Shanghai: GDP Apostasy

LT 3

SHANGHAI: GDP APOSTASY Word count: 1273

MACRO ECONOMICS Plagiarism check: 0%

WAC SUBMISSION BY: LT 3

What is GDP?

The gross domestic product is one of the major primary indicators used to assess the country's economic
health. It represents the total value of all goods and services produced within a country over a specific
timeframe. Usually, annual GDP figures are considered the benchmark for size of the nation’s economy,
when there is a talk about the “size” of an economy, they are referring to GDP. The countries with the
highest GDP are; United States, China, Japan, Germany, The United Kingdom, France, India, Italy, Brazil
and Canada in the respective order.

What GDP doesn’t measure:

GDP does NOT measure: health, happiness, crime, poverty, environmental health/decay and destruction
of the natural environment, income gap etc.

Case Overview

Shanghai has positioned itself as the financial hub of the Chinese economy. The shift from an agriculture
based economy to manufacturing and service economy after WW II has induced many changes in the
overall economy and socio-cultural aspects. The case sheds light on Shanghai's shift in the measurement
of country’s economy by deciding to measure success by different metrics other than GDP and
abandoning the growth of GDP as its primary metric to measure success Within this context, case
presents the footprints of GDP reflecting the history of China’s economy and how the measure is
calculated. Moreover, it discusses the persistence of GDP as the only measure of success. Shanghai's use
of GDP and gauging growth based on getting targeted GDP was the customary practice in China. The case
mainly focuses on Shanghai's past trends in economy and overall external environmental factors. How
the huge economic growth according to sky rocketing GDP that Shanghai has experienced with
significant economic, social and environmental failures such as; depleting resources, high pollution level,
the social gap and inequality. Even the UN uses GDP as their main indicator for assessing countries
economic health, member countries sign/subscribe the System of National Accounts which are used to
measure the GDP which ignores social cost and environmental costs of the growth. Now, with the
analysis of drawbacks of focus on GDP has caused Shanghai to alter its way to look at things and use
other indicators such as Human Development Index, Better Life Index, Social Progress Index, Global
Competitive Index and Balance Scorecards. The decision to abandon GDP growth as a measure of
success requires solution to alternative metrics measuring and what success might look like for Shanghai
and China.

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 Shanghai: GDP Apostasy
LT 3

Objective:

The objective of this study is to find out the suitable index for Shanghai to measure its success as a whole
and not just the economy, to raise a question to government about its role in citizen’s life which is not
just to focus on GDP target but assemble the overall prosperity of its citizens in the indexes it uses.

Statement of the Problem:

Main problem:

The concomitant explosion in real state, the increasing penetration of consumer culture, the immigration
of non-Shanghainese seeking work and the dispersal of city to the periphery of Shanghai all have
significant implications for the country’s overall health and while it only uses GDP all the other aspects
are not incorporated within the equation. The country’s economy cannot be gauged via GDP alone and
until today the use of GDP for economic progress is still very much in practice and used as primary
measure of country’s success. We jotted down 3 major questions to be answered by the analysis of the
case.

1. Shanghai serves as a successful model for smaller cities due to GDP enormous growth. Who will
be the model now?

2. What will be the measure to incentivize public officials? Before they use GDP.

3. What metrics could Shanghai use in the future to complement or substitute GDP? How should
those new metrics guide policy making and the career trajectories of public official?

Identified Challenges:

1. Economic----Local Leaders who wants to be promoted would seize lands from the poor and sell
them to developers for real estate on a massive scale which would increase investment in GDP
formula (GDP=C + I + G + N). Other than this, they build more skyscrapers, sport stadiums, and
other infrastructures. On the other hand, China accumulated massive debt burden that would
represent 400 percent of GDP by 2018. Chinese government borrowed heavily to build cities and
roads, invest in businesses and injected huge amount of sum on financial markets and real state,
over 20 projects were failures.

2. Environmental----China is also facing serious environmental problems including increased smog

and polluted rivers. Places in Beijing like Hebei and Tianjin was said to have average level of air
which are more harmful to health. Shanghai’s air quality had also been frequently considered as
unsafe. Public authorities confirmed that lung cancer deaths had multiplied by four times the
rate it was 30 years ago. But air quality is not China’s only concern. Shanghai’s water authority
and Bureau of Statistics confirmed that only 3% of Shanghai’s water supply was safe for use by
farms and households. Meanwhile, about 53% of Shanghai’s water supply was considered

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 Shanghai: GDP Apostasy
LT 3

severely polluted. To make matters worse, Shanghai had lost about half of its rivers due to water
extraction between 1993 to 2013.

3. Social----Chinas inequality continue to grow. Gini coefficient was 0.474 in 2012. Hukou System
causes unemployment problem. Crime rate increase in relation to this 80-90% of the crimes are
committed by non-Shanghainese.

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Recommendations:

The case validates the point very clearly that a nation’s prosperity ranking is not determined by wealth
alone, it is also build significantly upon citizen’s wellbeing. The Chinese government is very well aware of
the problem and government has introduced a series of measures in recent years to tackle debt and
unemployment. It cannot be done until and unless it reduces the economy's dependence on credit as a
way to fuel growth and just hike GDP to paint a pretty picture in world arena.

According To recent surveys one of the most fascinating discovery is that the higher-income countries
have diminishing returns to life satisfaction which means, if you belong to the poorest nations on earth,
an increase in income is of crucial importance for improved prosperity so driving growth is a critical
target for people in those regions. However, in wealthy parts of the world, greater the security, better
governance and personal freedom the greater to life satisfaction than increase in wealth.

THE PROSPERITY INDEX:

While considering nonmonetary aspects of prosperity “The Prosperity Index”, generated by the Legatum
Institute has been providing comprehensive measurement of prosperity by identifying and measuring
the building blocks of prosperity. A combination of variables of economic wealth and quality of life both
are used as sub-indices. The Prosperity Index more usefully encapsulates what can be measured from
within the economy and social realms.

The sub-indices of the Prosperity Index are as follows:

 Economic Fundamentals

 Entrepreneurship and Innovation

 Education

 Government accountability

 Governance

 Health

 Personal Freedom

 Social security

 Environment

This combination of factors reflects the view that while prosperity necessarily implies wealth, genuine
prosperity is based on more than money alone for individual citizens and for individual countries. It also
reflects an understanding that a growing economy is necessary but not sufficient for the nation’s
prosperity and that without additional factors such as, accountable governments, healthy citizens, strong
social capital, and respect for civil and political liberties, a nation cannot achieve sustainable prosperity.

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