Gdp

In social indicators research there is a long-standing debate on the relationship between national wealth and subjective well being.

The debate on effects of national wealth on subjective well-being is mainly based on aggregate analysis of national data with gross national product per capita as one global wealth indicator and life satisfaction ratings as subjective well-being indicator, leading to controversial empirical and theoretical results.

In his famous "Patterns of Human Concern" social psychologist Hadley Cantril (1965) reported on a first worldwide survey study. He reported that inhabitants of rich countries (with high gross national product, GNP) found more pleasure in life than people in poor countries (with low GNP). This study involved interviews with representatives' samples of the population in 14 countries selected to represent differences in economic development. Interviews took place in 1960. Looking at the rank relation between average life satisfaction and his index of economic development he found reported life satisfaction to be higher in the economically most development countries. Cantril suggested two reasons for this statistical relationship. Firstly, citizens in the poor countries would be "objectively deprived", their economic system failing to provide minimal necessities. Secondly, inhabitants of the poor countries would also be the victims of "subjective deprivation": the awareness that life is better in the rich world, lowering the appreciation of their own.

GNP per capita is the gross national product of the country divided by the total population in other words, average income earned by each citizen of the country.

"Gross" indicates that the value lost through the "wear and tear" of capital used in production that is not deducted from the value of total output. If it were deducted, we would have a measure called net domestic product (NDP), also known as national income. The words "product" and "income" are often used interchangeably, so GNP per capita is also called income per capita.

GNP is used to measure economic growth. It is generally synonymous with the health of the economy and economic progress. GNP is considered a measure of the relative success of different countries. As you can see, when using GNP as a measure, Switzerland has a fairly high standard of living, the U.S. has a slightly lower standard of living, and countries like China are two orders of magnitude lower.

What is the GNP made up of? It is the flow of money from households to business. It can be measured as a rate of consumption, but generally it is measured as a rate of production, the flow of money from business to pay for products. It includes depreciation and taxes. It is not just a measure of market activity but it also includes an estimate of some non-market activity such as food and fuel used by farm families in some countries and rental value of owner-occupied housing.

There are a number of things that the GNP does not measure. Although it includes a few non-market activities, there are a number other non-market activities that are not included, such as charity and volunteer work. For example, suppose there was a massive wave of civic feeling and everyone in the country decided that they could afford to take 2 hours off each week, for no pay, to do volunteer work in their community. The country's GNP would drop by over $1000 dollars, but would we be worse off if that many volunteer hours were poured into the community?

Also not included are environmental costs and benefits, or the depletion of natural resources. The Exxon Valdez spill caused the GNP to go up. The GNP also includes expenditures for undesirable activities, such as the cost of taking care of cancer patients or victims of drunk driving.

Until fairly recently, great reliance was placed on GNP per capita as a convenient index of development. It was useful as a compact indicator to politicians and provided a quantifiable measure for economists who were able to monitor its fluctuations and analyse changes due to movements in sectoral output, factor shares or categories of expenditure. Yet, experience has shown that increases in national income does not necessarily lead to the solution of social, economic and political problems.

They remain, perhaps, emerging in different forms and changing their dimension in countries with rising per capita income. Indeed, not only does economic growth often fail to resolve social, economic and political difficulties but also certain types of inappropriate growth may actually initiate and promote them.

For example, the Industrial Revolution in Europe produced rapid urbanisation and concomitant social problems resulting from new forms of labour use, overcrowding etc.

More recently, further industrialisation has induced pollution and environmental degradation, much of which is not quantified nor cost to be set against the value of that production of goods and services which gave rise to that pollution.

GNP per capita is a useful measure of economic productivity, but by itself it does not measure people's well being or a country's success in development. It does not show the equality (how equally or unequally) a country's income is distributed among its citizens. It does not reflect damage made by production processes to natural resources and the environment. It does not take into account any unpaid work done within households or communities or production taking place in the shadowed economy that consists of business activities that are not accounted for by official statistics. It includes illegal activities or the "black market" and activities that are in themselves legal but go unreported or under-reported for purposes of tax evasion.

Dissatisfaction with GNP as an indicator of development has led to an interest in alternative indices of the 'quality of life'. A 'physical quality of life index' is usually composed