Beyond GDP

Wijayanto Samirin



Over the last couple of years, various international organizations have applauded Indonesia’s economic performance. Despite the volatility in the global economy, the country’s economy was still able to grow by 5.7% in 2013. This figure highlighted Indonesia as one of the fastest-growing economies in the region last year, second only to China.

Continuous growth following the Asian crisis in 1998 has transformed Indonesia from a $165 billion economy in 2000 to one worth $900 billion last year. Where the other ships have hit troubled waters, the ship named Indonesia is still able to sail rather smoothly. The applause is not baseless.

However, the achievement is not flawless. Not all Indonesians were able to benefit from the economic, and the income gap has grown.

Despite gross domestic product (GDP) per capita of around $14, close to 30 million citizens still live on $1.25 per day or less, and close to half of all Indonesians live on $2 a day or less. The growth is exciting news, but not for everyone – in reality, most have not felt the impact and continue to live their lives in difficulty from one day to another.

GDP is not everything

GDP is one of the most important economic indicators, there is no doubt. Economic outlooks by various international organizations, as well as experts, always use GDP as a key figure. We compare the achievements of one country to another by comparing GDP. Higher GDP per capita means success, higher GDP growth means progress.

The domination of GDP as an economic indicator is in part due to a utilitarian mindset among policy makers. Its basic tenet says that people make decisions in order to maximize the amount of goods and services they can consume; maximizing consumption is identic with maximizing satisfaction level, and satisfaction means happiness. In short, GDP means happiness.

Despite the fact that this tenet focuses too much on the material aspect of people’s lives, according to notable economist Greg Mankiw, utilitarianism is considered one of the 10 most important concepts in modern economics. This concept is still taught to economics students at university; they are future opinion leaders and policymakers. I have observed many economic textbooks available at book stores in Jakarta as well as on Amazon and have found that utilitarianism always surfaces in the important chapters.

GDP has a long history. Initiated by Sir William Petty in the United Kingdom in 1665, several countries in Europe later adopted GDP as a measurement of economic size. Nowadays, good-quality information almost all countries in the world is easily accessible.

In addition to its availability, both experts and laymen love that the GDP concept is also simple and tangible. Comparing GDP is very straightforward and, in contrast, we are not able to compare other indicators such as poverty rate, unemployment  and economic inequality apple to apple; adjustments have to be made. As result, GDP gained popularity, initially among economists. And then the self-fulfilling prophecy phenomenon took hold – if anything is discussed by anybody at any time, it will become popular and influential.

Well-being first

It is true that GDP is an important indicator, but it is not the most important one. GDP measures the size of the pie enjoyed by the people in a society or a country, and size does matter. But how we slice that pie and distribute the slices to society is often more important in determining that society’s well-being.

Interestingly, there is a strong correlation between inequality and well-being, as measured by the levels of social trust, security and happiness.

Inequality creates social segregation. Economic status is the new caste in modern society. People interact intensively with those in the same strata but much less with different strata. They attend different schools, live in different neighborhoods, eat at different restaurants, wear different clothes and speak with a different accent. The decreased interaction lowers the level of trust in the society en route to a decrease in well-being.

This segregation also creates social tension among those marginalized by society, and the feeling of being marginalized and being treated unfairly could stimulate criminal behavior. Crime is a well-calculated action. The low opportunity cost, compared to the potential benefit of involving oneself in criminal activities, stimulates criminal behavior. This is the reason why most criminal events involve those from a population’s marginalized groups. In turn, high crime rates negatively impact quality of life in societies.

What about happiness? Oishi finds that, despite the continuous increase in GDP per can you buy cialis online yahoo capita in the United States from 1972 to 2008, Americans have less happiness and the increase in income inequality is the main reason. The US is not unique – researchers in various countries have come to a similar conclusion.

Recently, the United Nations published World Happiness Report 2013, which named Denmark, Norway and Switzerland as the happiest countries in the world. It is no coincidence that these three countries have very equal societies. Indonesia is ranked 76th of 156 countries in the report and came in higher than the Philippines, India and China. It is not a bad achievement but the result also indicates that there is a lot to do.

Development in Indonesia has been focused too much on GDP rather than equality, despite the fact that most Indonesians prioritize well-being and harmony; it is, after all, deeply rooted in Indonesian culture and clearly stated in the national philosophy Pancasila, as well as the Constitution. Prioritizing inequality issues is the right path to take if the nation is to progress in the direction that the people want.

Wijayanto Samirin – Vice Rector of Paramadina University, and is the Co-Founder and currently Managing Director of Paramadina Public Policy Institute.

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