The Sunday Leader

Why GDP Is Like A’Level Results

Economic statistics are famously cookable. So it i s usually wise to look behind the artificial screens and curtains they create. Simple spending spurts can boost ‘economic growth’ but it is the ‘how’ of the money spending rather than the ‘how much’ of it that really matters for ‘economic prosperity’ for everyone.
Is Sri Lanka really growing? The GDP statistic would have you believe that it is. growth hit 8.3 percent last year. And in GDP terms, that is a very high number. Fast developing economies like India and China were also growing at roughly the same clip at their peak. Most developed economies only grow at about 2 percent. Sri Lanka has been spending on infrastructure development, tourism arrivals are on the up, and foreigners have been slowly but surely ramping up investment. A lot will depend on the global situation in 2012, but there is optimism that this situation will continue. But on the flipside the common man is still languishing; buses are still crowded, prices are still rising, ends are still hard to meet.
There is still that glow left over from the end of the war, still a sense of hope permeating the air. People look at the roads and sigh in wonderment, the southern highway surely is a sight for sore eyes. Roadworks have everyone’s support. But other projects not so much; the Hambantota harbor cost hundreds of millions, but has proven to be a very bad business decision and a possible future white elephant. The Commonwealth Games was a miss, saving the taxpayers a cool few billion at least, phew.
But everyone is so taken up by infrastructure that it has become synonymous with growth. The government could build bridges to nowhere and shopping malls along B-roads and point to them and see, look at our signs of development. But infrastructure is not really economic prosperity. In fact, GDP does not really care about economic prosperity, it just cares about how much money we spend, which is an entirely different thing. Let me illustrate. Economic prosperity when it comes down to it, is crudely defined by all of us as ‘increasing in wealth. That is its least common denominator.
A increase in wealth and economic growth in a country is measured by the GDP, or gross domestic product. It puts together all production into one convinient statistic. If you sell a tomato, it is recorded, if you pay for a bus ticket that is recorded too. Of course there isn’t a secret operative from the central bank shadowing your every move from a discreet distance, all the calculations are done based on rough statistics and dubious number crunching, but the final figure gives a fairly good idea of the level of production and spending in the economy.
The GDP, yet another American invention, was invented during the great depression of the nineteen thirties when everyone wanted to know how bad things were. Here was a number that collated every single economic statistic out there into a convenient digit or two. Sri Lanka’s GDP growth over the last year amounted to eight point three percent, we are eight point three percent richer and better off that we used to be. But GDP is simplistic, and therefore it is actually only good as a measurement tool for economic growth if you are simply looking for something to headline a government report with. In reality gdp excludes many a thing, it sugar coats and conceals and it is this underlying hidden aspects that the GDP brushes over that explain why ordinary Sri lankans a still feeling the bite when their country’s economy is apparently growing.
This is why GDP, as one smart column in npr.org put it, is much like GPA or A level results. It is only one indicator. In real life, there is lot more to a nineteen year old than is A level results. His character, his aptitude for problem solving, teamwork, networking, thinking out of the box and a multitude of other things important to potential employers and society. It will tell you nothing about how kind he is to his parents, fellow human beings and what he thinks about the moral aspects of life, or global warming. All of the above facts are arguably more important than his a level results, but measuring an economy purely by dint of its GDP is exactly like measuring a nineteen year old purely by his or her a level results. It is ultimately a meaningless exercise, and does not really tell you much about what is really happening in the economy.
GDP includes government spending, even spending that is funded by loans. The rich poor divide and capitalism’s inherent tendency to perpetuate the wealth of the already rich ensures that the bulk of the ‘increase’ in GDP is really the increase in the wealth of the already wealthy. Another large chunk is what the government spent on infrastructure, most of it funded by either taxes (money taken away from the average Sri Lankan) and loans. Next year the taxes are st to become even more indirect than they were last year, meaning more pressure for the consumer and less pressure for companies. Admittedly this is a policy that will boost long term growth, but knowing this will be helpful in understanding why when we experience a similar growth next year, the people will not be better off in real terms.
In addition, going purely by GDP is detrimental to the various other aspects that make a healthy society. For instance, to boost GDP after the second world war, women were encouraged to enter industry at a massive scale. I am not saying that women should not work, hold your fire feminists! But The large scale advent of women into the workforce has created a situation where children depend on various other sources for nurturing and education, when they should have been depending on their mother. This has resulted in a slew of social diseases and mental epidemics that plague the developed world.
So when the government says that the economy grew by 8.3 percent it means that total government spending, exports, investment and consumer spending increased by 8.3 percent. Investment and Government spending during the period probably contributed to a large chunk of that increase, and this is why the average Sri Lankan is still languishing in crowded buses and shopping for overpriced vegetables and feeling the pinch of a hard life despite the economy apparently having ‘grown’.
Comments? Please email them to halikazeez@gmail.com

2 Comments for “Why GDP Is Like A’Level Results”

  1. cura

    It is important to understand what economic indicators like GDP actually reflect of the economy. Economic growth, Economic Development and Development or prosperity are not synonymous. They measure different dimensions of the economy and its performance.

  2. We have no choice other than beleiving what the Government’s economic clans tell us.

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