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GPI a more holistic indicator of economic well being: SDP

Andrew Loh / Leong Sze Hian

The Singapore Democratic Party (SDP), helmed by secretary-general Dr Chee Soon Juan, unveiled its alternative economic programme for Singapore at a pre-election rally last Saturday. (See reports here and here.)

The party’s economic model, laid out in a 47-page publication titled “It’s About You – Prosperity and progress for every Singaporean”, pinpoints several problems with the Government’s present policies and offers its alternative solutions.

“With this alternative economic programme, the Singapore Democrats firmly establish our credentials as a party that not only boldly speaks up for Singaporeans, but does so constructively and reasonably,” the party says.

The SDP base its economic model on egalitarianism – “a philosophical concept that promotes equality and equal opportunity for everyone.”

In this first part of our review, we take a look at the SDP’s suggestion to use the Genuine Progress Indicator (GPI), instead of the Gross Domestic Product (GDP), to measure the health of our economy.

GDP vs GPI

“[The GDP] tells us how much is produced but, beyond that, not much more,” the SDP say. “[The GDP] says nothing about how that growth benefits the different strata of society.”

“The GDP is not a measurement of the standard of living in an economy. Similarly, GDP per capita is not a measure of personal income. All the GDP is is a tally of all the goods and services produced and transacted in an economy in any given year.”

The party goes into quite some details in outlining how “the GDP does not take into account some of the negative effects of policies designed to boost economic growth.”

An example: “In the Singapore context, the social impact of the foreign talent policy and vice that is exploding in this country are harming the socioeconomic fabric of this country. They may contribute towards the GDP, but are they the kind of growth that we want?”

The SDP also highlights other examples which the GDP does not account for - such as contributions made by homemakers, or the quality of life, or how equitably wealth is distributed.

The party recommends using the GPI – Genuine Progress Indicator – as a more accurate measure of economic health. “The GPI tracks economic growth, that is, the level of the production of goods and services, and how this expansion results in the improvement of the welfare and well being of the people in the country.”

[The shortcomings of the GDP instrument were notably highlighted by Marilyn Waring in the 1980s. A Professor of Public Policy at the Institute of Public Policy at AUT University in Auckland, New Zealand, Waring had criticized the GDP as a system which 'counts oil spills and wars as contributors to economic growth, while child-rearing and housekeeping are deemed valueless.”]

“The GPI can measure genuine economic growth,” the SDP says, “as it makes the distinction between quality growth and growth arising from deleterious activities.”

Why is it important which indicator – GDP or GPI – is used?

The SDP explains: “Broadly speaking, the GPI is the GDP minus the financial costs arising from uneconomic growth, say for example, costs arising from the treatment of mental health or the increase in the number of broken families. If the GPI figure is high, it means that our economic growth is sustainable and benefitting society as a whole. A low figure, on the other hand, would signal that our economic direction is not productively sustainable and needs to be changed.”

According to the GPI Atlantic website:

The GDP literally does not count some of our greatest sources of wealth - unpaid household labour, volunteerism, and a clean environment, for example. Worse, the GDP doesn't distinguish between good things and bad ones - and it counts the depletion of our natural wealth as economic gain.

Crime, war, pollution, tobacco smoking, and car accidents all cause people to spend money - and so they all increase the GDP. The more trees we fell, the more fish we catch, the more fossil fuels we burn, the more greenhouse gases we emit, the more the GDP increases.

And the GDP only reports how much income we produce - but not how that income is distributed. So the GDP can increase even while the poor get poorer and the gap between rich and poor grows.

No wonder the GDP leaves citizens and policy-makers in confusion. If a rising GDP means that we're better off, why does it so often seem that things are getting worse?

In short, the GPI measures “more holistically and accurately the economic progress of our country.”

“We can then compare where we stand on these indicators with the rest of the world,” the SDP says. “This will give us the motivation to work towards becoming a nation that takes care of not only its economic growth but the development of the welfare of all segments of society.”

How the SDP’s recommendations can work in practice

Singapore's GDP is expected to grow 15 per cent this year. The Prime Minister, however, has cautioned being too optimistic. Indeed, despite the record growth, it is unclear how this would benefit the average citizen. What is clear, as spelt out by the Minister in charge of the Civil Service in 2007, is that ministers' bonuses are now pegged to the GDP.

“We will increase the bonus to a norm payment of 3 months if the economy grows by 5%. The minimum payment will remain at zero if the economy grows by 2% or less. The maximum will be increased to 8 months if the economy grows by 10% or more.” - Teo Chee Hean. (Link)

Ministers, therefore, are expected to be given 8 months' bonuses, since Singapore's economy this year is expected to exceed the benchmark 10 per cent, as the minister indicated.

Pegging the bonuses of ministers to GDP growth may be inherently bias towards policies that promote growth regardless of the negative impact, as highlighted by the SDP. What is perhaps needed is for all stakeholders, such as civil servants' incentives and Key Performance Indicators (KPIs), to be evaluated in part, with reference to the GPI.

For example, the Land Transport Authority should in some ways be penalised when there is increased traffic congestion, instead of just raising Electronic Road Pricing (ERP). Otherwise, what is the incentive to reduce congestion when one may actually earn more revenue due to congestion, which in turn may result in higher performance-based remuneration or career advancement?

Another example is the import of foreign labour. By simply increasing the foreign workers' levy and allowing unlimited employment pass employment up to 100 per cent of a company's workforce, foreign professionals' one-year certificate pass to stay in Singapore to look for a job, etc, may similarly grow revenue, GDP, etc. Perhaps a simple alignment of KPIs  to divert foreign workers' levy to benefits for Singaporean workers such as the retrenchment benefits proposed by the SDP, may reduce the inherent bias or conflicts of  interest.

Also, the GPI could take into account volunteerism rate, or the contribution of homemakers, or the cost to the environment as Singapore continues to erase its natural environment. And with the government exhorting Singaporeans to work longer and to be "cheaper, better and faster", how will these impact the individual's health and family or social life?

Therefore, the GPI should be used in conjunction with GDP, for at least domestic assessment, whilst not ignoring GDP which is and will still generally be perceived by many and the world at large as arguably the most effective measure to promote a country's economic prospects for investment, work, tourism decisions, etc.

The party should go further and make recommendations on what would constitute the GPI, which it does not do so in its publication.

Nonetheless, we hope that the party's suggestion will lead to more concrete detailed discussions and debate by the Government, opposition, civil society and ordinary citizens, about the merits of and how the recommendations can be implemented.

In our next review of the SDP's economic model, we look at the party's recommendations to address systemic policy problems which impact ordinary citizens, such as healthcare, CPF and HDB policies.