Is It Enough to Be Rich to Be Happy? The Concept of GNH (Part I)
For long economists have measured growth, prosperity, success and wellbeing, of nations using the Gross Domestic Product (GDP) indicator. Subsequently however doubts began being raised about the fact that whether only GDP is a true reflection of wellbeing, growth, development and ultimately, ‘Happiness’ of a country.
The concept of ‘well-being’ in economics has become an integral part of evaluating growth and prosperity. Beginning with using Gross Domestic Product (GDP) to measure economic growth; with the passage of time, however, the Human Development Index (HDI) and Gross National Happiness (GNH) Index, gained increasing significance for the purpose of evaluating whether we are ‘prospering’ in the true sense.
These indices analyze growth and happiness from various dimensions, including physical well-being, mental well-being, workplace well-being, political and environmental well-being, thus providing a more comprehensive and holistic approach to growth and development.
Evolution of Wealth Calculation: National Income
The concept of wealth, growth and well -being in economics has evolved over the years beginning with the Mercantilist school of economic thought, which considered only gold and silver to be a measure of prosperity. This was followed by Physiocrats who believed that agriculture was the only productive sector. The approach towards growth and ‘well-being’ of a nation took a leap forward with the landmark work of Adam Smith, ‘The Wealth of Nations’ (1776), which concluded that substantial growth in manufacturing, industry and inventions, along with trade, commerce and agriculture would lead to a country’s growth.
The classical school propounded economic liberalization and “lassiez-faire” with complete belief in the working of a free-market economy and also in the doctrine of free trade and the tremendous gains that ‘trade’ could bestow to a nation’s progress and well-being. Economic growth, was initially defined as “an increasing total output”, and was associated with increases in production, efficiency, productivity, capital investments, and industrial production.
The concept of Gross Domestic Product (GDP) was first developed and presented by Simon Kuznets in 1937 and is a widely accepted measure of economic growth. GDP is the broadest quantitative measure of a nation’s total economic activity and represents ‘the monetary value of all goods and services produced within a nation’s geographic borders over a specified period of time’.
The GDP is widely used not only for measuring a country’s growth but also for ranking countries into high, middle and low-income countries. Table below ranks the top 20 countries based on GDP in 2020 (US billion $).
PER CAPITA INCOME (PCI)
There are two indicators of the status and progress of a Country i.e. the GDP and the Per Capita Income (PCI). Since GDP is the total value of the output of a nation, it does not reflect the financial position of an individual. For this purpose, what is used is the PCI which reflects the average income of a person in a country or a specific region. It is calculated by dividing the country’s national income by the size of the population.
The GDP and PCI are the universally accepted indicators of growth. Another concept which developed almost simultaneously is that of economic development which is regarded to be a much wider concept than growth and includes indicators such as reduction in poverty and inequalities in income; improvements in standard of living, quality of life, provision of basic amenities. Economic development is defined as economic growth accompanied by structural, technological, institutional and other changes in an economy.
As growth took place it was also believed that any increases in GDP would also have a ‘Trickle Down’ effect and that its benefits would percolate down to all sections of the society. However, this effect was not necessarily witnessed leading to the realisation that GDP is not necessarily the best measure of welfare. It fails to take into account a number of aspects of welfare and well-being, such as income distribution, environmental costs and non-market activities. In the meanwhile, in mid-2000, the idea of “inclusive growth” was gaining prominence in many developing countries and especially in India, on account of the increasing disparities witnessed in the process of economic growth and development.
The limitations of the GDP approach necessitated the development of additional measures which would capture various aspects of well-being and give it a multi-dimensional approach, which eventually resulted in the creation of HDI and GNH. These measures seek to provide a broader base for evaluating the growth and progress of nations keeping in mind that human quality and happiness are also an integral part of well-being of nations and cannot be ignored while computing/measuring the same.
HUMAN DEVELOPMENT INDEX (HDI)
From measuring growth and development using GDP, economists and policymakers moved on to developing HDI in 1990 under the guidance of Mahbul-ul-Haq. HDI and “shifted the focus of development economics from national income accounting to people-cantered policies”. The idea was to develop a more comprehensive indicator of growth and development which would go beyond only the ‘value of national income’ as the indicator of growth and development.
The Human Development Report (HDR) of 1997 states that “the process of widening people’s choices and the level of well-being they achieve are at the core of the notion of human development”, The Human Development Index (HDI) is a statistic tool developed and compiled by the United Nations to measure various countries’ levels of social and economic development.
The HDI indices uses three parameters to measure growth and development and has imparted a humane aspect to the same:
- A long and healthy life: measured by the Life expectancy at birth.
- Knowledge: measured by adult-literacy rate (with two-third weight) combined with primary, secondary and tertiary gross enrollment-ratio (with one-third weight)
- A decent standard of Living: measured by GNI per capita (PPP US$)
The first Human Development Report was published in 1990 with leadership from Pakistani economist and finance minister Mahbub ul Haq.
Subsequently, the HDR report of 2010 went a step ahead and replaced the adult literacy rate and the gross enrolment ratio with mean years of schooling and expected years of schooling respectively. Since 2010, HDR has published the Inequality adjusted HDI, which adjusts a nation’s HDI value for inequality within each of its components (life expectancy, education and income) and the Multidimensional Poverty Index that measures people’s deprivations directly.187 countries of the world are ranked according to the HDI Index to reflect the status of the country using the HDI measure and India ranks 132 among 189 countries using the HDI parameter. Table below provide ranking of selected countries by the HDI.
In the process of capturing growth in the true sense , various other indices were also constructed like the Gender Inequality Index (GII) and the Human Poverty Index (HPI). Refinements and modifications were also made in the calculation processes from the simple-mean method to the geometric-mean method.
The HDI was a step in the direction of developing a more comprehensive approach to the idea of growth and development. These attempts lead to developing a very holistic measure of growth, progress and wellbeing i.e the Gross National Happiness Index (GNH).
Today, there is a strong realization that merely being rich and high-ranking on the GDP yardstick does not necessarily ensure a high level of economic development, a high rank by the HDI parameter nor a high rank in the ‘Happiness Chart’ measured by GNH .
Sunayini Parchure
Dr. Sunayini Parchure is professor of Economics. She was a former Vice Principal of Symbiosis College and headed the Department of Economics.
