Let me start the article by giving two quotes in order to lay the basis for understanding why it is important for policymakers to give far less importance to gross domestic product (GDP), and more to wellbeing and sustainability that a society enjoys.
‘What we measure affects what we do. If we focus only on material wellbeing – on, say, the production of goods, rather than on health, education, and the environment – we become distorted in the same way that these measures are distorted; we become more materialistic.’ –An excerpt from December 3, 2018 Project Syndicate (PS) published article ‘Beyond GDP’ by economics Nobel laureate Joseph Stiglitz
‘The limitations of national accounts data has been a hot topic in recent years, even though it has long been known that they involve serious measurement problems and are only crudely related to concepts such as living standards and the cost of living. The pandemic might mark the point at which the prestige and influence of GDP-based measures in public discourse have finally peaked.’ – An excerpt from the January 12, 2021 Financial Times (FT) article ‘Why investors are looking beyond headline GDP data’ by Credit Suisse’s chief economist, James Sweeney.
The government recently announced that provisional estimates of economic growth for the current fiscal year stood at 3.94 per cent. Although, while this is indeed welcome given it is a significant jump from earlier estimations from both multilateral agencies and government itself, some economists have reportedly raised eyebrows on this number, including finding the high consumption component of the estimation of current growth figure to be highly unlikely given the Covid-related recessionary environment.
Having said that, even if this figure stands its ground as the complete fiscal year data arrives in the coming months, the current growth has little basis in terms of sustainability or being equitable growth. This is because there have been no significant institutional, organisational, or market reforms, undertaken by the current government, without which sectors that have shown growth stand on thin ice because the fundamentals of their environment have not much changed in terms of these needed reforms.
For instance, bumper crops in the agriculture sector happened this year but without reforms there not much has changed on ground, providing any sustained basis for good performance next fiscal year as well; not to mention that current growth in major crops may also have slight shifting of floriculture cropping due to lack of demand during lockdowns and Covid overall, for floral arrangements for ceremonies. Similarly, without reforms in tax regime for needed enhancement of base, progressivity and shifting a lot more towards direct taxes along with lack of overall greater incentives and governance structures that addressed distributional aspects, all provide little broad-based basis for the current growth, and hence seriously compromises on both this growth being either sustainable or equitable.
Hence, while the incumbent government would be knowing the limited sustainable and equitable basis of the GDP growth, given it has itself indicated that reforms are yet to take centre-stage as up till now it was mainly busy in stabilisation fire-fighting, it has thrown caution to wind and given a lot of meaning and accomplishment with regard to the GDP growth it recently announced. And this is when poverty, income inequality, and unemployment situation have all most likely worsened during the recession-causing pandemic, and when government has ushered no major broad-based reforms, especially labour sector reforms, and ones that allowed price rationalisation through enabling markets to allow reaching true price signals, that also included reforming the informal/undocumented economy, especially in terms of labour rights violations there. On the other hand, without these reforms there will be weak environment for the loans being provided to a number of segments of society on easy terms, to create income streams that brings sustainability to future GDP growth through this channel; where in the absence of any meaningful institutional reforms, that would also mean not significantly denting elite-capture of economy, these loans run the risk of ending-up being a temporary consumption-led sugar high phenomenon for economic growth.
So, while it is important to measure national income, it is time activism from public, pushed politicians to stop over-emphasizing economic growth, and in turn, creating a smoke-screen of development through glorifying growth numbers, since economic management is a lot more than managing national accounts. It should be about wellbeing of humanity, in an equitable and sustained manner. Hence, what the government should be more interested is to present a much-needed bigger picture of the economy, which indicated whether the living standards of people are rising or not. Hence, in addition to GDP growth numbers – where it should also bring out more clearly in discussions with media and public in general, the situation of gross national income (GNP) and its implication for national citizens along with that of GDP – it should also provide details of situation in terms of equity, wellbeing and sustainability.
First and foremost, not indicating that any mala fide intentions exist in the Planning Ministry, greater objectivity and efficiency requires that Pakistan Bureau of Statistics (PBS) should be given the status of an independent ministry, and its human and infrastructural capacity – both at the federal and provincial levels – enhanced in a big way to take on the role of providing timely and well-measured figures, including those of wellbeing and sustainability; and in addition in terms of providing more detailed data that better helps mainstream the informal sector, including providing greater details about informal workers there – for instance, government reportedly had little or no lists of workers in the informal sector when it wanted to give cash handouts during the pandemic – and also about the cottage industry, where traditionally data has remained sparse.
Hence, while measuring GDP is important to know about incomes and level of production, it is only one part of the picture of overall wellbeing of society. With regard to better measuring wellbeing – so that the discussion shifts from a narrow and very materially-natured GDP growth that primarily focuses on physical production aspect of development, to a much-broader wellbeing phenomenon – the recommendations of ‘The report by the commission on the measurement of economic performance and social progress’ (2010) produced by Joseph E. Stiglitz, Amartya Sen, and Jean Paul Fitoussi, and titled ‘Mismeasuring our lives: why GDP doesn’t add up’ provide an important first step in this regard. Here, the Commission while highlighting the wellbeing itself, pointed out that it had the following dimensions: ‘material living standards (income, consumption and wealth), health, education, personal activities including work, political voice and governance, social connections and relationships, environment (present and future conditions), and insecurity, of an economic as well as a physical nature.’ For achieving greater measurability of these aspects, PBS could also look into the methodological definitions of these aspects through, for instance, provided under the ‘OECD better life index’.
Some of the recommendations of the Commission’s report include ‘[a] when evaluating material well-being, look at income and consumption, rather than production; [b] give more prominence to the distribution of income, consumption and wealth; [c] quality-of-life indicators in all the dimensions covered should assess inequalities in a comprehensive way; [d] statistical offices should provide the information needed to aggregate across quality-of-life dimensions, allowing the construction of different indices; and [e] sustainability assessment requires a well-identified dashboard of indicators.’
Overall, the limitations of relying too much on economic growth numbers is indeed counter-productive to truly enhancing the living standards and wellbeing of people. In this regard, in a December 2019 PS published article ‘There’s more to life than GDP’ the writer Mark Cliffe pointed out that ‘Even the architect of GDP back in the 1930s recognised that an aggregate measure of market-based activities would be insufficient for assessing economic welfare. Now that digitalization and other forces are compounding the long-standing flaws of this canonical metric, there is no alternative to finding alternatives.’ Hence, in looking beyond GDP, Andrew Scott pointed out in his August 2020 PS published article ‘A healthy improvement on GDP’ that ‘Many of the failures of GDP as a measure of economic performance are well known. Policymakers in search of an alternative should recognise the far-reaching power of healthy life expectancy as a measure not only of individual wellbeing, but of broader macroeconomic conditions as well.’
(The writer holds a PhD in Economics from the University of Barcelona; he previously worked at the International Monetary Fund)
Copyright Business Recorder, 2021