Hello again folks, it is that time of the day to read up on Economics and Business. Here we go, another article by Mr.Balaji Vishwanathan, Top Writer on Quora (209,000 followers!)
Q: How do small countries like Japan and England manage trillion dollar GDP while the manufacturing base of the world seems to have shifted to China?
A: I know a guy who was a factory worker 30 years ago. He is no longer a factory worker, but a manager there. Do you think he got richer or poorer?
Britain and Japan do have large manufacturing companies. Jaguar, Lotus, Rolls Royce, Land Rover etc make in Britain while Hitachi, Mitsubishi, Toyota, Honda etc make a lot of their stuff in Japan. Just because a part of manufacturing moved to China, doesn’t mean all the higher end stuff moved too.
However, they also make a lot of other stuff too. London and Tokyo are major financial centers doing a lot of banking and investment management. Those alone generate billions of dollars in profits.
Besides that they have plenty of service businesses from tourism to restaurants, theme parks and shops. Not all of us need to earn stuff in factories.
Q: If I offered a free ride to a stranger who was waiting for a cab, what did I do to the nation's GDP?
A: You actually reduced your country's GDP a bit ;-). If you had not given a ride, the person would have taken a taxi ride, paying cash and that would be counted under GDP. That is ridiculous, but it is the way it is.
In fact, this is one of the biggest shortcomings of the GDP measure - it fails to fully account for the non-market activities [ones that doesn't involve a money transfer]. The Shortcomings of GDP as a Measure of Economic Growth
Your mother could have increased the GDP by putting you on a daycare from day 1. Your wife could increase the GDP by making you eat your lunch outside. Your son could increase the GDP by paying for a trainer to learn basic cricket that you could have taught. Valuing Household Work, the GDP Question .
Think of this. If your mom is a homemaker, almost all the work she does goes under the radar of the GDP. Cooking, ironing, taking care of kids, dropping them off to school all are productive activities that is currently not measured in a country's GDP.
This is partly why GDP and percapita incomes of eastern countries are a little understated, while in the west it is a little overstated. In developed countries, a lot more activities happen in the market [people go to restaurants more often, use paid child care more often and in general use less of family resources] and thus shows up in the GDP more.
Again, whatever I'm writing here doesn't contribute to GDP either [you are not paying me], but if I taught this in a paid class, it will. However, I do it here, because it is fun.
Limitations of GDP: Economic Activity That Isn't Counted
Here is an interesting paper from the Bureau of Economic Affairs [the one that calculates the US GDP] on this topic. https://www.bea.gov/scb/p[removed]df/2012... - They estimate that if household production is added to the GDP, the 1965 GDP would go up by 39% while the 2010 GDP by only 26%, as the household production has steadily gone down. This also means the US GDP growth in this period should have been less than the one measured [because a part of this GDP growth came from the shift in household production to market activities].
As an individual your goal is not to increase GDP, but to get the best value and happiness. Let the nation's economists worry about the GDP measures, while you go ahead and do something that gives you happiness. If giving a ride to a stranger makes you happy, do so. Everyone benefits.
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