Professor Umberto Sulpasso, a senior fellow in the Center, has developed a new method of measuring a country’s wealth in the Digital Age, shifting from the production of goods and services used to calculate the Gross Domestic Product to instead measuring the production of knowledge.
Called the Gross Domestic Knowledge Product (GDKP), Professor Sulpasso has worked in cooperation with several Indian Institutions to create the first calculation of GDKP-India for two years – the first step toward creating a new measure to assess India’s growth in the digital economy and evaluating modern education that can be presented to the United Nations as an example that can be extended globally.
Moving away from GDP
The Gross Domestic Product (GDP) as originally elaborated by economist Simon Kutznes was valued in the 1990s as a theoretic innovation that became the most commonly-accepted gauge of economic progress worldwide. However, in the last 20 years the GDP has come under increased scrutiny because it measures only basic values for production in a specific year without guidance for long-term change.
The Commission on the Measurement of Economic Performance and Social Progress (CMEPSP), better known as the Stiglitz-Sen-Fitoussi Commission, examined how the wealth and social progress of a nation could be measured without relying on GDP; the Commission criticized the GDP because it provides solely a simple total value of goods and services produced in a specific year, does not measure the quality of production or provide information on individual wealth, and lacks the information to provide guidance for national economic growth.
The Commission’s final report in 2009 recommended moving away from using the GDP, but without a specific recommendation for an alternative. Since then, many indexes were suggested as possible substitutes for the GDP, but all failed to be accepted.
From GDP to GDKP
The Gross Domestic Knowledge Product (GDKP) takes a different approach to measuring a nation’s growth and future. GDKP addresses all of the Commission’s criticisms of GDP by establishing a new form of measurement:
- GDKP provides a fundamental measure of growth by including a wide range of factors that involve the creation and accumulation of knowledge – the key international factors measuring wealth in the digital era.
- GDKP creates a comparable measure of the production of individual wealth based on knowledge, which counts not only for evaluating the future wealth of individuals but also the their contribution to the wealth of their country.
- GDKP creates a optimal capital investment measure for private companies in knowledge rather then in other forms of capital investments.
GDKP is based on four basic pillars:
- Knowledge items (Ki)
- Country’s Knowledge Producing Matrix (CKPM)
- Country’s Knowledge User Matrix (CKUM)
- Cost of Individual Learning, compared to the Cost of Living
The GDKP measures:
- The values of objects that are considered standard knowledge items available in the world, that are also produced in that country. These Standard Knowledge Items include production of newspapers, schools, patents, teaching, and a wide range of digital items.
- The value of specific knowledge items related to national culture produced in a specific country, and how these items change over time. In India, for examples, these specific knowledge items include the proliferation of cultural and religious teaching (yoga, Veda, and dance schools), religious festivals, and harvest festivals.
- The diffusion of knowledge items within the total population as a tool to evaluate future growth.
- The multiple effects of digital knowledge distributors on the population over time over time (fiber optic cable, learning platforms, satellites, and other digital educational tools).
- Comparison of knowledge produced by government, private institutions, and households as a differentiated way to impact on the GDP to elaborate on the country’s knowledge producing matrix.
- The value of knowledge bought by individuals as a measure of individuals perception of modern way to produce wealth.
- The value of knowledge acquired by private companies as a way to measure their modernization efforts, which is reflected in the Country Knowledge User Matrix.
- The cost of learning for individuals as a political reference for government budgeting decisions to support young citizens.
- The cost of investing in knowledge for sectors of the economy as a government budgeting decision to favor fiscal policy to modernize a country.
Result of GDKP measures
Because knowledge is by far the most strategic element for globalization in the information technology revolution and the digital economy, and GDKP provides measures of the factors that contribute to a country’s knowledge, GDKP can play a growing role in appreciating potential economic growth. GDKP will define the multiplier effects of budgeting and spending on GDP sectors of a national economy (agriculture, service, etc.).
In addition, GDKP will provide investors with data for security analysts of stock exchange (P/K ratio), and will create a total new risk evaluation of international financing (triple K in addition for triple A) useful for World Bank,, IMF, and other big financial institutions.
Comparison of GDP to GDKP in India:
2011 and 2012
(Click here for spreadsheets)
As a first step in developing the GDKP Sulpasso’s model, Dr. Ashish Kumar, director general of India’s Center of Statistics Office, directed the calculation of the GDKP India for 2011 and 2012. As an additional part of this study, Dr. Kumar produced comparative growth tables of GDP and GDKP for 50 countries, 15 of which are included here to demonstrate how governments react in terms of reducing GDKP in relation to a decline in GDP.
As examples of sharp differences of GDKP growth compared to GDP growth, which reflect individual governments’ reactions, note data in two typical years of world’s economic crisis: 2008 and 2009 – that will show the sharp contrasting behaviors of industrialized countries compared to China and India.
- The first table (data of GDP in million of PPP US $).
- The second table shows economic decline in 2008-2009.
- The third table, which measures GDKP, shows that quite different growth behaviors. In industrialized countries where GDP declined, GDKP was strongly reduced by governments – changes that did not occur in India and China.
- The fourth table shows the percentage of GDKP over GDP. Here the table reveals the still-existing distance between industrialized countries vs China and India; the percentage of GDKP over GDP remains very high for industrialized countries — such as the United Kingdom, France, Italy, and Canada — and is still low for China and India even with their different behaviors in time of crises.
GDKP-India: additional background
- GDKP Model (here)
- From GDP to GDKP India: the making of India’s historical innovation (here)
- Federation of Indian Chambers of Commerce and Industry: Extracts from the official FICCI Executive Committee appraisal for GDKP of India (here)
- Measurement for Generation and Dissemination of Knowledge: a case study for India by Mr. Ashish Kumar (here)
- Highlights of the letter from the Center for the Digital Future to Ambassador K. Fabian (here)