In February last year, French President Nicholas Sarkozy called for the re-evaluation of the Gross Domestic Product (GDP) as the primary method to measure a country’s living standards.
(Left: HDB flats in Ang Mo Kio, Photo Credit: Timmo Sippala)
The effectiveness of the GDP has been called into question in the light of events happening across the globe including the recent credit crisis.
To answer the call, a team of economists led by the Nobel laureates Joseph Stiglitz and Amartya Sen was assembled. After months of tedious research, the report was released online. Its findings and recommendations have a special significance for Singapore.
GDP and the Singapore story
The GDP has always played a vital role in the Singapore story. MM Lee’s memoir "Singapore: From Third World To First" describes the transformation of Singapore from a humble colony to a bustling metropolis – defined primarily by Singapore's expansion in GDP. In key addresses to the Singapore public, government officials constantly describe Singapore's performance in terms of GDP.
For instance, MTI evaluated Singapore's performance only in terms of GDP expansion and contraction in various sectors in its latest report “Performance of the Singapore Economy (11th August 2009 )”. The GDP has become the yardstick in which our government measures its own success, and by extension, the public that votes them in every general election.
However, Joseph Stiglitz and Amartya Sen warned that over-reliance on the GDP as the main yardstick can be detrimental:
"GDP is the most widely-used measure of economic activity… As statisticians and economists know very well, GDP mainly measures market production – expressed in money units – and as such it is useful. However, it has often been treated as if it were a measure of economic well-being. Conflating the two can lead to misleading indications about how well-off people are and entail the wrong policy decisions."
As such, a broader measure than the GDP is needed to assess the well-being of Singapore:
1) Emphasising the household perspective
On a macroeconomic level, Singapore’s economic prospects have always looked healthy. Before the global financial crisis, Singapore's GDP has risen steadily over to a last few years, growing by 9.9% in 2006, 13.8% in 2007, and 2.3% in 2008. Also, due to small population, this gives us a healthy GDP per capita figure, ranked 22nd out of 180 countries according to the 2009 IMF Report.
However, these figures are calculated on a national basis. It has been demonstrated that while in real GDP per capita levels have increased in many OECD countries, real household income levels have increased at disproportionate levels. In other words, although the GDP has been expanding, how much of the expansion actually translated into more wealth for households?
It would be erroneous to suggest that the government hasn’t been tabulating these figures. On the contrary, the report “Household Sector Balance Sheet 2008: Recent Trends and Developments (September 2009)” covers many of these questions comprehensively. Yet, there is still more room for the household perspective to be emphasized, especially in light of the next factor.
2) Giving more prominence to income distribution
In many of the statistics used by the Government, such as in the aforementioned reports, total or average figures are used. However, if one solely depends on these figures, a crucial point is overlooked; namely, how income or wealth is distributed across Singapore society.
Over the last few decades, while the global economy has grown at an unprecedented rate, a casualty for many countries tends to be poorer households as the income gap widens. At a gini-coefficient of 0.481 last year, Singapore's wealth inequality is more severe than the majority of countries around the world, including China and the US.
(Right: Gini Coefficient among Employed households, Credit: Key Household Trends, 2008)
In January this year, the report “Key Household Trends, 2008” was published, basically describing all the information pertinent to this issue – Median Household Income, effects of the Surplus Sharing Package, and Household Income Distribution.
However, three things stand out: firstly, reports dealing with such data seem to be released on a sporadic basis, with the last one published four years ago, and describing household trends until 2003 .
Secondly, the conclusions of the report are somewhat misleading; while the income gap has narrowed by 0.008 points from 2008 to 2009, this came only after a 7-year rise in inequality which saw the gini-coefficient increase by 0.045 points. Thirdly, despite it having immense value, the report was rarely given any attention, revealing the nation’s economic philosophy: GDP comes first, and issues like income distribution are an afterthought.
According to Joseph Stiglitz and Amartya Sen, traditional ways of measuring income inequality may not be sufficient. Other permutations should be considered too; many Singaporeans, for example, harbour suspicions that a large portion of the nation’s income tends to go towards higher-earning PRs and foreigners. New methods could be use devised to take into account factors like foreigner's or PR's income as well.
3) Redefining well-being
In Singapore, the concept of well-being is limited to material living standards. However, it is increasingly the consensus of researchers and academia worldwide that a number of other factors must be taken into consideration, namely health, education, personal activities, social connections, political voice, and environment .
For items like health and education, Singapore has certainly done very well, boasting a high standard of public health and education services when compared to other countries. However, Singapore still has a long way to go for other measures of well-being. Joseph Stiglitz and Amartya Sen proposed the idea of factoring leisure time into the notion of quality of life:
"Once one starts focusing on non-market activities, the question of leisure arises. Consuming the same bundle of goods and services but working for 1500 hours a year instead of 2000 hours a year implies an increase in one’s standard of living. Although valuation of leisure is fraught with difficulties, comparisons of living standards over time or across countries needs to take into account the amount of leisure that people enjoy."
A friend of mine once remarked that his decision to migrate to Australia was motivated by the fact that by though he worked fewer hours than he did in Singapore, he could earn enough to live as comfortably. While accounting methods for this remain primitive, it is an example of a factor not included in the Singaporean notion of well-being. Joseph Stiglitz and Amartya Sen also emphasised the importance of political voice in assessing well-being:
"Political voice is an integral dimension of the quality of life. Intrinsically, the ability to participate as full citizens, to have a say in the framing of policies, to dissent without fear and to speak up against what one perceives to be wrong are essential freedoms. Instrumentally, political voice can provide a corrective to public policy: it can ensure the accountability of officials and public institutions, reveal what people need and value, and call attention to significant deprivations. Political voice also reduces the potential for conflicts and enhances the prospect of building consensus on key issues, with pay-offs for economic efficiency, social equity, and inclusiveness in public life."
Leisure and political voice are example of non-market factors that contribute significantly to well-being. However, as quality of life and well-being are normative concepts, they will always remain notoriously difficult to assess. Until more established methods are conceived, it is nonetheless good in the meantime for Singaporeans to broaden their understanding of well-being, and not to just marvel at the next forecast which predicts a rise in GDP.
Finally, the last issue highlighted was that of sustainability – how it was important for countries to take into account not just present levels of well-being, but the ability to maintain these levels for future generations. Lured by the prospect of fast growth, many developing countries have been guilty of sacrificing the long-term for the short-term, abusing their environment or relying on unstable fiscal policies. Current indices for measuring sustainability has to be better refined, so policymakers would be better equipped to see beyond current horizons.
It must be said that in this respect, Singapore has generally fared excellently. The PAP has always prided itself on building policies that include the long-term view, in areas like economic policy, urban development, management of natural resources and environmental maintenance. Though these policies are definitely not beyond criticism, one would probably be wrong to accuse the government of suffering from myopic thinking.
In many ways, Singapore resembles a firm where its citizens, like shareholders waiting for the quarterly announcement of revenue, have understood progress solely in terms of GDP. The first problem is that like GDP, revenue isn’t everything; there are always costs to take into account, as well as the question of the revenue actually translates into actual value for the firm’s shareholders. The second problem is that Singapore is a nation, not a firm, so our understanding of progress shouldn’t be understood purely in the monetary sense. Let's remember GDP alone does not measure the happiness, prosperity and progress of Singapore.