GDP or GNH?

GDP or Gross Domestic Product is the market value of all final goods and services made within the borders of a nation in a year. Economists widely prefer to use it as an inclusive measure of a country’s economic performance, particularly in term of economic growth. Previously, my teacher taught me that GDP per capita (GDP divided by the number of population in a country) is the best indicator (available) of the living standard of population in a country. He believed that people in a higher-GDP per capita country should enjoy better standard of living than people in a country with lower GDP per capita, and the standard of living tends to increase when GDP per capita increases. I agreed with him. However, when I taught in an introduction to economics class how useful GDP per capita is, some students disagreed with this concept.

Recently, Professor Joseph Stiglitz, a Nobel Laureate, said in the interview on the Thai television program that he had for long criticized that GDP was not a suitable indicator of economic performance because of its incapability of providing information on income distribution, non-market transactions and environmental deterioration. Then, the correspondence introduced GNH or Gross National Happiness to him and asked him whether we should use it as an alternative to GDP. The professor replied that it was still controversial and we needed further discussion.

I am certain that the correspondence did not hold a degree in economics. She has possibly learned only a little economics, or just heard someone mentioned GDP. Moreover, I am not sure whether she knows much about GNH, or just heard someone said about it, like students in my class, as it is popularly mentioned in Thailand currently. It is said that Kingdom of Bhutan is a typical example of a country, which relies on GNH rather than GDP as an indicator of its economic performance. I, like other Thai people, have frequently heard of GNH for 2-3 years on TV, but until now I have no idea what GNH consists of, and how to measure it.

World bank economists have lately tested the statistical relationship between GDP per capita and other important indicators pertaining to economic development such as corruption index, human capital development index, infant mortality rate, average life expectancy etc. in more than 150 countries. They found that GDP per capita is significantly correlated with them. Put simply, a country with higher GDP per capita tends to have less corruption, more productive human capital, lower infant mortality, longer life-length and so on. In addition, considering the list of GDP per capita by countries in 2008 provided by the World Bank, we see that the top 5 highest GDP per capita countries include Luxembourg, Norway, Singapore, USA, and Ireland, consecutively. On the contrary, African countries like Niger, Eritrea, Guinea Bissau, Liberia, Burundi, and Congo are ranked in the bottom. Obviously, people in countries in the first group are likely to enjoy the better living standard than people in countries in the latter group. Hence, we may be able to say that GDP per capita is the quite good indicator.

Presently, several scholars in Thailand suggest that the country should imitate Bhutan in that our economic development policies should be based on GNH instead of GDP or GDP per capita. They argue that Bhutan is happier and more peaceful than Thailand although Bhutan’s GDP is greatly lower than Thailand’s. There are so many economic experts talking like this that Bhutan seems to be the country exporting the idea of GNH. On the other hand, Dr. Sopon Ponchokchai, the president of Thai appraisal foundation, has shown many significant data in comparison between Bhutan and Thailand as follows: Bhutanese’s life expectancy is 66.13 years lower than Thais’ 73.1 years. Only 47% of Bhutanese are literate, while 92.6% of Thais are literate. Even though Bhutan’s GDP per capita is slightly less than Thailand (2/3 of Thailand’s GDP per capita), there are, in fact, more than 31.7% of Bhutanese who live their life under the poverty line, comparing with only 10% of Thais; Put differently, the gap between rich and poor in Bhutan is enormously wide. The unemployment rate of Bhutan is double of Thailand i.e. 2.5 for the former and 1.2 for the latter. Perceiving these new fact, should people who said that Bhutanese is happier than Thais rethink?

Lastly, I would like to give you the conclusion that the argument that GDP and GDP capita is not an appropriate measure of economic performance is widely known among economists and the opposition; some economists (like Professor Stiglitz) are worried that those relying on GDP per capita as an indicator of living will be misled. However, if we did not use the GDP, what else would be the better indicators?

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