Is only GDP-based assessment of economy missing the bigger picture?

The recent protests in Bolivia came as a surprise to the world as the nation has shown impressive socio-economic progress in recent times. This raises a question: Is only GDP-based assessment of the economy missing the bigger picture?  

"This is symptomatic of the growing disconnect between governments' perception of people's well-being and the reality," explained Dr Mario Pezzini, director of the OECD (Organisation for Economic Co-operation and Development) Development Centre.

He suggested that governments should dig deeper to understand the root cause of discontent and unrest, adding that the usual policy remedies do not seem to work anymore.

Although GDP-related indicators have long been at the core of government policies, these do not adequately reflect the living standards of people, the economist said.

Instead, he claimed, multi-dimensional frameworks such as well-being indicators, paint a better picture of people's needs. "Policymakers can use these tools to design and implement reforms."

He made the observation on Tuesday while speaking at the CPD Anniversary Lecture 2019, held at a hotel in Dhaka.

In the lecture titled "Perspectives on Global Development: Rethinking Development Strategies," Dr Pezzini claimed that increased expectations could be at the core of discontent in many countries with good growth numbers today.

This is based on the idea that societal progress is related to improvements in people's and household's well-being. It is structured around the aspects that matter most for people's well-being — social connections, health, work-life balance, and equitable and sustainable development.

"Increasing rates of growth in many countries have created a series of expectations in people, who see that increasing growth is not only not improving their lives, but on the contrary, they remain increasingly vulnerable against governments that are often incapable of providing the right responses," said Pezzini.

The majority of development numbers is built around GDP numbers, but that may not automatically translate to wellbeing for the people of a nation, he said. The paradox of increasing gross domestic product (GDP) rates, but increasing inequality is also fuelling social discontent.

He further stated that in many developing countries, a considerable percentage of the middle-class remains highly vulnerable – proof that economic indicators have not painted the whole picture. 

"Middle income economies, despite having higher levels of GDP, are still home to 73 percent of the world's poor," he said. 

The economist suggested prioritising well-being of the people over per capita income while forming policies under the framework of development in transition, i.e., for countries that are achieving higher income levels but continue dealing with inequalities, mobilisation of domestic resources, weak social frameworks, regional disparities, limited capacities for innovation and low economic diversification.

"Development strategies should be specific to the nature of the challenges being faced by a particular country," Pezzini recommended.

Among others, CPD Executive Director Fahmida Khatun and Distinguished Fellow Professor Mustafizur Rahman, were also present at the lecture.