Правительства всех стран и СМИ одержимы этим вопросом, службы статистики никак не могут разобраться с расчетами. Так какова же реальная значимость ВВП и может ли он быть точно измерен?
What do the price of
In April, statisticians working under the aegis of the World Bank determined that China’s gross domestic product was far bigger than they had previously realised. China was, in fact, just about to overtake the US as the world’s largest economy, many years earlier than expected. The reason? Statisticians had been overestimating the prices of everything from haircuts to noodles. As a result, they were underestimating the purchasing power of Chinese people and thus the size of the economy.
Last month, British statisticians worked some magic too. They declared that the UK economy — admittedly only a fraction of China’s size — was 5 per cent bigger than previously thought. It was as if they had suddenly discovered billions of pounds in annual revenue at the back of the nation’s couch. Here the explanation was simpler. Among other tweaks to their methodology, statisticians started counting the economic «contribution» of prostitution and illegal drugs.
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Gross domestic product has become a ubiquitous term. It is how we measure economic success. Countries are judged by how much they have of it. Governments can rise and fall according to how effectively their economies create it. Everything from debt levels to the contribution of manufacturing is measured against it. GDP is what makes the world go round. Yet what exactly does it mean? Outside a few experts, most people have only a shaky understanding. In fact, the more you delve into the whole concept of GDP — one of the most centrally important ideas in modern life — the more slippery it becomes. In the words of Diane Coyle, an economist who recently wrote an entire book on the subject, «GDP is a
Coyle is a defender of GDP as a tool for understanding the economy so long as we grasp its limitations. When I spoke to her by phone, she was nevertheless amused at what she called «the regular fandango» and «public ritual» that accompanies the quarterly release of GDP data. Even though those numbers are often within the margin of error and routinely revised, we invest them with as much meaning as a priest does his liturgies.
The title of Coyle’s book, GDP: A Brief But Affectionate History, makes clear her basic allegiance to the concept. Yet, she warns, «There is no such entity as GDP out there waiting to be measured by economists. It is an artificial construct … an abstraction that adds everything from nails to toothbrushes, tractors, shoes, haircuts, management consultancy, street cleaning, yoga teaching, plates, bandages, books and all the millions of other services and products." The people who measure GDP, then, are not involved in a scientific enterprise, such as discovering the mass of a mountain or the longitude of the earth. Instead, they are engaged in what amounts to an act of imagination.
GDP is a surprisingly new idea. The first national accounts that resemble modern ones were produced in the US in 1942. It is not particularly odd that governments didn’t bother much about sizing up their economies before then. Until the industrial revolution, agricultural societies barely grew at all. The size of an economy was thus almost entirely a function of national population. In 1820, China and India made up roughly half of global economic activity by sheer virtue of the number of people who lived there.
Simon Kuznets, the
'There is no such entity as GDP out there waiting to be measured'
When it came to data, Kuznets was meticulous. But what, precisely, should be measured? He was inclined to include only activities he believed contributed to society’s wellbeing. Why count things like spending on armaments, he reasoned, when war clearly detracted from human welfare? He also wanted to subtract advertising (useless), financial and speculative activities (dangerous) and government spending (tautological, since it was just recycled taxes). Presumably he wouldn’t have been thrilled with the idea that the more heroin consumed and prostitutes visited, the healthier an economy.
Kuznets lost his battle. Modern national income accounts include both arms sales and investment banking services. They don’t distinguish between social «goods» — say, spending on education — and social «bads» (or necessities) — say, gambling, repairing the damage after hurricane Katrina or preventing crime. (Countries without much crime miss out on related economic activity such as security guards and repairing broken windows.) GDP is amoral. It is defined simply as the total monetary value of everything that has been produced in a given period.
The first thing to understand about GDP is that it is a measure of flow, not stock. A country with high GDP might have run down its infrastructure disastrously over years to maximise income. The US, with its ageing airports and
Neither is any account taken of depleted resources. China has been growing at 10 per cent a year for 30 years. That makes no allowance for the (presumably) finite oil and gas reserves it has been consuming. (The assumption is that technology will always come to the rescue.) Nor does it account for what economists call «externalities», the
Simon Kuznets, Economist and adviser to US President FD Roosevelt
Kuznets calculated that the US economy had halved from 1929 to 1932
Coyle told me GDP provided «no sense of the
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Even the mechanical business of measuring everything produced is not as easy as it sounds. Let’s take a loaf of bread, the example provided by economist
GDP is better at measuring quantity than quality, said Chang, who has recently published a book, Economics: The User’s Guide, in which he casts a mischievous glance over our treasured economic assumptions. Take a table setting of a knife, fork and spoon. In output terms, a setting of three spoons is equally good. In
Indeed, one of the biggest failings of GDP is how atrocious it is at capturing services. That is a bit of a problem given that services now account for
Ha-Joon Chang, Economist
'A society can still become '
Let’s go back to the example of the Beijing haircut. Since you can’t know the price paid for every haircut, you need to take a sample. You may determine that on average a haircut in Beijing costs half the amount of one in New York. But how do you know you are comparing like with like? Do you judge the quality of the haircut, the skill of the hairdresser, the brightness of the decor? How about the quality of the
You could argue that this is missing the point. A service is worth what the market will bear. No one will pay to listen to a
The medical industry is another example. The US spends about 18 per cent of GDP on healthcare. Much of that is eaten up by insurance, inflated drug costs and unnecessary procedures. Outcomes, in terms of life expectancy and years of healthy life, are not obviously better than in countries that spend half the amount. It’s worth asking, therefore, whether the US might be better off if healthcare spending contributed less to GDP, not more.
If some services are overemphasised, some are not counted at all. GDP mostly takes into account things that are bought and sold. Swaths of
Robert Skidelsky,Economic historian
'It’s growth without end and without purpose'
Growing inequality, a subject of sudden and urgent interest in advanced economies, is another reason why headline growth may miss the true picture. The performance of the US economy has been mostly exceptional for decades. Yet according to Robert Reich, former secretary of labour and now a professor at the University of California, Berkeley, median wages, adjusted for inflation, haven’t budged since the 1970s. Almost all the benefits of growth have gone to the top 1 per cent. If we’re not part of that elite, GDP growth has been, at best, irrelevant.
On the other hand, says Coyle, GDP is particularly bad at capturing one of the most important features of modern economies: innovation.
As author Jeremy Rifkin points out in his recent book The Zero Marginal Cost Society, the price of many products — online music,
That raises the almost philosophical question of whether we need growth at all. The slow realisation that GDP is failing adequately to capture our economic and social realities has spawned a
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A more serious probing of what might be called the «growth myth» — the idea that the pursuit of GDP is the
At the heart of the GDP debate is an anxiety that our societies have been somehow hijacked by pursuit of a single data point
The Skidelskys accept that poor countries need growth to catch up with western living standards but they wonder why affluent societies are so
Some months ago, I caught up with Skidelsky, the elder, in Hong Kong. I asked him what had gone wrong with Keynes' theory. We were sitting on the terrace of a
Another reason was inequality. A fifth of British people lived below the poverty line, he said. Rather than redistribute wealth better, as Skidelsky advocated via a basic income, the thinking was to enlarge the pie further. That obliged us to stay on a constant growth trajectory, which put us on a
The Skidelskys' book has been criticised for assuming to know what is good for people and where the limits of their desires should be. Coyle, for one, profoundly disagrees with the thesis. The pair’s notion of the good life, she told me, came from a particular stratum of British society: «a fine glass of claret, a good book and Radio 3 on in the background». The problem was that they didn’t allow for changing wants. Nor did they give much credence to innovation, much of which they brushed off as an illusion created by devious advertisers. Coyle thought innovation was real. «Would you give up the internet or new flavours of breakfast cereal?» she asked. «I don’t want a professor of economic history telling me what I can choose and what I can’t.»
At the heart of the GDP debate is an anxiety that our societies have been somehow hijacked by pursuit of a single data point. No one seriously imagines that simply making an abstract number bigger and bigger can be a worthy goal in its own right. Yet GDP has become such a powerful proxy for what we do hold dear that we find it hard to see past it. Few economists are blind to its many limitations. Most, nevertheless, give the impression of wishing to maximise it at all costs.
Coyle argues that we should invent new ways to reflect economic reality. She advocates what she calls the «dashboard approach». The Better Life Index, developed by the Organisation for Economic
In theory, this approach would allow voters to decide what is important and politicians to craft policies to achieve desired results. In practice, the combination of multiple criteria measured according to multiple yardsticks renders the exercise subjective and fuzzy. GDP may be anachronistic and misleading. It may fail entirely to capture the complex
David Pilling is the FT’s Asia editor