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Monday, March 21, 2011
Building a happy society means junking GDP myth
The mass media in Japan have played up the news of China's gross domestic product exceeding, in U.S. dollar terms, Japan's to become the second largest economy in the world after the United States.
The Chinese figure would be twice as large, far exceeding Japan and coming close to the the U.S. if converted by purchasing power parity instead of by the current exchange rate, which largely undervalues the renminbi.
As there are roughly 10 times more people in China than in Japan, China's per capita GDP is 10 percent of Japan's if figured by the exchange rate and a mere 20 percent by purchasing power parity.
In 1968, Japan's GDP surpassed that of West Germany to become the second largest economy after the U.S. This was the culmination of endeavors made by corporations and citizens of Japan in the years immediately after World War II (1945) with the slogan "catching up with and surpassing" the advanced nations of North America and Western Europe in economic activity.
Yet, the per capita GDP of Japan was only about a half of West Germany's because Japan's population outnumbered West Germany's by almost 2 to 1. In real terms, though, what Japan accomplished at that time was worthy of note in view of the fact that the exchange rate at the time was fixed at ¥360 to the U.S. dollar.
Japanese citizens worked hard indeed during each of the four periods into which Japan's postwar economic history is divided: reconstruction from 1945 to 1956, rapid expansion from 1958 to 1973, the oil crisis from 1975 to 1990, and the economic slowdown after 1990. They worked hard to expand the nation's GDP, whether they were aware of it or not.
In December 1960, Prime Minister Hayato Ikeda announced his "income doubling plan" aimed at doubling national income, which is nearly equivalent to GDP, in the coming 10 years. The plan was like putting the cart before the horse in a sense that it is aimed not at making individual citizens affluent but at enriching the nation.
Those living in urban areas in Japan have long been forced to live in much smaller spaces than in other countries because of high land prices, travel time to and from work of more than two hours a day, and long hours of overtime. They have thus put up with what many Westerners would consider to be "poor living conditions."
The Japanese took it for granted that individuals would become affluent if the nation was enriched by growing GDP. This is in stark contrast with the widely accepted axiom in the West — that the nation becomes affluent only when its individual citizens become so.
Every time the government announces a preliminary report on quarterly GDP, it makes top news on TV news programs and in evening newspapers. I know of no country where GDP is so revered as in Japan. Some people in Japan oppose the introduction of the environment tax, arguing that it would impede GDP growth. Aside from the question of whether such an argument is right or wrong, most Japanese tacitly share the notion that a decline in the GDP growth rate would bring misfortune to individual citizens.
The Chinese government undoubtedly is very proud of the nation's achievement of surpassing Japan and becoming the No. 2 economy after the U.S. in the GDP race. As with Japan, individualism, one of the basic social traits in modern nations of the West, has not permeated China. Becoming the second largest economy in the world does not by any means mean that individual Chinese citizens have become affluent.
On the contrary, rapid economic expansion has exacerbated income disparity to an enormous extent as common people suffer from high inflation. Most of the increase in total income has gone into the pockets of people in the upper 20 percent of the income brackets and has not trickled down to the poorest. What happened in the U.S. since the 1990s has been repeated in China.
GDP is nothing more than a simple yardstick to measure economic performance. In North America and Europe, greater emphasis is placed on reducing unemployment than on achieving GDP growth. Efforts should be directed toward building a society free of inflation with minimal unemployment and without income disparity — where each individual feels "happy" and the environment is protected.
GDP is the total sum of household, corporate and governmental expenditures plus net exports (exports minus imports). Or, it can be described as the combined total of personal and corporate incomes or the total of values added in corporate production activities. It is obvious, therefore, that GDP does not take into account such factors as environmental protection, the happiness of citizens, income disparity and the unemployment rate.
Affluence and happiness don't mean the same. A happy society is where:
• Nobody feels rejected. Most unemployed people are willing to work but have been rejected from work. Therefore, a society with a low employment rate is desirable.
• Nobody is excluded from medical, educational and other public services.
• Every citizen truly feels that he or she "participates" in national politics.
• Society is sustainable.
• Members of society are able to enjoy a beautiful environment. Let us all work toward building such a society.
Takamitsu Sawa is president of Shiga University, Hikone.