Discuss the difficulties
of comparing living standards between countries. [25]
Introduction
This
paper discusses the difficulties of comparing living standards between
countries. On the one hand, it does not seem difficult to compare living
standards between countries because of the presence of economic indicators such
as real GDP per capita. On the other hand, the issue is far more complicated
than that because there are many other factors other that material economic
welfare that come into play, and there are alternative indicators that give a
different view of living standards across countries. The fundamental issue in
the final analysis is that living standards are not easy to define,
conceptualise, and consider.
Not difficult to compare
living standards between countries
First
and foremost, it is relatively easy to compare material SOL (or economic
welfare) between countries, provided that economists have access to these
indicators and that they are reliable. The most famous economic indicator is real
GDP per capita.
First,
Gross Domestic Product (GDP) is the measure of final goods and services
produced within a country, in a given period of time, usually a year. Secondly,
Real GDP means that the focus here is on actual goods and services produced,
and the increases from year to year are not from nominal increases, or
monetary/ money increases solely. Third, per capita is merely the fact that the
real GDP has to be divided amongst the population of the country. Usually,
there is one final calculation done before comparison between countries, and
that is to standardise the currency (usually the US dollar) on which the
comparison is made. Clearly, in terms of economic welfare, a country with a
higher real GDP per capita means that its citizens are more likely to have a
higher economic standard of living compared to another country with a lower
real GDP per capita. This is because, on a per person basis, each citizen has
access to real goods and services worth more than another country with a lower
real GDP per capita. Hence, comparison between countries can be made with an
eye to finding out differences in standards of living.
Difficult to compare
living standards between countries
However,
it is actually more difficult to compare living standards between countries
than merely using real GDP per capita. First, sometimes the indicators might be
inaccurate. For instance, Chinese GDP figures during the 1960s and 1970s were
often fabricated and false, and when they were true they often suffered from
measurement errors.
Second,
when comparing between countries, there is a need to standardise the currency
base for comparison, usually the US dollar. This leads to an interesting
problem because the exchange rates differ from country to country, and as such
sometimes a currency that is valued lower than the US dollar would lead to the
country appearing “poorer” or with a lower “standard of living” than the US
because when the national income figures are converted to US dollars, they look
lower than they otherwise would have looked.
Third,
there is also no mention of income or wealth distribution, which is a problem.
A country with relatively high real GDP per capita might have an uneven income
and wealth distribution, but a country with a lower real GDP per capita could
have an equitable income and wealth distribution, and thus its citizens are
actually much better off than the other country ranked higher on the real GDP per
capita scale.
Fourth,
in poorer countries or developed countries inflation is usually lower and the
same dollar can buy more goods and services than developed countries, and as
such poorer countries are not compared fairly to the richer ones, because they
usually appear “poorer” although the same US dollar can buy more in the poorer
country than the rich one.
Furthermore,
the quality of life is dependent on other factors not captured by national
income statistics. The definition of standard of living is under examination
here. In other words, non-quantifiable aspects of life are not captured by
national income statistics. We should consider information from the social,
political, cultural, and environmental aspects of a country rather than purely
economic indicators. For instance, countries high on national income estimates
may fare poorly on social indicators, because countries involved in wars or
fighting could have a higher production level but their people are suffering,
or countries with high pollution that needs a lot of cleaning up could have a
higher GDP but their people are also suffering from negative externalities. Hence,
this is a limitation of using real GDP per capita as a measure of comparison.
Alternative indicators
There
are also alternative indicators that could be used as well. One major example
would be Human Development Index (HDI). Closely associated with economist
Amartya Sen, the HDI is a measure of life expectancy, literacy, and education,
among other social and political aspects, comprising the standards of living of
a country. It is used to distinguish whether the country is a developed or
developing country, and to measure the impact of economic policies on the quality
of life in the country. However, alternative measures such as the HDI have not
found as much favour or success as national income accounting statistics, as
they are still difficult to quantify and are normative rather than positive. Normative
means that these indicators have subjectivity and are ideal, subjective, and norm-based,
rather than a factual, positive, real comparison.
Conclusions
In
conclusion, while it does not seem difficult for economists to compare economic
living standards between countries because of the presence of economic
indicators such as real GDP per capita, the issue is more complicated than that
because there are many other factors other that material economic welfare that
come into play, and there are alternative indicators that give a different view
of living standards across countries. The fundamental issue in the final
analysis is that living standards (and the concomitant quality of life in a
country) are not easy to define, conceptualise, and consider, and hence
opinions and arguments will continue to differ on this subject.
JC Economics Essays – Tutor's Commentary: This Economics paper is OK,
generally well-written, but it is not excellent, outstanding, or incredibly
good. As an examination essay, it might fetch a borderline A for the "A" levels, and if it were benchmarked
against much better Economics essays, might get a B rather than an A. Well, why is this
the case - a borderline A grade Economics essay? Put yourself into your
Economics tutor’s (or lecturer’s, or teacher’s shoes, for that matter). Think
about how your Economics tutors in school would judge this essay. One
hint is that the conclusion, while true, might not make a good evaluation. Economics
tutors often lament that their students cannot write good evaluations. Think of how you would make the conclusion better. (Think also of how you could make the essay as a whole better. Maybe the distinction between material and non-material standard of living could be made more explicit and better explained, etc?) Well,
the good news is that you might become the special Economics student who can
prove to your Economics tutor that you can write an excellent evaluative conclusion
for any Economics tests or examinations... this is because you have time to
think about it, and figure out what is wrong now.
