(Clearwisdom.Net)
[Editor's note: The reference articles by non-practitioners posted on this website may not represent the views of Falun Gong practitioners.]
China has enjoyed a high growth rate of its GDP (gross domestic product), 8% annually since the mid 80s. Simply looking at the figure, it truly is remarkable. The Chinese people have sufficient reason to be excited and proud of such a tremendous achievement. Nowadays some believe that China can strive to surpass the United States in another twenty to thirty years. Let's first put aside whether the GDP in China may forever continue to grow at such a high rate, and the differences in nature between growth at a low level and growth at a high level. We just need to figure out the meaning of the GDP and what is not included in this measurement, then perhaps we won't rashly put so much emphasis in the growth of the GDP.
1. The GDP does not measure social costs. Simply speaking, the GDP is the total market value of all final goods and services produced in a country in a given year, of which the measurement is based upon the value system of the economy in a particular country. For a country with a sound market mechanism, this measurement can reflect very well the total market value of the economic activities in the society as a whole. For a country evolving from a planned market toward a free market like China, the GDP is unrealistic for measuring the total market value of all economic activities. There are other factors to be considered like environmental pollution, workers' insurance, child employment, medical insurance, social welfare, health problems, etc.
Take for example a factory with a total market value of producing 100 million RMB in a given year. If the environmental pollution caused by this production is not taken into account, the social cost of the environmental pollution is not included. The total social effect should be counted as zero if the government spends 100 million RMB to clean up the pollution, assuming that the pollution is cleaned up. However, in arriving at the GDP, these two economic activities are calculated separately. They together account for economic activities with a total market value of 200 million RMB. A social economic activity with zero value now turns into one activity with a value of 200 million. This is one defect of the GDP when calculating the market value of social production. Is this an important issue in China? In reality, each local government turns a blind eye to environmental issues in order to pursue economic growth. The cost of sacrificing the environment to pursue economic growth may very well lead to zero or even negative market value of total economic production, which is something the GDP doesn't reflect.
2. GDP does not measure negative impacts. Quite simply, construction and deconstruction do not offset each other when calculating GDP. On the contrary, it has the same effect as when negative times negative comes out with a positive number. It sounds strange, but this is a fact. Take for example when a government spends three million dollars to construct a road, which means a creation of a total market value of three million dollars. Another group of workers come to dig up the road for an underground passage several days afterward, in which a total of ten million dollars is spent. The GDP of ten million dollars is created. Although these two groups of people may generate a total of zero or negative social value or effect, we come out with a positive GDP as these two figures are calculated separately. Isn't it the same effect as when negative times negative comes out with a positive number?
Take real estate in Hainan, for example. In the mid 90s, the hot real estate in Hainan attracted a large capital inflow from the Mainland in investments. Construction sites and buildings were everywhere in Haikou and Sanya. However, a lot of buildings were built half way, and the construction work was forced to stop because of the market recession. For the construction company, the market value of what they created was included in the GDP calculation. However, are those buildings valuable to the society? The answer is no; in fact they take away from the appearance of the city. Hainan Province decided to tear down these half-built buildings, and a total of more than 100 buildings were knocked down at a time. How much is the total value, assuming that each building equals 30 million dollars? At that time, each penny of the costs was included in the GDP. When these buildings get blown up or torn down, this very well might be included in the GDP also. For society, however, nothing but a pile of trash was left afterwards, while all of this was included in GDP for two years.
There exist many such examples. For example, selling fake drugs may contribute to an increase to the GDP, and going to see a doctor after taking the fake drugs and getting ill will also contribute to an increase to GDP. In reality, it is detrimental to the general public. Naobaijin (a drug which contains melatonin) made over a billion dollars last year; however, the long-term side effects of melatonin have not yet shown up. If there's a negative effect, then the net social effect is going to be negative. We would miss all of this by simply looking at the value of the GDP.
3. GDP does not measure quality. Quality isn't taken into account for the purposes of the GDP, as the GDP is calculated in present market value of social activities. What is so important about that? It is extremely important. We need to know that the wealth of the society is accumulated by quality rather than quantity. It's of no use to accumulate large quantity. This involves issues at two levels. One is that only quality accumulates social wealth, or the rate of depreciation for social wealth is faster than that of production. This is a simple mathematical question that everyone knows, and I will not go into too much detail. For example, a desk with good quality and a desk with poor quality are not comparable after five years. The value for the desk of good quality may go up while the value for that of poor quality will be eliminated due to competition. It's the same logic for social wealth. A building of good quality is worth more after a hundred years, while a building of poor quality may be useless after thirty years, and it may turn into a costly pile of trash for society to deal with. Products of poor quality do not accumulate wealth for a society, while products of good quality have external exchange value. The land and the environment, for example, are forms of wealth. If something's quality is not up to international standards, exchanging it for fair value is not possible. What you calculate as something's value will not be recognized by others.
4. The GDP does not measure the effectiveness of resource allocation. Economics deals largely with the effectiveness of resource allocation in a society. From an economic perspective, expenditure itself is not social cost. Social cost is reflected when evaluating investment A, we take into the input of investment A causing investment B to become obsolete. For example, if the government makes a military expenditure, or of eating and drinking, such expenditures themselves are not social costs as they encourage the development of the military and the restaurant industry. However, if the investment in these two industries causes a shortage of education budget or a failure to fulfill social needs, this is then a social cost of military development and the restaurant industry that needs to be taken into account. In addition, the GDP does not measure waste. There is no difference between wasting money and setting up a school in calculating GDP. How much China has wasted each year -- on one hand, it makes huge investment in building the largest fiber telecommunication network in the world; on the other hand, it places the restrictions on the usage of the internet with strict control over internet cafes and websites? Such wastes aren't reflected by the GDP.
There are still quite a few other examples, and I won't describe them in detail one by one. From the above examples, we can see that simply having a high growth rate in GDP does not necessarily signify a healthy economic state for a given country, or an overall good effect for a society. Particularly in China, it's very serious in the following areas: environment pollution, the neglect of education, waste and rampant corruption, redundant construction, destructive production, and inferior quality of goods produced, etc. When we cheer for the high growth of the GDP, we should at the same time clearly understand the meaning of the GDP. At what level does it measure a country's power and in what area it does not reflect the social effect of the economic activities. Only by doing so can we avoid being unjustifiably giddy because of a simplified figure. Without an effective social and political structure, we do not benefit from effective socio-economic management. We Chinese know how to work hard, but we do not realize that if we are to reach a higher level after reaching a plateau, a huge improvement is necessary in the quality of the social infrastructure, or the hard work will be in vain.
We see that in China, there are a lot of bad debts in the banking system. Why? From a broad perspective, financial assets are reflections of physical assets. The huge debts tell us that the quality and quantity of physical assets don't match those records of the financial assets. It reflects a very serious problem. We should not feel too happy about the growth of GDP, because it doesn't tell the full story.
