GPI, not GDP, should be the real measure of growth

If Gross Domestic Product (GDP) growth could guarantee peace and prosperity, we would be living in pristine times. After all, it is the primary indicator in gauging the health of a country’s economy. Yet global GDP growth – however mild it may be in these uncertain times – doesn’t seem to be making the world a more harmonious planet.

Put simply, GDP is the sum total of consumption, investment, government spending and net exports of a given country. Once all these numbers are crunched, there is some surplus that goes into a government’s kitty, which is/should be used for larger human development goals.

However, there is evidence to suggest that this is either not happening at a scale it should be or is merely benefiting a few at the cost of others.

The International Monetary Fund (IMF) says the world economy will expand 3.1 percent during 2016 and 3.4 percent next year. In the same report, IMF also says “governments should spend more on education, technology and infrastructure to expand productive capacity while taking steps to alleviate inequality”.

It is this inequality that has, for ages, caused conflict in societies and conflict always has a debilitating impact on economy. Yet this perpetual cycle doesn’t seem to end. It can also be argued that ending inequality doesn’t seem to be the objective of growth as is being approached.

The improving state of human health provides a good analogy. Despite the onslaught of diseases and lifestyle challenges, the average human life expectancy has been on the rise since the early 19th century, especially in developed countries. Going by the same logic, why shouldn’t average GDP growth improve social cohesion?

In other words, GDP, as a measure of economic progress, today raises more questions than answers. Shouldn’t economic progress give rise to more peaceful societies? Are growth and peace two different things? Should we admit, once and for all, that no matter how much progress we make, humankind can never remain peaceful?

If answer to all these is yes, then this only goes to support Thomas Hobbes’ social contract theory, in the Leviathan, which calls life in the state of nature as “solitary, poor, nasty, brutish and short”.

The peace dividend

Nasty and brutish we definitely continue to be, going by the new Global Peace Index (GPI). According to the latest GPI data, the world has become 2.44 percent less peaceful since 2008. This is the period during which cumulative GDP growth in developed economies ranged 5-6 percent.

The GPI study says the world became slightly less peaceful in 2016, with the average GPI country score deteriorating by 0.53 percent. This leaves only 10 countries today that can be considered completely free from conflict. The global impact of violence today is $13.6 trillion, equivalent to 13.3 percent of world GDP or $5 per person globally per day.

As is evident, GPI seems a more potent indicator of human progress simply because it has the capacity to negate the growth as indicated by GDP. If we don’t progress on GPI scale, GDP is of no value, at least collectively.

Critics of GDP also say that it merely measures income but not equality and growth but not destruction. GDP also ignores values like the environment and social cohesion, which is what the GPI has been highlighting in recent years.

The GPI study says that if the world decreased violence by only 10 percent, this could lead to generation of $1.36 trillion in annual economic resources and activity. This figure is more than total global foreign direct investment in 2014.

Investing in peace is critical to building a prosperous society, something that the mad rush for GDP seems to be undermining around the world. For this very reason, it makes more sense to watch and pursue the GPI Index and not merely the GDP.
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Ehtesham Shahid is Managing Editor at Al Arabiya English. For close to two decades he has worked as editor, correspondent, and business writer for leading publications, news wires and research organizations in India and the Gulf region. He loves to occasionally dabble with teaching and is collecting material for a book on unique tales of rural conflict and transformation from around the world. His twitter handle is @e2sham.

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