Explain why Gross National Product is an

inadequate
indicator
of
development
today?
By the end of 1940s new era of development begins, in which
nations have equated economic growth with progress.
Economic growth is an increase in the production and
consumption of goods and services, and it is indicated by
increasing Gross Domestic Product (GDP) or Gross National
Product (GNP). GDP is the sum of the market values, or prices,
of all final goods and services produced in an economy during a
period. Gross National Product, or GNP, is the sum value of all
goods and services produced by permanent residents of a
country regardless of their location. It is the most important
measure in measuring the economic well-being of states, it has
a heavy impact on the decision-making of firms, consumers,
investors and governments and it is extremely popular in the
media. However, in light of vast changes in society, the
environment, and the global economy, many question whether
GNP is an adequate indicator of the well-being of countries and
their citizens.
GDP/GNP is a figure, which is generally recognized and
available for nearly all countries. It is a single figure,
which has a huge load of hints about not just the economy but
also the general living standard in a country. GNP explains
standard of living in a country but fails to include quality of life.
Standard of living generally measures through GNP only while
quality of life factors like equal protection of the law, freedom
from discrimination and freedom of religion etc. are more
difficult to measure and are particularly qualitative. It will be
wrong to say that a country whose GNP or standard of living is
high will also have good quality of life.
One of the limitations of GNP is that it does not give any sign of
income distribution. Although GNP may be increasing, this
wealth may be only going to a select few in the economy,

which decreases equity. We are living through a time in which

we are witnessing an increasing gap between mean income and
median income, meaning the rich are getting richer and the
rest of us are getting poorer. A good example for this is China.
While the GNP of China shows a very good rate of increase, it
does not show the fact that a majority of the rural areas still
suffer from poverty and lack of development. Moreover, in
many societies including our own, women in all positions and
across all sectors continually earn less than their male
counterparts .
Furthermore, non-market activity is not accounted for in GNP.
Many services people have received from family members in
the past for free are now purchased on the market. This may
translate to a rise in income and standards of living, although
this is not the case. Non-monetary services contribute an
important role to economic activity, yet they are not reflected
when calculating GNP.
More importantly, one of the most fundamental limitations of
GNP is that it fails to take into account the effect economic
expansion
has
on
the
environment,
which
has
issues concerning sustainability. If we continue to deplete these
resources, they will no longer be available for future
generations to benefit from. We are facing a looming
environment crisis, especially over concerns of global warming,
yet carbon emissions are not reflected in GNP. Clearly, if the
environmental costs of production and consumption were
reflected, measures of economic performance would look vastly
different
While it is important to understand what the GNP does not
measure, it is equally important to articulate the negative
elements that it does measure. In our day-to-day lives, an
increase in crime rates results in more expenditures on police
and accordingly increase in GNP; war and other international
tensions increase arm expenditures. Thus, GNP calculates
expenditures on above situations as economic expansion.
Despite its limitations, GNP is hard to replace because it
provides one summarized figure, which is comparable between
nations. In a single number, you get an idea of whether the
economy is expanding or contracting, and this can

be comparable over time. However, since GNP is used as a

measure of peoples well-being there needs to be more
incorporation of quality of life factors that go beyond measuring
output.
As human needs vary from person to person, there is no
consensus on indicators which are vital for human well-being or
quality of life. Some of the common indicators are poverty,
health, education, employment, natural environment, human
rights, social welfare etc. Political participation is also one
dimension, which is linked to human development. The range
of political participation indicators include voting rates, legal
and social rights guaranteed by law, and the proportion of the
population permitted and willing to take part in a political
activity. More and more focus have been put on the political
participation of women with indicators such as the ratio of
female to male shares of parliamentary seats and heads of
state.
One should not think that access to various institutions and
offices is enough for quality life or human development.
However, one should be free from any pressure, free to exercise
his or her wish and allowed to make decisions for him or
herself. Amartya Sen call it capability approach, where the
basic concern of human development is our capability to lead
the kind of lives we have reason to value, rather than the usual
concentration on rising GNP, technical progress, or
industrialization (Sen, 1999:285). His approach mainly focuses
on the agency and judgment of individuals including their
capability, responsibility, and opportunity. Raising human
capability is good because it improves the choices, wellbeing,
and freedom of people; their role in influencing social change;
and their role in influencing economic production.
Moreover, to raise quality of life or Individuals capability some
sort of stability and sustainability in the state is required,
because if a country is facing unrest or passing through phase
of civic disorder then it will hinder the development of human
potential to its maximum extent. Indicators look at issues such
as mounting demographic pressures; civil war, racial, and class
group lines; suspension or arbitrary application of the rule of
law; and overall national security. Dependence on foreign aid
also results in lack of development, because other countries

then start influencing the policies of the country. It is a loss of

power in the decision-making and it attacks the concept of
sovereignty, which is very vital for better well-being.
.
Creating complementary indicators is a challenge, but perhaps
the biggest challenge will be in creating just the right number
of indicators that are neither too complicated to calculate nor
too simplistic that they become inaccurate. Attempts have
been made; indices such as the Index of Sustainable Economic
Welfare factors in income and pollution distribution; the
Genuine Progress Indicator incorporates a number of elements:
social welfare, health care access, pollution, income equity; the
Happy Planet Index measures ecological efficiency, life
satisfaction and other well-being indicators; the list goes on.
Indicator like Genuine Progress Indicator (GPI) is a refined
version of the Index of Sustainable Economic Welfare
developed by Herman Daly and John Cobb in the late 1980s.
GPI starts with the same personal consumption data as GNP,
but then makes some crucial distinctions. It adjusts for factors
such as income distribution, adds factors such as the value of
household and volunteer work, and subtracts factors such as
the costs of crime and pollution.
Genuine Savings (GS) was developed for the World Bank and is
defined as the true level of saving in a country after
depreciation of produced capital; investments in human capital;
depletion of minerals, energy, and forests; and damages from
local and global air pollutants are taken into account . This
includes the value of global damages from carbon emissions.
GS measures the built, natural, and intangible capital that is
required for human society to exist and to thrive (World Bank
1997).
All of the alternatives to GNP (and GNP itself) are composite
indexes that combine several different measures into a single
number. Some indexes combine GNP or GNP variants with some
of the non-GNP environmental or social indexes or with other
measures of well-being.

HDI measures a nation's achievement in three dimensions of

human development: long and healthy life (indicated by life
expectancy at birth), knowledge (indicated by literacy and
school enrolment rates), and decent standard of living
(indicated by GNP per capita). Although the first two
components of HDI address specific societal goals, the GNP
component remains an inadequate proxy for wellbeing (UNDP
1990). A great advantage of HDI is thus the comparability with
other nations. For India HDI says much more than GNP about its
social progress. Recent Human Development Reports also show
that India (135th out of 186) has among the lowest HDI scores
for non-African countries and scores remarkably lower than for
example China (101st) or Indonesia (121st).
In 2000, leaders of 189 countries signed the United Nations
Millennium Declaration, which established eight international
goals for improving the global human condition. The goals
included eradicating extreme hunger and poverty, achieving
universal primary education, promoting gender equality and
empowering women, reducing child mortality, improving
maternal health, combating HIV/AIDS, malaria and other
diseases, ensuring environmental sustainability, and developing
a global partnership for development. Forty-eight indicators
were defined to measure progress towards these goals (UN
2000).
All available approaches are far from perfect and do not
succeed in systematically repairing the list of shortcomings of
GNP as a social welfare indicator. In particular, the dynamic
aspects, basic needs, subjective well-being basis, and relative
welfare and rivalry are neglected. Nevertheless, one can expect
all of these alternatives to serve as a much better
approximation of social welfare than GNP. It has to be
acknowledged, however, that there are challenges. For
instance, not all countries have the capacity to measure many
of these indicators. In certain cases, governments may have
reason not to quantify certain conditions such as the lack of
human rights. The number and variety of indicators require
different information to be gathered from across a wide range
of countries and cultures, which poses standardization
problems.

Development today is not merely an economic phenomenon. It

encompasses more than the financial side of people's lives.
Development should be perceived as a multi-dimensional
process involving the reorganisation and reorientation of the
entire economic and social system. The challenge before us is
to combine the economics of growth with the economics of
equity and social justice. We can see that the GNP as a
measure of true standard of living is grossly inadequate and
requires to be combined with other forms of measures, which
include
qualitative
aspects
as
well.
Creating
and
institutionalizing complementary indicators to the GNP will give
us a better view of our economic, social, physical, and natural
standing. Until we are not able to understand and measure the
complexity of our well-being, goal for more caring and
sustainable future will be out of our reach.

Bibliography
Webster, Andrew. (1990). Introduction to the sociology of
development
Sen, Amartya. 1999. Development as Freedom. New York:
Anchor Books
Human Development
development Indices

Report,

2003,

FAQs

on

the Human

World Economic Forum. (2013). Global Competitiveness report

2013-2014