Sat, Jan 09, 2016 - Page 8 News List

GDP growth is not equal to improved well-being

By Yang Chung-hsin 楊重信

Focusing on the economy means aiming for economic growth, and aiming for economic growth means aiming for GDP growth. GDP refers to the market value of goods and services produced domestically for use within a certain period of time.

When calculated from the expenditure side, GDP equals the total of household consumer spending, gross domestic investment, government spending and net exports (exports minus imports).

The rate of economic growth is expressed as the rate of change in real GDP. It infers the gross output of an economy, not economic welfare or social well-being in the broader sense, so GDP growth does not mean improvement in social well-being.

Simon Kuznets, who is known as the father of national income accounting, said in a report to the US Congress in 1934: “The welfare of a nation can scarcely be inferred from a measurement of national income.”

However, Taiwanese governments have always equated economic growth with improved social well-being.

Has GDP growth really brought an improvement in social well-being in Taiwan? The answer is no, because, in pursuing GDP growth, successive governments have overlooked numerous elements that affect whether social well-being is improved, including the following issues:

First, GDP growth has led to an ever-widening gap between rich and poor people.

Second, people tend to overlook that there is good GDP and bad GDP, thinking that bad GDP and good GDP are the same thing.

Bad GDP refers to GDP created by natural disasters, such as expenditure on disaster relief, medical treatment, reconstruction, etc; by consumption based on borrowing, such as credit card loans, mortgages and consumer loans; by environmental pollution, such as the purchase and installation of preventive equipment, pollution cleanup costs and other expenditures; by crime, such as spending on the police force and security equipment, the replacement of stolen or damaged items, medical treatment, lawyers and prisons; by traffic accidents, such as medical treatment, vehicle repairs, new vehicle purchases, increased insurance premiums and litigation costs; by fires, such as firefighting expenditures, medical treatment for injured people, the replacement of property, building repairs and rebuilding costs; by poorly planned urban development that leads to frequent trips within the city, longer commutes, higher transportation costs, vehicle purchase and maintenance costs, fuel costs and insurance fees; by allowing farmland to be used for building farmhouse villas, relaxing restrictions on developing environmentally sensitive land and unlawful land use.

Third, people tend to overlook the harm done by artificial disasters, the depletion of natural resources, loss of ecological capacity, environmental pollution, safety issues and traffic accidents.

The purpose of national development is to enhance the well-being of current and future generations.

Taiwan’s next administration should not only stress quantitative growth as measured by GDP, but also emphasize improving the quality of GDP by improving the conservation and security of land, reducing the depletion of natural resources, improving the quality of the environment, seeking social security and preventing the phenomenon of poverty in the midst of economic growth.

Yang Chung-hsin is a retired research fellow of Academia Sinica’s Institute of Economics.

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