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A monetary measure of the value at market prices of goods and services produced within a (national) economy over a given period of time, normally a year or a quarter. The value of intermediate products — most notably raw materials — is excluded and incorporated in the market price of goods for final consumption or investment. No allowance is made for expenditure on the replacement of capital assets and the use of market prices incorporates the value of indirect taxes and subsidies. The subtraction of indirect taxes and the addition of subsidies produces GDP at factor cost. GDP may be valued at current prices or in real terms.
GDP provides a better guide to domestic production than gross national product (GNP) and tends to be favoured as a measure of performance by industrial economies because it excludes net income from abroad. In most countries (e.g. USA, UK, Japan), this adjustment makes little difference. But in countries like Kuwait, with large overseas investments, GNP is about 35 per cent greater than GDP, whereas in the Republic of Ireland and Brazil, for example, GNP is about 14 per cent less than GDP.
Like GNP, GDP is seriously deficient as a measure of economic activity and this is true even on its own terms as a numerical measure of the value of output and hence of income. Most seriously, it omits from valuation whole areas of work undertaken in the non-monetary part of the economy (e.g. Waring, 1989; Mur-gatroyd and Neuberger, 1997) whilst perversely counting as wealth creation what destroys the natural foundations of all productive activity (see, e.g. Anderson, 1991) as well as activities coping with the range of social pathologies treated in contemporary society. Not only that but the measure assumes that quantitative increases imply progress and yet, intuitively, there is a widespread sense that things are in many ways getting worse rather than better. Thus incomes are polarized, people in work are working longer hours (in Britain and the USA especially), unemployment is at historically high levels, the range of work- and stress-related illnesses is increasing, and congestion and pollution are now reaching levels at which serious attention is being given by policy-makers to ways of reducing them at a range of geographical scales from the local to the global.
One problem for such interventions is a lack of adequate data to measure the wider social and economic consequences of quantitative economic growth. Although a chaotic conception in measuring \'goods\' as well as \'bads\', GDP is unambiguous in what it includes and how it values the data included in its calculation. By contrast, alternative measures create problems both of inclusion and valuation. At the global level, the UNDP (annual) Human development report incorporates measures of life expectancy, literacy and educational enrolment ratios, for example, and a number of alternative national measures of welfare have been created in the US and the UK. At the local level, communities are creating local measures of quality of life relevant to their localities — so making the point that universal measures like GDP are inadequate as they are disembedded from the geographies in which they may take on meaning.
One of the most systematic attempts to create a more inclusive measure of the state of well-being is the Index of Sustainable Welfare (ISEW; New Economics Foundation, 1998). This measure is based on personal consumption but adds to that measures of the value of domestic production, certain forms of public expenditure (such as on education and health) and subtracts from it measures of inequality, private expenditure on health and education, the costs of commuting, measures of pollution and destruction of natural habitats and natural resources and costs of large-scale environmental changes such as those associated with ozone depletion and climatic change. Within the UK the index grew steadily — although not as rapidly as the growth of GDP — from the 1950s to the mid-1970s. Since then it has fallen — so diverging from trends in GDP themselves rather less secure in the consistency of their upward trajectory. Between 1976 and 1996 per capita GDP grew by 44 per cent whereas the ISEW fell, at an accelerating rate, by 25 per cent.
If what GDP measures and the meaning of changes over time are highly problematic, so too is the question of international comparisons. It is very difficult to use GDP to make such comparisons of the value of income or production as fluctuations in exchange rates, determined by the demand for and supply of currency in foreign exchange markets related to a range of processes including balance of payments disequilibria, capital transactions and government policy, are major distortions. One way around such problems (used by the UNDP in its Human Development Index, for example) is to modify the GDP measure by using Purchasing Power Parities (PPPs). PPPs adjust GDP by the cost of a given \'basket\' of goods and services. Even so, there are problems, not least because of the difficulty in choosing a range of commodities for the \'basket\' adequately to reflect the geographically varied nature of social reproduction in different societies and economies around the world and because many goods and especially services do not enter into international trade and so do not affect the determination of exchange rates.
Although there are serious problems of data and valuation in the construction of such alternative indices, the problem of reform is less that of data than of discourse and power (see values). As long as GDP (and GNP) are seen as indicators of economic power and prestige — especially at the national level — and, as long as the metric of the values flowing around circuits of social reproduction is shaped by a purely economic — and especially capitalist — discourse, other more inclusive and less chaotic indicators must remain, by discursive definition, inferior. (RL)
References Anderson, V. 1991: Alternative economic indicators. London and New York: Routledge. Murgatroyd, L. and Neuberger, H. 1997: A household satellite account for the UK. Economic Trends 527, October: 63-71. New Economics Foundation, 1998: Sustainable economic welfare in the UK. London: New Economics Foundation; UNDP (United Nations Development Programme) annual: Human development report. New York: Oxford University Press. Waring, M. 1989: If women counted: a new feminist economics. London: Macmillan. |
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