The fallacy of GDP as a measure of prosperity: prison expenditure counts, but housework doesn’t

David Dodwell says it was Robert Kennedy who reminded the world that gross national product does not measure what is most valuable in a society

PUBLISHED : Friday, 18 May, 2018, 12:53pm
UPDATED : Friday, 18 May, 2018, 10:26pm

It is sometimes uncanny where research for these articles can take me. My aim was to take up David Pilling’s excellent book, The Growth Delusion, to explore how badly the idea of gross national product serves us as a measure of our wealth, progress or happiness. First, however, I must mention the unsettling red herring that arose as I began research. 

For anyone who has taken an interest in what GNP or economic growth are all about – putting aside Simon Kuznets, who in the 1930s was tasked with building an economic measurement tool to tackle the Great Depression – the journey may start with an eloquent speech by US senator Robert Kennedy at the University of Kansas in 1968, both on the shortcomings of our measures of economic strength and the then ongoing Vietnam war. 

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“Too much and for too long, we seem to have surrendered personal excellence and community values in the mere accumulation of material things. Our gross national product, now, is over US$800 billion a year, but that gross national product … counts air pollution and cigarette advertising and ambulances to clear our highways of carnage,” he protested. GNP, he said, “counts special locks for our doors, and jails for the people who break them … counts napalm and counts nuclear warheads and armoured cars for the police to fight the riots in our cities”, but not “the health of our children, the quality of their education or the joy of their play”. 

“It measures everything,” he said, “except that which makes life worthwhile.” 

What was so unsettling – apart from the reminder that the US’ problems remain as great as ever even though the GNP has grown 23-fold since Kennedy spoke – was that six weeks later he was dead, assassinated after winning a primary in his bid for the presidency. 

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More uncanny still, his assassin was Sirhan Sirhan, a Palestinian with a Jordanian passport who was driven to the atrocity by Kennedy’s support for Israel. 

Sirhan Sirhan is now 74 years old and still behind bars in California for one of the very first recorded terrorist atrocities ever committed on US soil. Why Palestinian blood is still being spilled, 50 years later, as Donald Trump and his family celebrate the move of the US embassy in Israel to West Jerusalem, is another story. 

When Simon Kuznets first assembled the components of the gross national product, prisons like the one housing Sirhan Sirhan troubled him – as they troubled Kennedy. So too did spending on defence and wars, government spending, the “value” attributed to regulation, to finance and speculation, and to advertising. 

With 2.12 million inmates, the US has the world’s largest prison population. China houses 1.64 million prisoners and Russia almost 598,000. The price tag for the US incarceration and correctional service? Around US$80 billion a year. 

Robert Kennedy’s qualm was that such spending should not be built into a measure of the strength of the US economy, but rather of its weakness.

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In the UK, in 2012, a team from Britain’s Office of National Statistics was tasked to fill a loophole: the economic value of prostitution and the illegal drugs trade was not measured, and thus gross domestic product was being understated. They concluded that there were 60,879 prostitutes at work in the UK, each providing a “personal service” to an average 25 clients a week at an average price of £67.16 (US$90.72). Using similar resourcefulness and imagination to assess illegal drug trafficking, they concluded that these two “services” contributed £9.7 billion to Britain’s GDP. 

Pilling’s conclusion: “If you want to increase GDP, you should raise value added taxes, increase the use of illegal drugs and prostitution, and have a war … The bigger our banks, the more pervasive our advertisers, the worse our crime and the more expensive our health care, the better our economies are seen to be performing.” 

Kuznets, Kennedy and Pilling were also deeply troubled by activity that is “across the production boundary” – normal and often widespread activity that is never monetised, and thus escapes the attention of a country’s statisticians. The most notable omission is the cooking, cleaning, washing, caring for elderly relatives and driving that women do unpaid every day. Academics have estimated that, if measured, this would be worth at least US$3.8 trillion in the US, making the GNP about 26 per cent larger. 

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In Australia, an academic calculated that a mother’s breast milk, if replaced by baby formula, would be worth US$4.2 billion – and worth US$53 billion in the US. 

The message is of course simple: hardly a day passes without one or more of us referring to a GDP or GNP number as a measure of economic strength or growth. Look how much of a fuss people make about China’s economy “slowing” from 6.8 per cent to 6.5 per cent. But when you pick apart what is omitted from the measure, and what is “counted in” that should really be on a minus list, you realise it is a measure that has to be handled with great care.

A bit like democracy, it is a dreadful measure, except for all the rest. It is surely uncanny that Robert Kennedy should have returned to haunt us with this, five decades after his tragic assassination. 

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view