GNP and HDI: potentially misleading

Louis Proyect lnp3 at
Mon Jun 11 14:06:42 MDT 2001

BBC News Online, Friday, 8 June, 2001, 07:11 GMT 08:11 UK

World sinks into deeper poverty

The world's poor may be sinking deeper into poverty, according to a new
report by a top economics professor that turns traditional insights into
poverty reduction upside down.

The Indian sub-continent and sub-Saharan Africa - two of the poorest
regions of the world which make up around a third of the world's population
- have really become poorer over the past decades, according to the research.

This is in stark contrast to the much more widely used - and potentially
misleading - data based on Gross National Product (GNP) and the Human
Development Index.

And the belief that the economies of the poorest countries are growing may,
in some cases, have led to less aid, development loans or grants.

"The implications of these results should be heart-breaking," concluded
Partha Dasgupta, a Professor of economics at Cambridge University and the
former president of the Royal Economic Society.

Deteriorating natural resources

Governments, development organisations and the World Bank use GNP to gauge
the rate of growth of a certain country's economy.

But the measure of GNP - the monetary value of all goods and services
provided by the economy - could be fatally flawed as it disregards vitally
important factors such as the deterioration of natural resources.

GNP may, for example, be rising healthily due to a booming diamond trade.
But if those diamond mines are going to run out in a couple of years time,
then the prospects of poverty reduction are falling rather than growing.

The depletion of natural assets such as forests, water, oil, fisheries,
soil and minerals will have a dramatic impact on the survival ability of
the future generations.

"GNP is by definition insensitive to the depreciation of capital assets,
including natural capital, and can mislead hopelessly," said the report.

"It is totally insensitive to the future," Professor Dasgupta told BBC News

Nations in decline

If the decline of natural capital is included under a new measure - which
the report dubs wealth per head - traditional insights into poverty
reduction are turned upside down.

It reveals that Sub-Sahara Africa, Bangladesh, Nepal, India and Pakistan
are all heading into deeper gloom and poverty.

While this is not surprising in the case of sub-Saharan Africa which is
widely known to have regressed in terms of many socio-economic indicators,
the figures for the Indian subcontinent are shocking.

Pakistan's GNP, for example, grew at a healthy 2.7% per year, implying a
more than doubling of living standards between 1965 and 1996.

But the alternative measure of wealth shows that living standards have
actually almost halved over this period.

Blowing natural resources

Of course, misleading data tends to lead to the introduction of misleading

The assumption that a steady growth in GNP automatically leads to a
reduction in poverty could have led to a decrease in the amount of
development aid allocated to any one country.

In addition, some welfare economists claim that structural reforms required
by the World Bank and the International Monetary Fund have sometimes led to
a speeding up of the decline in natural resources.

The temptation to blow natural resources is high for some countries when
they struggle to increase GNP after taxes and subsidies have been removed.

The emphasis on trying to increase any one nation's GNP could be increasing
the pressure to destroy future resources.

Some countries for example, have boosted timber exports in order to raise
export quotas without taking into account the future implications of

The measure of GNP has already come under attack for a number of different

While some say that it is soulless, others point out that it gives no
indication of the rich-poor divides within a country.

Bangladesh              1%
India                   2.3
Nepal                   1
Pakistan                2.7
China                   6.4
Sub-Saharan Africa      -0.2

Bangladesh              -2.6%
India                   -0.1
Nepal                   -3
Pakistan                -1.9
China                   0.8
Sub-Saharan Africa      -3.4

Louis Proyect
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