Difference between GNP and National Welfare in Economics

Read this article to learn about the difference between GNP and National Welfare in Economics.

Difference between GNP and National Welfare in Economics

According to some critics aggregates like GNP are faulty, Economic growth, reflected in rising GNP, is not enough.

These statistical measures fail to indicate the trends in national welfare. It is true that national welfare cannot be measured through any one criterion; but the most widely adopted is one which holds that the national welfare is enhanced by an expansion of goods, and services designed to satisfy the needs of ultimate consumers today and tomorrow.

For example, the complete exclusion from GNP of all the services performed within the home (personal, domestic services like that of housewives) means that GNP (as a result of this exclusion alone), is a very poor measure of welfare.

Again, a more equal distribution of the existing level of income and output might make a greater contribution to national welfare than a sizable increase in the total output with no change in its distribution. The approach to improving welfare via income redistribution as compared to income expansion is one that has received greater attention in recent years. A major consideration is not only the amount of goods produced but also the ‘human costs’ of producing that amount.

A given amount may mean more or less welfare depending on the human costs of its production. For instance, leisure, like goods, satisfies the needs of consumers, but unlike goods, leisure is not counted in the GNP. The amount of this kind of output has greatly increased in recent years, and its exclusion from the GNP is one of the major reasons that GNP cannot serve as a true measure of welfare. If a rupee value could be placed on the distribution of income, leisure, personal and domestic services like that of housewives, the resultant GNP figure would move a long way towards becoming a measure of welfare.

The basic argument of the advocates of this school is that the developed countries of the world have already attained a stage at which all rational needs for goods and services have been or can be satisfied and that mere expansion of goods and services does not add to national welfare. They also argue that we have reached a situation in which the further expansion of goods may result in a decrease rather than an increase in welfare.

The setback to environmental quality and the reduction in amenities that result from increased production of output are costs that exceed the benefits of producing more output. When we take into consideration the negative amount for ecological imbalances against the positive amounts represented by the goods; the balance on the whole, is negative, or a decline in welfare.

Rising GNP is, no doubt, a means of providing higher living standards and more jobs, but there are costs involved as well, like the over-exploitation of the resources and environmental pollution. The problem, to be kept in mind is—rising GNP at what cost and for whom? As long as GNP data do conceal more than they reveal, the economist must find new ways, methods and approaches that better explain the existing conditions.

In a speech made a short time before his death, Senator R.F. Kennedy protested that, “the GNP does not allow for the health of our youth, the quality of their education. It does not include the beauty of our poetry, the integrity of our public officials. It measures neither our wit nor our learning, neither our compassion nor our devotion to country. It measures everything, in short, except that which makes life worthwhile”. In the same vein, Nehru remarked that a country’s progress cannot be measured by certain physical criteria and statistical indexes like GNP.

These standards and methods were not everything because they ignored certain basic immaterial and immeasurable things, which ultimately count for more than anything else. It means rising the material, the cultural, the moral and the spiritual level of the people. Surely then, what we are seeking is a middle course a measure more inclusive than those provided by the national income accounts or GNP etc.