In Box

GDP: a brief history

One stat to rule them all.

Out of the carnage of the Great Depression and World War II rose the idea of gross domestic product, or GDP: the ultimate measure of a country's overall welfare, a window into an economy's soul, the statistic to end all statistics. Its use spread rapidly, becoming the defining indicator of the last century. But in today's globalized world, it's increasingly apparent that this Nobel-winning metric is too narrow for these troubled economic times. 

1937: Simon Kuznets, an economist at the National Bureau of Economic Research, presents the original formulation of gross domestic product in his report to the U.S. Congress, "National Income, 1929-35." His idea is to capture all economic production by individuals, companies, and the government in a single measure, which should rise in good times and fall in bad. GDP is born.

1944: Following the Bretton Woods conference that established international financial institutions such as the World Bank and the International Monetary Fund, GDP becomes the standard tool for sizing up a country's economy.

1959: Economist Moses Abramovitz becomes one of the first to question whether GDP accurately measures a society's overall well-being. He cautions that "we must be highly skeptical of the view that long-term changes in the rate of growth of welfare can be gauged even roughly from changes in the rate of growth of output."

1962: But GDP evangelists reign. Arthur Okun, staff economist for U.S. President John F. Kennedy's Council of Economic Advisers, coins Okun's Law, which holds that for every 3-point rise in GDP, unemployment will fall 1 percentage point. The theory informs monetary policy: Keep growing the economy, and everything will be just fine.

Alfred Eisenstaedt/Time&Life Pictures/Getty Images

1972: Upon being named king of Bhutan, Jigme Singye Wangchuck declares his aim is not to increase GDP, but GNH -- "gross national happiness."

June 1978: Writing in Britain's The Economic Journal, Irving B. Kravis, Alan W. Heston, and Robert Summers compile the first estimates of GDP per capita worldwide, with figures for more than 100 countries.

Marie-France Rouze/AFP/Getty Images 

1990: The United Nations launches the Human Development Index, which measures such factors as education, gender equality, and health. U.N. economist Mahbub ul Haq convinces future Nobel laureate Amartya Sen to create "an index as vulgar as GDP but more relevant to our own lives," as Sen remembers it.

December 7, 1999: The U.S. Commerce Department declares GDP "one of the great inventions of the 20th century."

2001: The bursting of the tech bubble and the 9/11 attacks send the U.S. economy into a temporary tailspin. During the subsequent recovery, something unexpected happens: Although GDP rises between 2002 and 2006, personal incomes fall.

September 2006: China creates a new index for "green GDP" -- a measure of national economic output that takes environmental factors into consideration. The first report finds that environmental damage, had it been accounted for, would have knocked 3 percent off China's GDP in 2004.

Manpreet Romana/AFP/Getty Images

2008: The U.S. government begins funding the State of the USA project, designed to create a "key national indicator system" with hundreds of new data points to add nuance to standard GDP stats.

2009

September 14, 2009: The French government releases a report, co-authored by Nobel Prize-winning economist Joseph Stiglitz, that calls for an end to "GDP fetishism."

November 15, 2010: British Prime Minister David Cameron's government announces that it will, for the first time, survey happiness in addition to other economic measures. Who knew austerity would be so warm and fuzzy?

Oli Scarff/AFP/Getty Images

In Box

5 Myths About the Chinese Communist Party

Market-Leninism lives.

"China Is Communist in Name Only."

Wrong. If Vladimir Lenin were reincarnated in 21st-century Beijing and managed to avert his eyes from the city's glittering skyscrapers and conspicuous consumption, he would instantly recognize in the ruling Chinese Communist Party a replica of the system he designed nearly a century ago for the victors of the Bolshevik Revolution. One need only look at the party's structure to see how communist -- and Leninist -- China's political system remains.

Sure, China long ago dumped the core of the communist economic system, replacing rigid central planning with commercially minded state enterprises that coexist with a vigorous private sector. Yet for all their liberalization of the economy, Chinese leaders have been careful to keep control of the commanding heights of politics through the party's grip on the "three Ps": personnel, propaganda, and the People's Liberation Army.

The PLA is the party's military, not the country's. Unlike in the West, where controversies often arise about the potential politicization of the military, in China the party is on constant guard for the opposite phenomenon, the depoliticization of the military. Their fear is straightforward: the loss of party control over the generals and their troops. In 1989, one senior general refused to march his soldiers into Beijing to clear students out of Tiananmen Square, an incident now seared into the ruling class's collective memory. After all, the army's crackdown on the demonstrations preserved the party's hold on power in 1989, and its leaders have since worked hard to keep the generals on their side, should they be needed to put down protests again.

As in the Soviet Union, the party controls the media through its Propaganda Department, which issues daily directives, both formally on paper and in emails and text messages, and informally over the phone, to the media. The directives set out, often in detail, how news considered sensitive by the party -- such as the awarding of the Nobel Peace Prize to Liu Xiaobo -- should be handled or whether it should be run at all.

Perhaps most importantly, the party dictates all senior personnel appointments in ministries and companies, universities and the media, through a shadowy and little-known body called the Organization Department. Through the department, the party oversees just about every significant position in every field in the country. Clearly, the Chinese remember Stalin's dictate that the cadres decide everything.

Indeed, if you benchmark the Chinese Communist Party against a definitional checklist authored by Robert Service, the veteran historian of the Soviet Union, the similarities are remarkable. As with communism in its heyday elsewhere, the party in China has eradicated or emasculated political rivals, eliminated the autonomy of the courts and media, restricted religion and civil society, denigrated rival versions of nationhood, centralized political power, established extensive networks of security police, and dispatched dissidents to labor camps. There is a good reason why the Chinese system is often described as "market-Leninism."

"The Party Controls All Aspects of Life in China."

Not anymore. No question, China was a totalitarian state under Mao Zedong's rule from 1949 until his death in 1976. In those bad old days, ordinary workers had to ask their supervisors' permission not only to get married, but to move in with their spouses. Even the precise timing for starting a family relied on a nod from on high.

Since then, the Chinese Communist Party has recognized that such intensive interference in people's personal lives is a liability in building a modern economy. Under the reforms kick-started by Deng Xiaoping in the late 1970s, the party has gradually removed itself from the private lives of all but the most recalcitrant of dissidents. The waning in the 1980s and 1990s of the old cradle-to-grave system of state workplaces, health care, and other social services also dismantled an intricate system of controls centered on neighborhood committees, which among other purposes were used for snooping on ordinary citizens.

The party has benefited hugely from this shift, even if many young people these days have little knowledge of what the party does and consider it irrelevant to their lives. That suits party leaders perfectly. Ordinary people are not encouraged to take an interest in the party's internal operations, anyway. Powerful party organs like the Organization and Propaganda Departments do not have signs outside their offices. They have no listed phone numbers. Their low profile has been strategically smart, keeping their day-to-day doings out of public view while allowing the party to take full credit for the country's rapid economic growth. This is how China's grand bargain works: The party allows citizens great leeway to improve their lives, as long as they keep out of politics.

"The Internet Will Topple the Party."

Nope. Bill Clinton famously remarked a decade ago that the efforts of Chinese leaders to control the Internet were doomed, akin to "nailing Jell-O to a wall." It turns out the former president was right, but not in the way he thought. Far from being a conveyor belt for Western democratic values, the Internet in China has largely done the opposite. The "Great Firewall" works well in keeping out or at least filtering Western ideas. Behind the firewall, however, hypernationalist netizens have a much freer hand.

The Chinese Communist Party has always draped itself in the cloak of nationalism to secure popular support and played up the powerful narrative of China's historical humiliation by the West. Even run-of-the-mill foreign-investment proposals are sometimes compared to the "Eight Allied Armies" that invaded and occupied Beijing in 1900. But when such views bubble up on the Internet, the government often skillfully manages to channel them to its own ends, as when Beijing used an online outburst of anti-Japanese sentiment to pressure Tokyo after a Chinese fishing-boat captain was arrested in Japanese waters. Such bullying tactics may not help China's image abroad, but they have reinforced support at home for the party, which the state media is keen to portray as standing up to foreign powers.

Through its Propaganda Department, the party uses a variety of often creative tactics to ensure that its voice dominates the web. Not only does each locality have its own specially trained Internet police to keep a lid on grassroots disturbances, the department has also overseen a system for granting small cash payments to netizens who post pro-government comments on Internet bulletin boards and discussion groups. Moreover, the dominant national Internet portals know that their profitable business models depend on keeping subversive content off their sites. If they consistently flout the rules, they can simply be shut down.

"Other Countries Want to Follow the China Model."

Good Luck. Of course, many developing countries are envious of China's rise. Which poor country wouldn't want three decades of 10 percent annual growth? And which despot wouldn't want 10 percent growth and an assurance that he or she would meanwhile stay in power for the long haul? China undoubtedly has important lessons to teach other countries about how to manage development, from fine-tuning reforms by testing them in different parts of the country to managing urbanization so that large cities are not overrun by slums and shantytowns.

Moreover, China has done this while consciously flouting advice from the West, using the market without being seduced by its every little charm. For years, foreign bankers trekked to Beijing to sell the gospel of financial liberalization, telling Chinese officials to float their currency and open their capital account. Who could blame China's leaders for detecting the evident self-interest in such advice and rejecting it? China's success has given rise to the fashionable notion of a new "Beijing Consensus" that eschews the imposition of free markets and democracy that were hallmarks of the older "Washington Consensus." In its place, the Beijing Consensus supposedly offers pragmatic economics and made-to-order authoritarian politics.

But look closer at the China model, and it is clear that it is not so easily replicated. Most developing countries do not have China's bureaucratic depth and tradition, nor do they have the ability to mobilize resources and control personnel in the way that China's party structure allows. Could the Democratic Republic of the Congo ever establish and manage an Organization Department? China's authoritarianism works because it has the party's resources to back it up.

"The Party Can't Rule Forever."

Yes it can. Or at least for the foreseeable future. Unlike in Taiwan and South Korea, China's middle class has not emerged with any clear demand for Western-style democracy. There are some obvious reasons why. All three of China's close Asian neighbors, including Japan, became democracies at different times and in different circumstances. But all were effectively U.S. protectorates, and Washington was crucial in forcing through democratic change or institutionalizing it. South Korea's decision to announce elections ahead of the 1988 Seoul Olympics, for example, was made under direct U.S. pressure. Japan and South Korea are also smaller and more homogeneous societies, lacking the vast continental reach of China and its multitude of clashing nationalities and ethnic groups. And needless to say, none underwent a communist revolution whose founding principle was driving foreign imperialists out of the country.

China's urban middle class may wish for more political freedom, but it hasn't dared rise up en masse against the state because it has so much to lose. Over the last three decades, the party has enacted a broad array of economic reforms, even as it has clamped down hard on dissent. The freedom to consume -- be it in the form of cars, real estate, or well-stocked supermarkets -- is much more attractive than vague notions of democracy, especially when individuals pushing for political reform could lose their livelihoods and even their freedom. The cost of opposing the party is prohibitively high. Hence the hotbeds of unrest in recent years have mostly been rural areas, where China's poorest, who are least invested in the country's economic miracle, reside. "Workers of the world unite! You have nothing to lose except your mortgages" doesn't quite cut it as a revolutionary slogan.

All this is why some analysts see splits within the party as a more likely vehicle for political change. Like any large political organization, the Chinese Communist Party is factionalized along multiple lines, ranging from local fiefdoms (exemplified on the national stage by the "Shanghai Gang" under former President Jiang Zemin) to internal party networks (like the senior cadres tied to the Communist Youth League through Jiang's successor Hu Jintao). There are also clear policy disputes over everything from the proper pace of political liberalization to the extent of the private sector's role in the economy.

But highlighting these differences can obscure the larger reality. Since 1989, when the party split at the top and almost came asunder, the cardinal rule has been no public divisions in the Politburo. Today, top-level cooperation is as much the norm as debilitating factional competition. Xi Jinping, the heir apparent, is set to take over at the next party congress in 2012. Assuming his likely deputy, Li Keqiang, follows with the usual five-year term, China's top leadership seems set until 2022. For the Chinese, the United States looks increasingly like a banana republic by comparison.

The idea that China would one day become a democracy was always a Western notion, born of our theories about how political systems evolve. Yet all evidence so far suggests these theories are wrong. The party means what it says: It doesn't want China to be a Western democracy -- and it seems to have all the tools it needs to ensure that it doesn't become one.