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Who’s a GDP Junkie?

July 23, 2010
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In the past 2 days, I’ve picked up 2 articles that emphasize the need to look beyond GDP for the measure of welfare, citing that Asia’s rapid development in particular is at risk and has taken a huge toll on Asia’s environment because of governments’ failure to consider other indicators of development and welfare.

GDP per capita (2007)

The two articles I picked up are from entirely different sources but they both have the same message: We must (start) to rethink and look beyond GDP

The first was from The Straits Time Review on the 21st of July 2010 (Page A24) and a edited excerpt of a speech by Nominated MP Viswa Sadasivan in Singapore Parliament on Monday. His speech called on the government to track indicators beyond the GDP.

The second was an article tweeted by Jessica Cheam features in The New York Times (online) and is titled Rethinking the Measure of Growth. This piece is especially significant to Singapore as author Wayne Arnold wrote about Singapore’s recent oil spill.

He wrote

The accident served as a reminder that Asia is not invulnerable to an environmental disaster on the scale of the BP spill. Singapore is a major refining center and transshipment point for crude oil shipments between markets in East Asia and the other oil-rich Gulf region. The quest for more plentiful and less expensive oil for fast-growing Asian economies has also brought a wave of offshore drilling from India and the Gulf of Thailand, to Vietnam and Bohai Bay, on the northeast coast of China.

In considering this risk and the increasing evidence of the toll that rapid economic development is already taking on Asia’s environment, economists and other experts in Asia have taken up the call to re-examine the prominence of economic growth as a measure of policy success, particularly the use of gross domestic product.

NMP Viswa Sadasivan echos this view as he highlights that Singapore’s per capita GDP has risen exponentially over the past 44 years. In fact, I did some snooping around of my own and found that in 2009, the Department of Statistics recorded Singapore’s per capita GDP at $53,143.0!! I also realized that we rank 4th in the world when it comes to this figure.

NMP Sadasivan pointed out that despite our high per capita GDP, we have one of the highest income inequality rates as well. The reason for this is simple. GDP per capita is an average sum. Some earn more, some earn less. However, this is not reflected in the per capita GDP!

If you take $53,143.0 and divide it by 12 months, you get $4428.58. This number reflects the AVERAGE amount each person working in Singapore earns. How many people do you know ACTUALLY earn this amount?

Therefore, this figure is not accurate. More importantly though, this figure fails to highlight serious inequalities that many Singaporeans face in terms of income. I believe that the way that the government “hides” poverty is also one reason why we don’t see it. This is done by income mixing and ethnic ratios in HDB estates.

There are of course many more issues relating to this and the debate that I have raised is by no means exhaustive. My concern is that people don’t care to know, which does not put pressure on the government to ever change the status quo in using GDP as a measure of welfare. I have had the opportunity of learning about this since i was in Secondary School in Geography class. Today, as a Geography tutor I know that students need to learn GDP as an economic indicator of development. However, secondary school students learning Geography (be it elective or full, normal or express) have to know other indicators of development. These include health, social and even demographic.

In fact, students learn something called the Human Development Index (HDI). The HDI was developed by the United Nations Development Program (UNDP) under their Human Development Reports.

Human Development Report 2009 - HDI rankings

As you can see, Singapore is on the Very High list at number 23! So this isn’t just all Geography text book stuff. This is real! Of course in addition to the Human Development Index, there is the

No doubt there are flaws and limitations of the UNDP’s Human Development Reports’ criteria in understanding development of countries around the world. Often, data can be inaccurate, lacking or totally unavailable especially in the most remote of places in the world. These places are also unfortunately the places which could use the most help.

The HDI is a useful tool to measure development but as mentioned, there are limitations. Instead of totally scraping GDP (which is not feasible and many would not even hear of it), we should begin to use the HDI and other economic indicators as a supplement to build on GDP and to grow our knowledge as to how to measure development and human welfare. The next thing on the list to then, is to work on improving the situation.

As highlighted by NMP Sadasivan, there is “significant movement” especially in the developed world, to shift global thinking on how we measure our economy, progress and prosperity. It is now becoming UNCOOL to be too focused on GDP as a measure of growth and welfare and governments who are have been labelled by some as “G.D.P. Junkies”.

In the speech by NMP Sadasivan, he pointed out some other economic indicators that could be measured and used:

  • Consumer Price Index (CPI)
  • Industrial Production Index
  • Total export/import
  • Median wages
  • Income distribution
  • Productivity
  • Job satisfaction
  • Household consumption

To end he said

I urge the Government to view my observations with an open mind – to see it not as a criticism of current practice but as a considered appeal for a review that will help provide greater clarity in policy formulation, resulting in policies and programmes that resonate better with the ground.

I agree. This issue needs to be addressed soon, if not… why is it being taught in schools if our government isn’t practicing it? Right?

Mel

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