Annals of the Constantin Brâncu și University of Târgu Jiu, Economy Series, Issue 62014 [601375]

Annals of the „Constantin Brâncu și” University of Târgu Jiu, Economy Series, Issue 6/2014

„ACADEMICA BRÂNCU ȘI” PUBLISHER, ISSN 2344 – 3685/ISSN -L 1844 – 7007

GDP AS A MEASURING INSTRUMENT FOR THE HUMAN DEVELOPMENT

CRISTINA BALACEANU
PROFESSOR PHD, Dimitrie Cantemir Christian University,
e-mail: [anonimizat]

DIANA MIHAELA APOSTOL, Postdoctoral Student: [anonimizat], Dimitrie Cantemir Christian University,
e-mail: [anonimizat]

Abstract
Probably the main movement of the economy is abandoning the traditional index of growth (GDP / GNP) as a
tool for reflection the welfare and introducing alternative indicators of qualitative growth and development, eventually
complementary, as it does for example ul Haq (1995), which makes the quantitative growth and development two terms
mutually dependent. The main problem wi th the GDP is that it may increase while the inequality, poverty, mortality,
disparities between regions, etc. can grow simultaneously; at the same time, GDP is an index that does not reflect the environmental damage and the depletion of a resource.
Key-words : new economy, sustainable development, human development

JEL Classification : O31, O44

GDP reflects a purely maximalist understanding of economics and reality (Dasgupta 2006) and O'Neill
(2011) argues that GDP is rather a mere abstraction and a v ery poor indicator of progress and, obviously, it is
necessary to change it. Sen (1987) for example shows that GNP per capita may increase while some indicators
such as life expectancy at birth and mortality rate under 5 years to be both higher than in cou ntries with lower
GDP values, and vice versa: economies to indicate low levels of GNP but high values on the quality indicators.
However, Sen's results show that Oman and South Africa had in 1985 the highest values of GNP (6.730,
respectively 2.010 USD per capita), but instead reported the lowest values in life expectancy at birth and
mortality rate under five years, and vice versa, China and Sri Lanka had the lowest values of GDP in 1985, with
310 and 380 USD per capita, but reflected the highest values on the quality indicators.
Other arguments that notice the separation GDP / GNP from almost all of the indicators of life quality
or the ecological indicators are provided by Dasgupta (2006, 2007), Mazur (2010), Schnaiberg et al (2000).
Mazur (2010) argues f or increased energy consumption to take place without the inherent growth in the
consumer lifestyle. He shows that the developed economies exploit resources as an aim in itself, or what he calls, in the line of Schnaiberg et al (2000), the treadmill of pro duction (the routine of the production growth). The
main argument is that energy consumption is correlated with several indicators of life quality and there is a
quality -of-life-frontier from where any increase in energy consumption ceases to add something to its quality; he
argues that GDP does not grow actually far beyond purely fiduciary growth. Thus, the nations that use
approximately 20MGW of electricity per capita have a life expectancy of more than 70 years. Increased
electricity consumption adds little in terms of life expectation at this moment, for example, at a consumption of
180MGW, the life expectancy is less than 80 years. The energy consumption increase works for Mazur as a treadmill of production in affluent countries, moreover indicates that poor countries will suffer more from the
growth of energy consumption by affluent societies, under the argument that the level of pollution decreases according to the environmental Kuznetz curves or ceases to increase with increasing energy consumption. I n
other words, more efforts will be devoted to efficient technology regularization, remediation etc, while the poor
economies will inevitably suffer. For Mazur, the increase in consumption / savings in rich societies is not
equivalent to a real increase in the lifestyle or quality of life, in addition it emphasizes the impact of the
ecological footprint over less developed economies; the economies’ growth in affluent societies could be
associated with a decrease in the global quality of life than with an in crease (Mazur's results are based on data
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Annals of the „Constantin Brâncu și” University of Târgu Jiu, Economy Series, Issue 6/2014

„ACADEMICA BRÂNCU ȘI” PUBLISHER, ISSN 2344 – 3685/ISSN -L 1844 – 7007

from 135 countries).
For Dasgupta (2007, 2008), if GDP is a instrument for measuring the output of an economy, meaning
the value of finished goods produced by an economy and valued on the market, it does not tell u s much about the
stock of wealth or how it is distributed; GDP is a measurement tool that was originally designed for the markets
and the flows of values which they produce. For example, Dasgupta shows that the income per capita is now
about $ 8,000, while in the early Christian era, per capita income was $ 515 per year. If at the beginning of the
era almost everyone lived with about $ 1 per day, ie nearly everyone was below the poverty line, in the early
nineteenth century the gap between Western and Afric an countries widened three times. The gap between the
U.S. and Africa, for example, has increased almost 20 times in the last 200 years (ie $ 38,000 per year vs. $
1,850). Over the past four decades, per capita GDP grew at an annual rate of 2.4% in rich co untries, while in
poor countries it grew at a rate of 1.8%; worse, the sub- Saharan region has experienced a real decline in GDP per
capita. Because at an annual rate of 2% per capita the GDP doubles every 35 years, disparities between regions
tend to accen tuate rather than to improve. For example, the U.S. GDP increased 30 times in the last 200 years,
implying that the average annual per capita income growth was around 1.7%. By contrast, Ethiopia has today
almost the same income per capita as Europe 200 yea rs ago, less than $ 700 per year.
Haq (1995) and Sen (2004) argue for a number of additional problems concerning GDP / GNP. Beyond
the fact that GNP tells us nothing about how wealth is distributed or basic needs are satisfied, for Haq, GNP
seems to miss t he true purpose of development. That is human welfare. Haq believes that GNP reflect a focusing
problem of economy / economist in general, for which a man is only a means in the growth process, not an aim,
and calls for refocusing the economy on the human as an aim of growth and not as a mean. Growth must be
accompanied by appropriate policies distribution. For him, if economies grow, the development issues will also raise, for example health and development expenses have fallen from 21% of GDP in 1972 to 9 % in 1982 in
developing countries, while military spending increased from 7 billion to $ 100 billion over the same period.
Similarly, the South Asian region has experienced a significant increase in GDP, but here is found almost 80%
of the world's poor, in terms of absolute poverty. Focusing on GNP is undoubtedly an error in terms of
development, reflecting conventional political and economic thinking.
Sen (2004) argues for abandoning GDP as an index of welfare, especially for informational inherent
poverty that implies. For him, if the capabilities and functions (economic, cultural / educational, social, personal
and political) which an individual has are converging in / to the achievement his personal of the life that he wants (development as freedom), GDP as per capita income of a country is then probably the most inadequate
measure of a nation's well -being. The conventional GDP is limited to per capita income, or this fact overlooks
the fact that the income is just one of the capabilities available to an individual to achieve the desired living
level. Sen argues for the difference between income poverty and capabilities poverty: the opportunities generated
by the growth of the income are obviously enhanced by the social support and training (higher / good levels of
literacy, education, general health care, etc.) and inversely – all these capabilities enhance a person's ability to
achieve income and obviously to came free from poverty. In other words, the impact of the income on
capabilities is contingent an d obviously conditioned or dependent. For Sen, there is no doubt that restricting
welfare to income measurement represents an error in a developmental perspective. GDP / GNP are probably the
poorest welfare index, limited to the income that an economy is i n general producing.
Other arguments that reject the conventional GDP come from the supporters of sustainable degrowth.
O'Neill (2011) for example reject GDP as an instrument for measuring the degrowth (it was a mere abstraction
when it was measuring growt h) or the process by which an economy decreases in volume and production
capacity, in consumption, production growth rates, etc. in the idea of the transition towards a steady state (Daly
2008) – steady state as reintegration and maintenance of the society subsystem in terms of economic capacities,
consumption, living standards etc. in what Commoner (1980) called natural balance or ecological cycle (e.g. “in
a cycle it cannot accumulate organic wastes because nothing is wasted”, p.123 –cit. from Romanian ed ition) or
the four laws of nature ( Everything Is Connected to Everything Else , Everything Must Go Somewhere , Nature
Knows Best and There Is No Such Thing as a Free Lunch ) that form the so -called closed circle or logic of
ecology etc.
O'Neill's main argumen ts are that GDP follows only cash flows, namely do not reflect the changes in
stocks, particularly in the stock of natural capital (on the contrary, depletion of natural capital can be seen as
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Annals of the „Constantin Brâncu și” University of Târgu Jiu, Economy Series, Issue 6/2014

„ACADEMICA BRÂNCU ȘI” PUBLISHER, ISSN 2344 – 3685/ISSN -L 1844 – 7007

revenue in the GDP), fails to distinguish between growth in qua ntity and quality development or do not have any
information about non -monetary (social) values, such as volunteering or how the income is distributed currently.
In other words, it does not say anything if what is happening is socially sustainable or wheth er the current level
of resource use is ecologically sustainable. For O'Neill, the zero level of the GDP growth may still be
accompanied by a decline in natural capital stocks or by an increasing inequality, which obviously would be in
conflict with the ob jectives of a steady state economy. “I would argue that it is not enough to change the target
on a bad indicator. The indicator itself needs to be changed” (O’Neill 2011, p.3).
A less explicit case regarding the rejection of GDP (as an index of welfare and as an indicator for
measuring the unsustainable growth), but far more explicit for the reorganization of economic tools to create a
new economy logic based on the law of entropy, thus exceeding the rationality of optimality (or the traditional
business mo del of quantitative growth) and entering into the rationality of sustainability – is Emil Dinga (Dinga
and Ionescu 2006; Dinga 2009, 2011). On line of Georgescu -Roegen, Dinga believes that the economic
instruments are arithmomorphic, i.e. they behave like m athematical conceptual tools with some realities that can
not be described by acuity, simplicity, distinction, permanence etc with which the abstract objects of
mathematics can be described or withstand the time and require an more or less mechanical under standing of the
world.
If arithmomorphism reflects a fundamental inadequacy when it tends to burden reality by translating it
in numbers, for Georgescu -Roegen this numerical representation is combined with a mechanistic understanding
of the world dominated by invariant relationships between variables. For Roegen, the economy is doomed to
deny historical time or narrative flow and only a non -mechanical law could represent the so called passage of
time or arrow of time (Levallois 2010 Adelman 1972; Gowdy and Mesner 1998; Maneschi and Zamagni 1997
Heinzel 2012). Obviously, Georgescu -Roegen apply here to the economy the second law of thermodynamics,
which means that the economy behaves like a perfect dissipative system that converts the low entropy energy of
the environment to high entropy energy indefinitely, until exhaustion or destruction. What makes the Roegen
stance particular is that he rejects any combination of entropy with a mechanistic view of the world: for him,
irreversibility can not be ignored, the same way of living is an irreversible process that can hardly be ignored by
biologists, and the exhaustion of the resources of energy and minerals should enter to the attention of economists
(Georgescu -Roegen 1996 Levallois 2010).
On the contrary, for Bolt zmann the entropy increase could represent the convergence of the system in
the most probable state. And Boltzmann's statistical interpretation of entropy stood against the interpretation of
entropy as a possibility of disturbance of a nature’s law or whic h would be outside the reach of classical
mechanics or dynamics (Prigogine 2003). Somewhat similar, Prigogine argues that the natural state of the
system is the irreversibility resulting from the interactions of the systems / non -integrable parts, includin g where,
for instance, a gas is in equilibrium: collisions continue to occur, and the interactions are never eliminated. But although he substitutes the classical dynamics a vision and a vocabulary as evolutionary universe , non-
equilibrium physics , etc., w hich "has given us a better understanding of the mechanism of the emergence of
events." (Ibid, p.19), the events are associated with what he called bifurcations, which means that the
irreversibility or the entropy of a system results in the appearance of d ifferent dissipative structure (or new
formula for non -dynamic/mechanic equilibrium). In other words, neither Boltzmann nor Prigogine do not seem
to split the second law of thermodynamics from the formation of new dissipative mechanical / non -dynamic
structures, while for Georgescu -Roegen the arrow of time reflects the purely irreversible and / or eternal
incremental nature of the disorder (Adams 1978).
In this framework of entropic irreversibility, i.e. the finding that human systems are dissipative system s
that convert the low entropy energy into high entropy energy at infinity, and the inability of the economy to
come off the inherent arithmomorphism, Dinga introduce a whole vocabulary that makes the economy rather a
hermeneutics of the economic phenomena than a science in a “strong sense”, while establishing a sustainable
evolution program, i.e. the transition to the rationality of sustainability, or, even clearly, of achieving the
trinomial sustainability – society, nature and the individual (Dinga 2009, 2011; Dinga and Ionescu 2006). For
example, if the law of entropy does not allow establishing exactness (as the classical paradigm case of economic
optimality), but only directions of evolution, the economic concepts can then be only dialectical (or what he calls
semantic and dialectical penumbras ); for example, the purpose of an economic activity is to introduce some
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Annals of the „Constantin Brâncu și” University of Târgu Jiu, Economy Series, Issue 6/2014

„ACADEMICA BRÂNCU ȘI” PUBLISHER, ISSN 2344 – 3685/ISSN -L 1844 – 7007

reversal of entropy, ie entropy within the system decreases into / through the production of goods, increasing the
overall entropy (by the consumption of energy and resources) (see Adelman 1972), or this excludes the
possibility of establishing some invariants in the terms of the traditional economy (see the so called Oedipus
effect indicating the fact that changing the initial conditions excl udes the possibility of establishing exactness in
an arithmomorphic sense – Dinga 2009).
What is significant is that for Dinga, if the arithmomorphism is inadequate in reflecting the economic
phenomenon, he is instead responsible for the movement and / or the support granted to the economy in terms of
paradigm or rationality of optimality (current era), which means the intensive reducing of the internal level of
low entropy due to the accentuated increase of the external or global level of entropy. The rej ection of GDP as an
appropriate index of the growth and development is almost inherent, though not stated explicitly anywhere by Dinga. If the optimality paradigm is based on the continued growth of economies / GDP, i.e. on the efforts to reduce the internal entropy of the system, he believes that every economic paradigm (stationary, optimal,
sustainable) reflects a critical development threshold, which requires a change of paradigm, in this case the
sustainability paradigm: for him, the threshold is here: the entropic perturbation of the environment, coupled
with conscience (new ethical values, consumption reduction, green lifestyle, etc.), the intensive generation of
low entropy through the production of goods and through services of the industrial paradig m is unsustainable at
a global level, requiring the development of a new morality and values specific to the ecological sustainability
during the emerging period (Dinga, 2009, 2011).

Conclusion
The irrelevance or even the elimination of the GDP as an ind ex is almost inherent, because the
emergence of the rationality of sustainability is inseparable from the returning to the pre -industrial or stationary
growth model (which is based, obviously, on a weaker increase of external entropy), where GDP, regardles s of
how it is used, can no longer be an adequate index of economic (sustainable) performance. If we return to
Georgescu -Roegen and the conceptual difference that he made between the flows and the funds , we see that GDP
is inadequate in reflecting the perf ormance of a sustainable economy, for example: “However, those neoclassical
economists adopting the substitution (i.e. assume that any factor can always be substituted for any other factor) assumption have not paid due attention to the essential distinctio n between flows (_quantities of materials
qualitatively transformed in the process) and funds (_agents transforming a given set of inflows into a given set of outflows) in the material production process (Georgescu -Roegen, 1971). Neglecting this distinctio n results in
a systematic indifference to the biophysical foundation of economic activities”. And further: “The expression of
heterogeneous factors in monetary units in aggregate production functions […] makes the situation worse […].
This homogenization o f inputs hides the biophysical side of production activities and clouds the issue of
sustainability. This misconception introduced by a description of the production process in monetary terms is
inherent in the definition of weak sustainability usually ado pted by neoclassical economists: ‘‘the total value [in
monetary terms] of all capital stocks be held constant, man -made and natural’’ (Mayumi et al 1998, p.116).

Acknowledgment:
This work was cofinanced from the European Social Fund through Sectoral Oper ational Programme
Human Resources Development 2007 -2013, project number POSDRU/159/1.5/S/134197 „Performance and
excellence in doctoral and postdoctoral research in Romanian economics science domain”.

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„ACADEMICA BRÂNCU ȘI” PUBLISHER, ISSN 2344 – 3685/ISSN -L 1844 – 7007

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