The definition of Gross Domestic Product: total market value of goods and services produced by workers and capital within a nation's borders during a given period, usually 1 year.
To simplify concepts, let us assume GDP is measured in simply units.
If Country A produced 100 units of GDP last year and this year it is 110 units. There is a GDP growth of 10%. So far so good. So far reasonable. Reasonable and logical that a person or a country wants to "improve" and producing more will show a "positive" growth. And if Country A has been comparing with Country B (FACT of LIFE: everybody is comparing with everybody else!), Country A could be satisfied if finally the GDP growth was more than Country B. So if Country B registered a growth of 5%, Country A could have a feel-good time, attracting applause, confidence, curiosity from other neighbours, and potential investors. Investors then make some calculated risk and decided to invest in Country A.
Country B: I must keep pace with Country A. Look at them now. They have a newer bigger airport that will bring in more tourists and potentially more disposable income being spent by them in Country A's tourism and property industry, making them grow again with a better GDP performance! I can produce more? Hm. Let me try a tested method. Let us go to WAR! Waging a war is just a stage. Basically we will have to produce more shoes, food packages, bags, helmets, and vehicles for the war to take stage. Therefore, our GDP will improve too. So that country has been artificially increasing their GDP for many many wars. And during the ancient times, the winner takes it all. Including the natural resources such as oil (no surprise) and gold and jewels!
Well that is one way. Another way is to strive to improve, sell the benefits of investing to investors. Give tax breaks. Good infrastructure. Building efficient infrastructure too is contributing into GDP.
In a supposedly more civilised world, countries cannot simply wage war. So this is good. Peace to the world. Just try to be better than the other nations. Better working conditions, bigger ports, cheaper labour, tax breaks, attract talent with expat packages. Dozen other methods. Good good good. Look at Singapore. Small but the per capita GDP is 3-4 times of Malaysia. Singapore readers will naturally feel good.
Now let us take a microscopic view of how goods are produced. Producing. Say producing a packet of instant noodles. Maggi noodles. Or Korean Noodles?! Think about it for a while. There are flour mills to produce the flour used for the noodles. And before that, there is the requirement to grow them. The grains need to be harvested and stored. The plants need to be planted, fertilised, at growing plots or farmland. Many stages of these production need a inconspicuous ingredient. Oil. Petrol. Gas.
Be it for the trucks, or the machines. The electricity. All comes from this solar-stored-valued card. A prepaid card of energy. Pre-made card. Thanks to dead dinosaurs and zillions of decaying microbes (yes this is another fallacy we didn't know - dinosaurs contributed only a certain portion not all) that parked the sun's storage energy into hidden valves for centuries deep deep down underground.
But alas, it is a finite source. Eventually this chase of GDP growth will mean an accelerated thirst for using more of this finite resource, since keeping up with the Joneses in a macro way (country to country scope) has became the de facto way of ranking a country. Be it progress, social, political - this so-called measure of achievement has created the mad rush, mad chase all around the world.
I make funny short stories and so here is one as an analogy:
There was this story: There were 5 grasshoppers and their mom stored food enough to last through the winter in their hideout. If they ration it well, they will all be able to survive the winter and look forward together to an abundance in spring. Unfortunately now, every one of these grasshoppers want to consume more of the stored grains to grow. Everybody gets greedy and over-consumed. Overeating. Finished. The final 10 grains will be a bloody fight. Perhaps no one will see spring - it is possible?
An addendum:
GDP, the measure of an economy was actually adopted by USA just merely in 1991. And why is everyone else behaving just like a lemming?
As President Sarkozy points out: "We will not change our behavior unless we change the ways we measure our economic performance."
My book recommendation can be found on this page by Amazon:
Mismeasuring Our Lives: Why GDP Doesn't Add Up
In February of 2008, amid the looming global financial crisis, President Nicolas Sarkozy of France asked Nobel Prize–winning economists Joseph Stiglitz and Amartya Sen, along with the distinguished French economist Jean Paul Fitoussi, to establish a commission of leading economists to study whether Gross Domestic Product (GDP)—the most widely used measure of economic activity—is a reliable indicator of economic and social progress. The Commission was given the further task of laying out an agenda for developing better measures.Mismeasuring Our Lives is the result of this major intellectual effort, one with pressing relevance for anyone engaged in assessing how and whether our economy is serving the needs of our society. The authors offer a sweeping assessment of the limits of GDP as a measurement of the well-being of societies—considering, for example, how GDP overlooks economic inequality (with the result that most people can be worse off even though average income is increasing); and does not factor environmental impacts into economic decisions.
In place of GDP, Mismeasuring Our Lives introduces a bold new array of concepts, from sustainable measures of economic welfare, to measures of savings and wealth, to a “green GDP.” At a time when policymakers worldwide are grappling with unprecedented global financial and environmental issues, here is an essential guide to measuring the things that matter.
About the Author
Joseph Stiglitz is a professor of Economics at Columbia University and the recipient of the John Bates Clark Medal and a Nobel Prize. He is also the former Senior Vice President and Chief Economist of the World Bank. His books include Globalization and Its Discontents, The Three Trillion Dollar War, and Making Globalization Work. He lives in New York City.
Amartya Sen is Lamont University Professor, and Professor of Economics and Philosophy, at Harvard University. The author of numerous books, including Identity and Violence, Rationality and Freedom, and Development as Freedom, he is also the recipient of a Nobel Prize in Economics. He lives in Cambridge, Massachusetts.
Jean Paul Fitoussi is a professor of economics at Sciences-po and the president of OFCE (Sciences-po Center for Economic Research, Paris). He lives in Paris.
Amartya Sen is Lamont University Professor, and Professor of Economics and Philosophy, at Harvard University. The author of numerous books, including Identity and Violence, Rationality and Freedom, and Development as Freedom, he is also the recipient of a Nobel Prize in Economics. He lives in Cambridge, Massachusetts.
Jean Paul Fitoussi is a professor of economics at Sciences-po and the president of OFCE (Sciences-po Center for Economic Research, Paris). He lives in Paris.
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