so used? GDP and welfare

If we follow this reasoning:

1. The welfare of a person comes from his level of consumpNon

2. The opportunity of consumpNon comes from his income 3. The more a person partecipates in the producNon acNviNes the more is his income

4. The more is produced the more the social welfare increases

If economic welfare = happiness

Level of producNon = level of happiness




Limits of GDP

GROSS: part of the producNon becomes just a subsNtuNon of the goods and materials used in the producNon itself, so it doesn’t increase the opportunity of producNon

DOMESTIC: part of the income generated from the producNon goes to non residents (so it doesn’t increase the welfare of the naNonal households).


Limits of GDP


The GDP capital doesn’t include other “aspects” of the capital, like human or social capital. In the GDP (in parNcoular in the GDP per capita) there isn’t any informaNon about the distribuNon of the product.

Everything which doesn’t have a PRICE it’s NOT included in the GDP, for example:

-‐ Spare Nme -‐ Doing an hobby

-‐ Volounteering

-‐ Fresh air

-‐ Helping a member of your family

But it seems quite obvious that these things can increase the “UTILITY” of a person.

“The welfare of a na,on can scarcely be inferred from a measure of na,onal income”

S. Kuznets, 1934



Martha Nussbaum (“Crea,ng Capabili,es”) makes the descripNon of a 30-‐year-‐old woman living in a small city in India and asks: “A person who would watch the experience of this woman with interest, what would this person see? She is short, underfed, illiterate, her husband beats her. One day she decides to leave everything, because she was discriminated as a woman in the everyday life and in her work opportuniNes”

The GDP approach can hardly read the experience of this woman in a way which makes sense for herself.

Beyond GDP

Aker the discover of the big limits of GDP in measuring welfare and happiness, many other indexes have been developed.

1970: in Buthan starts a project to measure the happiness of a naNon, the Gross NaNonal Happiness index (GNH)


Beyond GDP

2009: the SNglitz-‐Sen-‐Fitoussi commission, nominated by Sarkozy, releases the report “Measuring of Economic Performance and Social Progress”. The European Commission finds out the measurements which have to be taken in the short run to represent growth.


Beyond GDP

2010: France and Germany orders the making of a report cal led “Monitoring economic performance, quality of life and sustainability”. David Cameron starts the project “Measuring NaNonal Well-‐ Being”.

USA “Key indicator system”.

Canada “Canadian Index of Well-‐being”.


Beyond GDP

2011: OECD proposes its “Beler Life Index” based on the SNglitz-‐Sen-‐Fitoussi report

What is changed?


Measuring happiness

Cultural changes: even if the limits of the GDP were well known, only aker the SSF report the problem had an intellectual legiNmaNon.

Economic context: 2008 crisis, economic recession and low (or negaNve) growth.


Measuring happiness

A new prospecNve in the well-‐being analysis: holisNc approach.

Well-‐being can’t be reduced only in the economic dimension, but it needs to take an holisNc approach to make real sense.


Measuring happiness

New indexes:

-‐ Health -‐ Housing

-‐ Balance work-‐life -‐ Environment


-‐ Hobbies -‐ Community -‐ Governance -‐ Level of educaNon -‐ Security -‐ …

Conclusion

The need of a new instrument to evalue the progress of our society is even stronger now, while the society is living a deep economic (and cultural) crisis. The aim is to give to policy makers a new, bigger and more complete view of the situaNon of the people, in order to find out where intervents are required. Even if it will take long and will be extremely hard, there is the hope that this new prospecNve won’t be soon lek, but that it will be able to change policies and behaviours.

The new idea of growth as “personal growth” (see A. Sen), the possibility of living a life according to personal preferencies and abiliNes, goes beyond the idea of growth as abundance; and the quality becomes more important than quanNty.


Conclusion

Australia, Canada, countries of Northern Europe show high living standards, not only for an high income per head, but also in the quality of environment, educaNon, community partecipaNon, health,… Why? The reason are mainly two, the absence of inequaliEy and the policies which have the primary aim of increasing well-‐being (not GDP).

J. SNglitz has strongly underlined that one of the main causes of the economic crisis is the missing of a global view in the economic policy, which was only focused on the GDP (on the quanNty) and has never been interested in the quality of the growth (the growth of well-‐being and happiness).

The problem of GDP and happiness doesn’t have to remain a staEsEc research, but need to become a real start to undestand that growth must be sustainable and equal.


THANK YOU!



Sources:

-‐ M. Montella, “Come sta la nostra società? E’ tempo di fare un check-‐in ” -‐ M. Mira D’Ercole, “Parlare di benessere in tempo di crisi” -‐ A. Sen, ENcs and Economics -‐ Simon Kuznets, "NaNonal Income, 1929-‐1932". 73rd US Congress, 2d session,

Senate document no. 124 -‐ Jon Hall, “Measuring what Malers to Make a Difference” -‐ Beler Life Index (OECD) hlp://www.oecdbelerlifeindex.org/ -‐ O. Blanchard, Macroeconomics -‐ hlp://www.beyond-‐gdp.eu/ -‐ hlp://www.sNglitz-‐sen-‐fitoussi.fr/en/index.htm -‐ hlp://www.grossnaNonalhappiness.com/

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Leader in you - First Talk - GDP and happiness