Essay CT

8/12/2019 Essay CT

1/9

FOREIGN TRADE UNIVERSITY

ESSAY

MACROECONOMICS 1

Topic:

Some people believe that Gross Domestic Product (GDP) is an

inadequate measure of societal well-being and should be replaced by

the Human Development Index (HDI). Do you agree with them?

Full name : Vu Thi Ninh

Nguyen Viet Trinh

Class : A31-CLC-KT

Major : External economics

Instructor : Lecturer Hoang Tuan Dung

8/12/2019 Essay CT

2/9

M acroeconomics A31-CLC-KT

1

We need a new economic paradigm that recognizes the parity

between the three pillars of sustainable development. Social, economic and

environmental well-being are indivisible. Together they define gross global

happiness, said the Secretary -General Ban Ki-moon in the high-level

meeting Happiness and Well -being: Defining a New Economic

Paradigm at UN Headquarters in New York on the 2 sd, April, 2012. These

words remind us of the fact that not just economic well-being but social

well-being (as much as enviromental well-being) is also an essential factor

in rating a nations happiness, as well as that of a man. Therefore, the

important thing to do now is to find a way to measure social well being,

and should that be Gross Domestic Product (as some country has done)?

However, in actual fact, there are people who believe that GDP is

inadequate and it should be replaced by the Human Development Index

(HDI). . We find this opinion very convincing. 1

The United States Institue of Peace (USIP) d efined social well - being

as an end state in which basic human needs are met and people are able to

coexist peacefully in communities with opportunities for advancement. 2

But what is an end state? And we can base on which factors to evaluate

it? To answer these questions, the USIP also pointed out the 4 neccesery

conditions to achive this end state , which were: Access To and Delivery

of Basic Needs Services, Access To and Delivery of Education, Return and

Resettlement of Refugees and Internally Displaced Persons, and finally

Social Reconstruction. Therefore, whichever index we use to measuresocial well-being, it has to represent these conditions of a society.

Gross Domestic Product GDP is a very familiar definition to all of

us. Its a concept which belongs to the economics category. Generally,

GDP is the market value of all final goods and services produced within a

country in a given period of time. 3 More specificly, GDP measures two

things at once: the total income of everyone in the economy and the totalexpenditure on the economy s output of goods and services 4 Born after

8/12/2019 Essay CT

3/9


2

World War II, since then GDP itself has appeared to be the best single

measure of economic well-being in a society. It speaks to us how the

economy in each country is working, and from there the government can

bring out the right policies to adjust the economy. 5

Issues with GDP being a measure for societal well-being.

Opinionstage.com a website which oftens seeks for viewerss

opinion once did a small survey with the question: is GDP growth a good

measure for living standards? For the results, the answer that received 84%

vote was NO. Although it doesnt mention social well -being directly, this

kind of survey is one of many proofs that say: GDP is not an anaquate

measure of social well-being and major of people can see that. But why

exactly? 6

As we have said above, there are four conditions needed to achive

social well- being, and GDP doesnt represent any of those, at least not

directly. In 1968, when Senator Robert Kennedy was running for president,

he delivered a (now famous) speech in Kansas on the limitations of GDP:

"It counts air pollution and cigarette advertising, and ambulances to clear

our highways of carnage. It counts special locks for our doors and the jails

for the people who break them. It counts the destruction of the redwood

and the loss of our natural wonder in chaotic sprawl...Yet...[it]...does not

allow for the health of our children, the quality of their education or the joy

of their play.It does not include the beauty of our poetry or the strength of

our marriages, , neither our wisdom nor our learning, neither ourcompassion nor our devotion to our country. It measures everything in

short, except that which makes life worthwhile ."7 With the four

components: consumption (C), investment (I), government purchases (G),

and net exports (NX) its a matter of fact that when we look at GDP, we

can only see the perfomance of the overall economy, but there are no signs

of the living standard, life satisfaction or maybe the number of studentsenrolling in school, the homeless, etc. For example, here is a hot issue- the

8/12/2019 Essay CT

4/9


3

benefit of leisure time: people work 5 days a week, 8 hours a day, but if

they keep working on their free time instead of relaxing, more goods and

services will be produced, the GDP might rise, but we can not conclude

that they are better off, the lost of relax time may lead to mental damanges..

On the other hand, social well-being is all of those things that GDP isnt

concerned with.

More money-more chances??

However, there is an opinion we can not ignore: countries with higher

GDP, means a higher-developed economy, actually have more

opportunities to access to social well-being. Nevertheless, this doesnt

make GDP any more adequate in measuring social well-being. Lets have a

look at this graph, which showed GDP per head and life satisfaction in UK

- a developed country from 1973-2006. 8

Source: Eurobarometer, cited in Thomas and Evans, 2010, p.33

We can see from the graph that in this period life satisfaction in UK

remained highly, meanwhile GDP increased gradually. This was a proof

of a fact that the growth in GDP doesn t lead to the growth in life

satisfaction, or more generally, social well-being. Now lets take a little

time to look back at the definition of GDP. Its a Gross concept, which

means not only activities that have possitive impact but ones that create

negative effects on socials well -being also end up being recorded as

positive contributions to the GDP. Take for instance, crime. Rising criminal

activities can increase a country's GDP through greater expenditures towardmaintaining law and order (e.g., hiring of additional police members,
http://www.grin.com/object/document.192532/5e72ff0944b3532d19b74c68d4fa149f_LARGE.png

8/12/2019 Essay CT

5/9


4

purchase of guns, prisons, etc).9 Another example is the consequence of

having depleted forests because of logging activities. GDP is increased

when trees are cut down for lumber and other uses. In conclusion, , both

committing certain types of crime and buying petrol can have the impact of

a surge in GDP but will not increase welfare (Stiglitz, Sen and Fitoussi,

2009).

Human Development Index HDI appeared later than GDP, in about

1975. The United Nations has been using it to measure a countrys growth

and achievements in human development. The caculation of HDI is based

on three dimensions and four indicators: health (life expectancy at birth),

education (mean of years of schooling for adults aged 25 years and

expected years of schooling for children of school entering age) and living

standard (gross national income per capita). 10 Achievement in each area is

measured by how far a country has gone in attaining the following goal:

life expectancy of 85 years, adult literacy and enrollments of 100 percent,

and real GDP per capita of $40,000 in purchasing power parity terms. 11

Although highly desirable, these goals have not yet been fully attained by

any country, so the actual indicators are expressed as decimal shares of the

ideal .

8/12/2019 Essay CT

6/9


5

First of all, we need to point out that in many respects, the HDI has

been remarkably successful. The New York Times once took this comment:

only one measure has succeeded in challenging the hegemony of growth -

centric thinking. the Human Development Index. 12 Not just that but its

annual publication has attracted significant attention from the media and

national policymakers from a diversity of countries. Thus, though during

its time of being used, HDI has been criticized for different reasons but its

still highly appreciated, and one of the reasons for that is HDI continuously

reminds the government, organizations, firms,.... to focus on other aspects

of life beside economy, such as: education, living standard, health, etc.

Secondly, acording to the definition of HDI, we can see that it does

reflect some aspects of social well-being in a very direct way. In fact, one

of the great advantages of the index is that it allows countries to be ranked

in order of their achievements in human development. This already makes

it a better measure than GDP.

On the other side, reality has demonstrated the relationship between

HDI and social well-being. Normally, countries with higher HDI actually

has higher access to social well-being. Take for instance, Norway,

Australia, Netherland, United States, and New Zealand were the five

countries that ranked in the top in the Human Development Report 2011.

In the Better Life Index rate (between OECD countries), these countries

may not take the 1 st place in individual ranks , but if we compare their

performances with others based on some dimensions of well-being (as awhole) like: housing, community, education, health and life satisfaction,

they again stays among the top ones. 13 If you still have doubts, lets move

our attention to the lower places in the HDR 2011 , here we have China

(ranked 101/187) and India (134/187). For very high developed-economy

and great population, these two nations, nevertheless, have the literacy rate

in turns are: 92.2%(2007)14

and 74.04 % (2011 census)15

Also, the GlobalPeace Index 2012 has ranked China and India 89 th and 142 sd place over 158

8/12/2019 Essay CT

7/9


6

countries; meanwhile, the above-mentioned countries (except for the Unied

States) has all remained in high positions. Another thing we want to point

out here is China and India are in the top ten coutries with highest GDP

(China: 2/184 and India 10/184, listed by the International Monetary Fund-

2011) 16

However, nothing is perfect. HDI itself has some disadvantages,

either!!! For example, it does not allow us to understand why a country's

index changes over time- is it the result of a change in life expectancy or,

maybe, a change in GNI per capita???? We can not khow for sure!! Take

another instance, the aspects of well-being included in the HDI obviously

excludes other social dimensions, such as: equity, political freedoms,

human rights, or sustainability,etc. Despite all of these (and some proplems

that we dont mention here), from what we know, compare to GDP and

other indexs , HDI is still the most adequate way to measure social well-

being.

In conclusion, GDP with its slogan: money can buy it all, is already

an old index that doesnt keep up with nowaday s social development,

where happiness is created by many different composites. But no worry, we

already have a very good replacement - HDI!!!

8/12/2019 Essay CT

8/9

8/12/2019 Essay CT

9/9


8

14 List of countries by literacy , viewed 18 th October 2012, 15 Literacy rate in India , viewed 17 th October 2012, 16 List of countries by GDP (nominal) , viewed 6 th October 2012,

Word count :_ No references: 1715

_With references: 1946
http://en.wikipedia.org/wiki/List_of_countries_by_literacy_ratehttp://www.mapsofindia.com/census2011/literacy-rate.htmlhttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29http://www.mapsofindia.com/census2011/literacy-rate.htmlhttp://en.wikipedia.org/wiki/List_of_countries_by_literacy_rate

Documents

Essay CT