The American Dream is India's Nightmare: GDP is Gross
Questioner: My name is Ansul. My question is about consumption versus development. On one side, we are talking about decreasing consumption to tackle climate change, but on the other side we are talking about building India into a developed nation. So what is the middle path to decrease consumption plus create this country a developed nation?
Acharya Prashant: A very important question, because what we are doing is, we are taking development as synonymous with GDP growth. Whereas this is Economics 101 that development is a very wide index that incorporates the true welfare of the human being. GDP growth, which is an aggregate measure in the case of India, is an aggregation over 50 crore people.
That GDP number, first of all, as we said, is aggregate, so it hides a lot of things in terms of income inequality. Secondly, it is only a very small part of the overall aspect of development. Thirdly, even per capita GDP plateaus when it comes to its impact on human welfare beyond a point. Which means that there is a definite relationship between income levels and welfare. At the lower end of incomes, you increase income, you find welfare increasing correspondingly, but as incomes increase the marginal utility of income in terms of adding to your welfare reduces, and at a point it just flattens.
So development is not GDP, definitely not. GDP is something that you can increase even with a lot of income inequality, as is happening in the case of countries like India. GDP can increase. We very well know that the top 1% contribute very, very disproportionately to carbon emissions: the top 1% across the globe contribute 20-25%. If you take the top 10% in terms of income, they contribute more than 50% of global carbon emissions. On the other hand, the bottom 50% contribute just 6 or 7%.
So even if you talk of GDP-based development, basically you are talking about increasing income levels of the top 1% or 5%, maximum 10%. They are the ones who really drive GDP growth. In fact, in our country, as GDP has risen, so has income inequality, which simply means that the pyramid has only gotten taller. The income difference between the top ones and the bottom ones has only increased multifold since 91 till today. You know, India is more unequal in terms of income than it was in 1947.
So we are talking of GDP and we are saying that there must be development, that’s the human imperative, and how can climate goals or sustainability come in between? But please tell me: how is development, or the GDP-based notion of development, actually contributing to the 90% of the population? How is that contributing to the bulk of the population, the overwhelming majority of people? We are not talking about 51%; we are talking about 90% here. How are 90% benefiting from what we call development?
Aggregate GDP, even per capita GDP, are such misleading figures. You can keep tom-tomming that the aggregate GDP has increased, whereas the bulk of the increase might have come only for the top 5% of the population. You look at GDP increase from one year to the next, and you must also ask: where did this particular increase, A minus B, come from? You will figure out it came from only the top slice. It is a very thin slice.
But when we talk of human welfare, or human development, or real national development, or global development, then we mean the entire population, right? 150 crore or 800 crore. That’s what we mean to speak of. How are they benefiting? What are they getting?
First of all, they are living in a more unequal world. As GDP increases, it becomes much more unequal for the common man. So even though his own income might have increased a little, his relative income has decreased. So you would say growing GDP leads to an increase in income levels, yes. But the relative income levels are actually decreasing. So that’s one thing.
Then he bears the brunt of the mega consumption performed by the top tier. Because when so much wealth is concentrated in a few hands, the result is insane consumption. And what does that result in? You know of the AQI of the place you are at. WHO (World Health Organization) would say 5 µg/m³ is the safe limit, and there we constantly experience 100, 200, even 600. If you experience 100, 150, you say it is fine. It is relatively okay these days, right? And that’s what the common man gets as a result of the development that benefits mostly the rich.
What do you get as drinking water? Are the rivers drinkable? What do you get? Finally, the big elephant in the room, as a result of the increasing ppm levels.
Climate change as a calamity is going to affect the poor and the marginalized first and the worst. The rich, the real perpetrators of the emissions, would be the last ones to be affected, and they would be affected the least.
So when we say development, we are talking of the common man, right? We are not talking of the development of the rich, are we?
You used the word ‘middle ground.’ Can there be a middle ground? No, we don’t need a middle ground. We need clarity. We need to be extremely clear on the definitions of our national imperatives. What do we want to call development? What is the cap we want to put on the Gini coefficient? How much per capita carbon footprint is tolerable, and beyond that, it must definitely be subjective to heavy taxation.
Education levels, that’s what corresponds to development. When you talk of cities, they must be livable. There must be public transport. Otherwise, you are forcing even the unwilling ones to buy not just one but two cars. Getting it?
You must have parks. You must have roads in villages. You must have means through which kids, especially girls, can travel to schools. That’s development. Development is not about skyscrapers and the Instagram images that bombard you with lavishness. Though that’s what we are made to believe.
We talk of airports, ports, skyscrapers, trains moving at extraordinary speeds. That’s a very marginal part of development, and we are not sure whether we even need that kind of development, given the unique situation of our country.
So we need to, first of all, as a country, as people who can think, as people who can apply mind, we need to sit together and have some clarity, some consensus on what is really meaningful and where we want to be. And that’s where the national resources should be invested. Are you getting it?
See, if development means the images we have been carrying of the United States, that is unsustainable, just not possible, sir. What happens is; and I am trying to constantly keep in mind the question you ask, the way it was framed. What happens is, the moment you utter the word development, an image springs to mind, but that is an unsustainable image. That cannot be called development.
The US went past its Earth Overshoot Day in March itself. The total material consumption, including metals, biomass, all kinds of goods that we consume, that is allowable today for the Earth to survive, is not more than 8 or 10 tons per person per year. And the average US citizen consumes three to four times that.
Per person, carbon emission, if we are to remain even within 1.5° of the normal, should not exceed 2.1 tons annually. The US emits 14 tons annually. So the US cannot be the destination if you want to become a developed nation. It is foolish. But that’s the image that comes to us, we want to become a copy of the US. In fact, all developing countries in the world want to become somewhat like the US or Europe. That’s the image of development, and it has gone deep into us. We have to become the US.
Now let that strike you. You cannot emit more than 2 tons per year per person, if you are to even survive. And the US is emitting 14 tons. We are talking about carbon. And then you multiply that kind of excess with the population of India. Where are the resources?
The Paris Agreement held us to a 1.5° limit, and for that it set a certain target by 2030. If you are to remain within 1.5° by 2030, all the margin that you have available is 200 gigatons of carbon dioxide. That is the additional amount you can still add to the atmosphere and hope to remain somewhat within 1.5°. That is the additional amount you can add till, let’s say, infinity.
But the world is already emitting more than 55 gigatons of carbon equivalents per year. So all the limits, all the margin that you have available, will be exhausted within the next four years. 200 is what you have; 55 is what you are emitting.
So what kind of development are we talking about?
We know the repercussions of climate change. We know how it affects normal human life. We also know how it hits the GDP. So even if you talk of it in a climate versus GDP framework, the fact is X versus Y makes any sense only if X and Y are independent, orthogonal. Climate and GDP even though they are not independent. So even those who want to sacrifice climate for the sake of GDP will find that they have sacrificed climate and sacrificed GDP as well. GDP cannot proceed without climate, because ultimately GDP too has to come from human beings, and our country is going to be among the worst ones to be hit by climate.
You see, the whole problem is of the image, the notion. The image goes within and becomes a concept: the concept of good life. What is a good life? American life.
At least in terms of consumption. In terms of culture, we sometimes want to have some kind of a moral upper hand and say, “No, no, no, their culture we don’t want to adopt,” but their consumption we certainly want to adopt.
And that goes in and becomes a philosophy, not just a concept. We think that’s what we are born for. That is the entire purpose of human life, to consume as the Americans do.
And that brings us to the pivotal point: education, education of the self. You are sitting there; it is a center of learning. But if your education does not include education of who you are and what you are to do with all your knowledge of finance and strategy and marketing, then the only thing left open to you by default is consumption. You will think that all this knowledge that you have gained, all the empowerment and all the technology, is there just so that you can consume more and more.
Think of it. What else will you do?
You will have a degree, you will have a job, you will have knowledge and all that will be used just to further your ambitions; and ambitions mean nothing else except for consumption. Let me earn more so that I can burn more. That's the reason I say that after all the numbers have been quoted and all the research has been analyzed, fundamentally the climate crisis is a crisis of man's education. It's a spiritual crisis really, since we do not know what to do with our lives. So we just proceed on an orgy of consumption. What else to do? What do we live for?
Think of a corporate organization. Can it be satisfied if it is just profit-making? Obviously, if it's loss-making it can't survive. But if it's profit-making, would it be contented at that? No. Even the profits must increase year after year. You want bottom-line growth. If you are making profits year after year, that could probably be a nice thing to live with, No? One could make peace with that. But that will not be okay. If it's a listed company, you would find its stock crashing because there is no growth in profits. Profits are there, huge profits might be there, but if the profits don't exceed that of the previous year. What previous year, previous quarter. You'll find the stock takes a beating.
Now, how can you keep increasing the profits year after year? How is it possible? You'll have to consume resources, right? Does the planet really have enough? The Earth Overshoot Day is such an important metric, but our education does not cover that.
For the corporations to keep increasing their profits, there must first of all be raw materials available. Are raw materials available? And if the bottom line has to increase, then the salary hike of the stakeholders; stakeholders except for the owners, I'm talking of the employees, the vendors and the other parties. Their salary increase or their margins have to be kept within limits, which means that the bottom line for the corporation as such must rise, but the employees' salaries or the vendors' cuts must remain as frozen as possible. What does that mean? Income inequality.
So for the American model of a good, happy, successful life, you first of all need to exploit the planet. You need to have high income inequality. And at the end of the consumer chain, you need to act like a vicious educator. Because it is never sufficient to produce a car; you must also ignite ambition inside a prospective consumer. Otherwise, if he already has a car, he might not want to purchase another one.
All the current theatrics regarding tariffs and all, why do you think that is happening? 70% of that is cars. The US wants to sell its cars in India, and they want us to lower the tariffs. And if a car seller comes here, he is not just selling you cars, he is selling you a philosophy. He is telling you: your vacant, vacuous, meaningless life will come alive if you buy this new American car.
So you see, the model that we have exploits the earth, exploits the employees and other relatively powerless stakeholders, and at the far end deeply deeply exploits the customer by turning him or her into a compulsive consumer. It is not necessary to sell your product just once. We know of forced obsolescence. Your mobile phone won't be the same thing after two or three years, and that’s by design. So you have to purchase the phone, and then you have to again purchase it, again purchase it. It is made obsolete by design. And if you make it obsolete by design, you'll have to reproduce it. And can the earth afford that?
In the short term, it will appear like GDP gain. In management parlance, it's like showing for additional cash by selling the deep assets, right?
The problem is we are not accounting for the deep assets. If a company does that, you will very quickly figure that out on its books. Here what we are doing is, we are liquidating the one asset that we have, which is this planet, and showing that liquidation as corporate profit. No, that is not profit. What the corporations are showing as their profit is actually a deep, deep loss to the planet, just that in the balance sheet, you never have those indices at all.
What they did to the oceans, what they did to the rivers and the air, what they did to biodiversity, that is never, never displayed there. So you manage to carry a false impression that things are good, rather things are improving, that there is growth. That is not growth.
Recently there was a lot of chatter in the newspapers saying that India has exceeded 50% renewable energy targets ahead of even the planned date. The fact is, when it comes to real production, we stand at 25%. And even that 25% renewable includes hydro, which is not really clean. 70% of our production is still happening from coal, but that will be counted as GDP growth. So GDP growth is not just misleading, slowly it has actually become scary.
When I was at IIM, this is what was taken as an important new thought, breaking new ground, limits of GDP. So we used to say GDP does not suffice; therefore, in indices like HDI, GDI and other things, we take GDP as just one of the things and give it 1/3 or 1/4 weightage.
Now, around two and a half decades later, GDP growth is actually a scary thing. And now those who understand are talking of degrowth. They’re saying if you see GDP growing at a fast rate, it is not a matter of celebration; it might actually be a warning. Don’t do that. Slow down. Not just slow down, actually reduce the size of your economy.
As is happening with some countries in Europe, that is a very, very welcome sign. And the shrinking of population, as is happening in places like Japan, that too is a welcome sign. If an economy like, let’s say, France or the UK or Germany shrinks a little, that is nothing to grieve about.
All this can be very, very easily understood. There is no rocket science in this. What comes in the way is the image, the image that you are carrying. The image that you are carrying is that of your future, that of your past. The thing is, because you do not know who you are, therefore the images that you are carrying are not good even for you. And ultimately, it's you who is going to suffer.
Reality is very, very different from what you think it is, both outside and inside. And we are not as smart as we think we are. No other species ever destroyed their own habitat as we have done. And when it comes to MBAs, we need to be especially cautious.
