By Lily Posey
Things got hot this summer in Brazil as preparation for the World Cup ignited protests and called into question Brazil’s decision to prioritize an international sporting event over the immediate well-being of Brazilians. While the great successes and defeats on and off the field at this summer’s World Cup have been headlining the news, the story of why this country spent exorbitant amounts of money for the sake of increasing GDP growth by a few percentage points is on the back burner. As Brazil struggles to justify its World Cup expenses, perhaps the rest of the world should justify why Gross Domestic Product (GDP) growth has become the ruler of the global economy.
In 2011, Brazil estimated that hosting the World Cup would increase its economy by 1.5 percent of annual GDP. It perceived the World Cup to be a jump start for the infrastructure improvements that the country’s increasing growth rates seemed to predict. However, after hosting the most expensive World Cup yet and failing to deliver many of the promised infrastructure projects, Brazil’s economy (and public morale) is on the decline. Lured by an illusive dream of growth, Brazil diverted funds that may have been put to better use elsewhere towards World Cup construction projects that would boost growth rates.
Growth, growth, growth is the sound of developing economies chugging into industrialization and of developed nations keeping their economies afloat. In the name of economic growth, countries vie for businesses and often ignore the human side of a nation. But why does a nation’s economic growth (and supposed improvement) often come to the detriment of its inhabitants? The culprit lies in the economic measure of growth: GDP.
To begin, let’s take a look back in history to see where this measurement came from and how it proliferated.
In the economic collapse of the Great Depression, the US Congress commissioned Simon Kuznets to make sense of what was happening. The result was Gross Domestic Product (GDP). Like medieval kings who went and counted every sheep, blacksmith and cheese monger in the land, Kuznets created a national inventory of the income in the US. From a simple measure of the United States’ economy activity, GDP has been misguidedly extrapolated as proxy for a country’s economic strength and the well-being of its inhabitants.
GDP became entrenched in the world economy at the Bretton Woods conference. This conference–a post WWII economic gathering with an exclusive guest list of Allied nations–put the US dollar at the center of the world economy and birthed international economic bodies such as the International Monetary Fund (IMF) and World Bank Groups. Because reporting GDP was a requirement of membership, the organizations created at Bretton Woods brought GDP to the forefront of the global economy. As Leading Indicators author Zachary Karabell explains, “The first thing you do in 1950s and ’60s if you’re a new nation is you open a national airline, you create a national army, and you start measuring GDP.” Since GDP is embedded as a mainstay of international economic organizations, the use of GDP as the economic indicator has proliferated.
From a criteria for inclusion in the global economy to a determinant in the race of the Cold War, GDP has become a highly politicized tool––and an often incomplete one. As countries continue to emphasize growth, the questions growth of what and growth for whom need to be addressed.
For example, although GDP measures all the goods and services produced by a country, not all of that economic activity may necessarily be deemed…well…good. This May, Italy announced a 1.3 percentage point boost to its economy through the inclusion of the black market. In a similar manipulation, Spain is now recalibrating its GDP to account for “wages of sin” such as prostitution and heroin. In a system such as this, increasingly heavy drug use would be applauded as a boost to the economy.
Just as GDP can over-compensate for the darker side of human nature, it often leaves out the more positive side. Former US President JFK succinctly summed up the deficiencies in GDP stating, “Yet, the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.” The urge to simplify a complex economic system to a single number allows for grave miscalculation. To return to the previous example, Brazil invested a vast amount in infrastructure, but what was devoted to increasing the human capital of its people?
JFK seems to echo the thoughts of the Charles Dicken’s street urchin Sissie in Hard Times, who sees in the human side of cold industrial facts: “I couldn’t know whether it was a prosperous nation or not, and whether I was in a thriving state or not, unless I knew who had got the money, and whether any of it was mine. But that had nothing to do with it. It was not in the figures at all.” The figures represented by GDP are often used as a sign of a “thriving state,” yet, as Sissie points out, the numbers do not tell who is prospering. While many indicators have since emerged to fill the gaps left by GDP, such as the Gini Index measure of income inequality or Bhutan’s gross national happiness, the prevalence of GDP continues as is evidenced by Brazil’s blunder.
From importing foreign steel as construction material to uprooting people to build stadiums, Brazil failed to use the World Cup as an opportunity to help Brazilians. Instead, the World Cup has sparked protests and left the country with a declining economy. Even Brazilian soccer icon Pelé chimed in the chorus of criticism about the World Cup expenses, saying, “Some of this money could have been invested in schools, in hospitals. Brazil needs it. That’s clear.”
While investments in the stadiums and accompanying infrastructure may provide employment opportunities during construction, it is not the golden ticket to economic success. Infrastructure projects that seem to be the key that opens the door for economic advancement are a misleading lure that have misguided many countries. The stadiums of Beijing and South Africa–hosts of previous Olympic and World Cup, respectively–are now standing empty and unused, and Brazil’s are likely to do the same after this summer.
To reiterate, Brazil focused too much time on creating growth and less time considering what kind of growth would best meet the needs of the nation. Unfortunately, Brazil is not unique in this mistake. The international institutions––such as those created at Bretton Woods––that run the show have GDP at their core. Thus, many nations are slipping into the same pothole as Brazil. As worldwide problems of income inequality and environmental resource scarcity mount, perhaps nations, like Brazil, should rethink their emphasis on growth as a panacea and acknowledge the limitations of GDP in order to have sustainable, long-term success.
Image Source: Forbes
Lily Posey ’15 is an Economics major. Contact her at email@example.com.