If GDP's So High, Why Am I So Low?

My guess would be that the people of Sierra Leone don't hear a lot about the UN Human Development Index. With their country coming in dead last, at spot 162, their political leaders probably avoid mentioning the index at political rallies.

And things are likely to change here in Canada, too. Now that we've slipped to the third spot after years of being the top dog, we can count on the Chrétien government trotting out the index only slightly more often than it raises the subject of loans to golf courses in the Prime Minister's riding.

At least Ottawa won't be so inclined to cite our ranking in the index every time anyone points out how deeply the federal government has slashed funding for social programs in recent years. It's even possible that there could be a revival of the debate about those spending cuts - a debate that's largely disappeared, even though the impact of the cuts continues to be huge in the lives of Canadians. In fact, there's a new, made-in-Canada index that explains what's been happening in the economic lives of Canadians far better than the traditional measure of GDP per capita.

And it isn't some flashy, drive-by assessment. It's a project that's been years in the making, produced by two high-profile economists - Lars Osberg, past-president of the Canadian Economics Association, and productivity guru Andrew Sharpe, executive director of the Centre for the Study of Living Standards. Their index, written up in the Review of Economic Performance and Social Progress, may ring a bell with a lot of people who have trouble answering the question: If GDP is rising so much, why am I feeling so low?

Here's why. GDP growth in Canada has been rising pretty impressively over the past thirty years. This is the measure of the total growth in our national income.

It's an important measure. But it leaves out a few key things that Mr. Osberg and Mr. Sharpe have tried to capture in their Index of Economic Well-being - like the distribution of all that income, and the level of economic security Canadians enjoy. The point is to measure not just the growth of the economy, but how that economic growth contributes to the economic well-being of the people experiencing it.

Take economic security - just about everybody considers it pretty basic to their sense of economic well-being. Even high rollers who gamble in hog futures and Nortel stocks generally have lots of other money tucked away in RRSPs or offshore bank accounts to fall back on.

The need for economic security has never been lost on the rich. But it's also important - arguably even more important - to those lower down the income ladder, who are more vulnerable to a bad turn of events. And yet Ottawa has been making changes that greatly reduce the economic security of the vast majority of Canadians.

Specifically, Ottawa cut back the unemployment insurance system throughout the 1990s. At the beginning of the decade, 84 per cent of unemployed Canadians received benefits, compared to only 43 per cent by the end of the decade. This has made the economic security of millions of Canadians far more precarious. If they lose their jobs, they could end up on welfare.

Mr. Osberg and Mr. Sharpe also point to provincial cuts that have removed the public subsidy from a number of medical services and drugs. As a result, the financial risks of getting sick have become greater, thereby reducing economic security.

Then there's the distribution of income. Mr. Osberg and Mr. Sharpe note that over the last decade the benefits of economic growth have been more unequally distributed and there's been an overall increase in the level of inequality in Canadian society. This is a significant and relatively new development. For years, Canadian social programs largely managed to counteract the growing inequality of the marketplace. Recent data shows this is no longer the case.

It won't come as a surprise to learn that the poor have been particularly badly hit. Mr. Osberg and Mr. Sharpe report an increase over the last decade in the severity of poverty - a trend which started with the brutal recession in the early part of the 1990s and continued after the recession as a result of cuts to welfare programs, particularly in Ontario. Seeing homeless people living on the streets of major cities has now become as Canadian as over-hyped Olympic bids.

And with this has come an increasing hostility to the poor, or a taste for what anti-poverty activist Jean Swanson has called "poor-bashing." Even journalists, like Toronto Star columnist Thomas Walkom, who write about anti-poverty activists and their acts of public mischief can end up under attack, as witnessed by the recent wave of Walkom-bashing in the Post.

Mr. Osberg and Mr. Sharpe concede there's an element of subjectivity in their index. They have decided to give equal weight, for instance, to four different factors: income growth, wealth growth, distribution of income and economic security. While one can argue over the details, the basic concept seems sound and meaningful - more meaningful, in many ways, than the commonly-used GDP measure.

Certainly it's interesting to note the difference between the two measures. While the line depicting Canada's GDP growth over the last three decades rises sharply on a graph, the line depicting our economic well-being has been much flatter, and has actually fallen in the last decade, suggesting that there's been an overall decline in the economic well-being of Canadians. That difference also helps explain why Ottawa probably won't be citing this index any time soon.

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