Making Paper Tigers
“The way we measure production was invented in the 1930s…between then and now, everything has changed”
Despite being an Economist, I had always found it difficult to appreciate the concept of National Income and the size of the economy really means especially to me as a person. I understood the concept, but it just never really seemed to put together things I felt were real about my life. A good example, according to the World Bank, the economy of my country Nigeria, grew by an average of 8% between 2000 and 2014. At the same time, its unemployment rate was low, hovering between 5.4% and 5.8%. Population was growth at a (relatively) modest 2.5%. With an economy expanding at 8% you would expect that accommodating a population growing at a relatively moderate 2.5% is possible, right? Despite these dazzling figures, this oil-rich nation took over India as the poverty capital of the world by February 2018. It’s possible the 2016 recession might have exacerbated the state of things, becoming the poverty capital of the world was always in view. The figure showed how much we aren’t capturing of the economy. And that raises the questions: if the majority are not experiencing material success and the stretch to attain economic growth is not of benefit to our well-being, why then do we continually rely primarily on these figures as indicator of the state of our economy? Given advancement in human innovation, are we not capable of developing measures more reflective of our reality?
“GDP (Gross Domestic Product)… don’t think it tells you the answers to everything..This number is not a meaningless number…you have to understand what its meaning is.” Terry Ryan…The Growth Delusion.
In this interesting and thoroughly researched book, David Pilling explored the importance of what it means for an economy to be growing. The media focuses heavily on “economic growth” and associated indices because of how simple these figures are to explain. His argument was, relying on this limited view to make decisions might even be at our communal expense. Society’s measures reflects what we put value on. What we put value on defines the type of activities that will be prevalent in a society. Since economies are primarily tasked with facilitating the flow of resources in a manner than rewards people (at the very minimum) with what they require to survive, heavy focus on solely economic growth can severely limit the capturing of our socio-economic and political realities and impacts negatively the quality of macro economic planning. This would result in more and more people feeling dissatisfied and disenfranchised. This isn’t a dystopia, this is our reality: a growing mistrust of anything resembling the establishment. People feel that experts are unable to capture anything that reflects their true life experiences. This feeling has lead to fascist/nationalism sentiments especially in the West typified by Brexit and the emergence of the current American president, Donald Trump. There is a deep seated dissatisfaction with the status quo. They quest for something truly representative of their core identity, a rhetoric better articulated by far rightist leaders who continual rely on ideals, void of critical thinking and most importantly, Economics.
The book aims not to discredit the current method for estimating National income, but rather raise some very important issues to consider when thinking about its meaning.
For one, he questions the boundaries of a multinational companies activities and to what extent they fall into the “National” bucket, given their global presence and tactical dilution for tax evasion purposes.
There are also comments on things that cannot be valued and how this zero sum economic growth race compels putting a monetary value on everything; a good example is parental care. Considering that children are also individuals, parental care by that definition, could be termed a service and included in our national income. That raises two interesting areas of concern. There is a concern about what the reward for parenting should be since it really cannot be monetized hence, it cannot be measured on an economic level. As parenting has no economic value, is it important? It also bring forward an important question of where we draw the line. Why is breastfeeding a child of no economic importance, whereas giving a child manufactured item like cow milk is considered a plus to the economy (think of this: breastfeeding can benefit the society as a whole by lowering future health cost and providing healthier individuals)?
In other to buttress the point of undervaluing things we cannot measure, there is the public sector. It is easy to dismiss their contribution, especially as at the core, their objectives does not align with the profitability mantra. The measures of GDP are better aligned with the objectives of private sector players. Higher profit translates to higher economic growth. As a result, economic policies are quick to opt for privatization drive to tackle inefficiencies, instead of developing more astute ways to rate their performance.
As we run the profitability race, the ultimate winners are the financial institution. They are ever positioned to be profitable and add to “economic growth” even when their business model works against it. Take an economy in a recession, for example. During a recession, investments are considered riskier and as a result have a higher interest rate. This increases the bank’s profitability and adds to economic growth despite its negative impact on the real productive sector.
Growth accounting in developing countries is another well discussed topic in the book. The structure and complexities of human interactions in places like Africa was a point of reference. Is the current GDP reflective of the true state of dynamism within the economy? A good illustration was made of the Masai people who are a tribe of cattle rearers found in the Eastern part of Africa. The structure of their lifestyle can exist completely out of the purview of what we know as the economy. These pastoralists use their cow as collateral for loans amongst one another, do not plant crops but live entirely off their cow (it’s blood and milk) for subsistence. Yet 80% of beef comes from pastoralists like the Masai people. Economic statistical tools are unable to capture the informal nature of similar economic activities especially within Africa, which (according to the IMF) can range from 25% to 65% of the economy. Having such narrow view of human economic activities not only understates the volume of human activities within that region, it also limits the relevance and effectiveness of government policies within that economic space. Contemporary statistics suggests that 80% of the adult population have a mobile phone in a country like Kenya, despite having 72% of its population living below the poverty line and National income per head is less that $1 a day. A big question this should raise is who can afford a mobile phone earning less than a dollar a day?
Accounting for growth in an economy can be complex. But it isn’t a task we can wish away. In economies as complex as they type we have evolved, it is essential we put together statistics that makes the best possible attempts at capturing the volume of activities humans engaged in within a particular space and also, considers our environmental and resource limits. As natural resources are depleting to levels that can adversely effect the ecological balance, the world is faster approaching an age of zero growth…we must develop a measure that is ok with that. A measure that prompts policy makers to consider making an economy that engages more citizens and considers the contract and responsibilities we have to preserve the environment for the future generation.
Many interesting solutions were recommended. For example Niu Wenyuan’s “Green GDP”, which discounted GDP by CO2 emissions and activities that negatively impacted health, the ecosystem and the human well-being.
Also explored was a more balanced approach to GDP reporting. The current method of GDP reporting focuses solely on growth, but doesn’t take into account the asset/resource base of the nation. In the private sector, this is similar to looking at only the Profit and Loss Account without taking into account the Balance Sheet. Maybe if we can develop measures and systems of reporting that not only represents the economic growth experienced, but it goes further to jixapose this figure with the natural and human asset of the country. This might help paint the picture of lost potential and further helping citizens rank the performance of their political leaders by their actions and it’s long term implication.
What I think is the most important idea raised in this book was that the economy should not be reduced into a single number. We must create measures (or commonize measures where they already exist) that do not always translate to money but signify welfare and things that are important to the human condition. Blood sugar level, body temperature and weight all work together to convey our health status. Their essence cannot be distilled into one figure. If we could do so much about our health, perhaps we could do something close to the framework that enable us as people to even conduct such research into health; a framework that can enable many people feel a sense of purpose doing what can benefit our communities. Perhaps we could do a little more towards understanding the true state of our economies.
