Last Updated 02 Aug 2020

GDP – A Gross Deception

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Capitalism concentrates on production of wealth more than distribution of wealth to satisfy the needs, which is secondary in their view. Therefore, the capitalist economic system has one aim, which is to increase the country's wealth as a whole, and it works to arrive at the highest possible level of production. It considers that the achievement of the highest possible level of welfare for the members of society will come as a result of increasing the national income by raising the level of production in the country, and in enabling individuals to be able to take the wealth, by being left free to work in producing and possessing it.

So for capitalists the economy does not exist to satisfy the needs of every individual, rather it is focused on satisfying the needs of the wider community by raising the level of production and increasing the national income of the country. It believes that through the availability of the national income, the distribution of income among the members of society occurs, by means of freedom of possession and freedom of work. So it is left to the individuals to obtain what they can of the wealth, everyone according to what he has of its productive factors, whether all the individuals or only some individuals are satisfied.

This is the so called “trickle-down effect”, a now-discredited theory of distribution which holds that the concentration of wealth in a few hands benefits the poor as the wealth necessarily “trickles down” to them, mainly through employment and as a result of investments made by the wealthy. In most cases, this policy failed, as the benefits were pocketed by a few. GNP is used widely by the capitalist nations as a measure of total production of all goods and services produced in a nation (usually annually) and central to a government’s national income accounts.

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GNP was introduced during World War II as a measure of wartime production capacity, since then the Gross National Product (since changed to Gross Domestic Product - GDP) has become a nation's foremost indicator of economic progress. Yet the GDP was never intended for this role. It is merely a gross tally of products and services bought and sold. However it is now widely used by policy makers, economists, international agencies and the media as the primary scorecard of a nation's economic health and well- being. Yet in this role it has many serious flaws. 1.

The GDP ignores everything that happens outside the realm of monetized exchange, regardless of its importance to well-being and the society. Hence values (humanitarian, ethical, spiritual) other than material values go entirely ignored. 2. The GDP records every monetary transaction as positive, so the costs of social decay and natural disasters are tallied as an economic advance. For example the terrible effects of crime are recorded positively as adding billions of dollars to the GDP due to the need for locks and other security measures, increased police protection, property damage, and medical costs.

Hurricane Andrew was a disaster for Southern Florida USA, but the GDP recorded it as a boon to the economy of well over $15 billion. 3. GDP ignores the drawbacks of living on foreign assets. Where governments have increased their spending by borrowing from abroad, this raises the GDP temporarily, but the need to repay this debt becomes a growing burden on the national economy. This downside of borrowing from abroad is not reflected in the GDP. 4. The GNP was turned into the GDP - a change that was deceptive and exploited by the Capitalist nations.

Under the old measure, the Gross National Product, the earnings of a capitalist multinational firm were attributed to the country where the firm was owned and where the profits would eventually return. Under the Gross Domestic Product, however, the profits are attributed to the country where the factory is located, even though the profits won't stay there. This accounting shift has deceptively turned many struggling nations into statistical boomtowns. Statistics which are used in aiding the push for globalisation and free trade.

Conveniently, it hides a basic fact: that the western Capitalist nations are walking off with the resources of poorer nations and calling it a gain for the poor. 5. Above all GDP ignores the distribution of income. In effect the GDP hides the fact that a rising tide does not lift all boats. From 1973 to 1993 in the USA, while GDP rose by over 50 percent, wages suffered a decline of almost 14 percent. Meanwhile, during the 1980s alone, the top 5 percent of households increased their real income by almost 20 percent. Yet the GDP presents this enormous gain at the top as a bounty to all.

Furthermore the average number of poor people averaged more than 30 million people over the last 40 years in the US, with an average of 15% of the population being poor. In the meantime, the gross national product continued to increase drastically, over the same period. The GDP grew from $400 billions to $10 trillions from 1959 to 2000. This very large increase in the national product did not contribute to the resolution of poverty. More than 30 million people continue to be poor. Hence Capitalism superbly increases the production of products and services, and hence wealth.

However this completely fails to resolve the poverty of the individuals. The number of poor people continues to grow. In reality therefore GDP as a measure of a nation’s economic well being is really a deception. It begins to explain why people feel increasingly gloomy despite official claims of economic progress and growth. In Islam, the economic problem is focused on distributing the means of satisfaction for individuals i. e. the distribution of the funds and benefits to the members of the nation or people, not on the needs which the nation or the people require without having any regard to every individual within the nation.

In other words, the problem is the poverty which occurs to the individual not the poverty which occurs to the nation. The concern of the Islamic economic system is focused predominantly on satisfying the basic needs of every individual, not the study of producing economic commodity. Islam makes the subject of study, the basic human needs of man, as a human being, and the study of distributing the wealth to the members of society to guarantee the satisfaction of all their basic needs.

Unlike capitalism it is aware that the treatment of the poverty of a country, through raising the level of production, does not solve the problem of poverty for individuals. Rather, Islam advocates the treatment of the poverty problems of all the individuals, and the distribution of the wealth of the country among them by addressing their basic needs first, thus motivating all the people of the country to work in increasing the national income.

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