The View

As Hongkongers will tell you, GDP per capita is not a perfect gauge of prosperity

Hong Kong’s score in the World Happiness Report – and not GDP ranking – is perhaps a better indicator of well-being

PUBLISHED : Wednesday, 24 January, 2018, 1:36pm
UPDATED : Thursday, 25 January, 2018, 12:30am

Do you spend your waking hours pondering the fate of gross domestic product? No, I guess not. Yet if you are working at China’s National Bureau of Statistics, or somewhere in the labyrinth of China’s numerous planning agencies, GDP angst is a big part of your life.

The Chinese government recently announced that last year’s GDP growth amounted to 6.9 per cent, the best figure since 2010. Headlines were written and sighs of satisfaction were expelled.

This growth figure might even be accurate, or at least far more accurate than in the years when individual provinces announced levels of GDP growth that when combined totalled far more than the national figure. The pressure to exaggerate China’s GDP growth has always been intense in a nation that views economic expansion as the cornerstone of the regime’s legitimacy.

Yet China’s leaders, in common with many other national leaders, do not question whether the GDP figures are as meaningful as they are cracked up to be.

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Tackling this question is the starting point for a new book by The Financial Times journalist David Pilling, The Growth Delusion: Wealth, Poverty and the Well-Being of Nations. His basic contention is that the way GDP is measured is problematic and that even if better methodology were employed, this fixation with GDP is an inadequate way of truly measuring what Adam Smith famously described as the wealth of nations.

There are indeed other ways of measuring wealth and well-being, notably the Human Development Index, devised by Mahbub ul Haq. And then there is Richard Laynard’s happiness index, which is derided for being a tad too touchy, feely – especially by those who score badly.

Hong Kong lumbers into the World Happiness Report in 72nd place out of the 156 economies surveyed. China ranks even lower at 80th, and the report notes that despite very impressive GDP growth the Chinese people are no happier than they were 25 years ago.

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These findings, based on a wide batch of data, including GDP, are often dismissed in these parts where the illusion of a burgeoning economy is said to sweep aside all other considerations.

At this point let us pause and consider what GDP actually means as its main purpose is to measure all monetised activity. Thus massive forms of activity, such as non-paid housework and childcare, do not figure here. Then there are more complex matters, including education. GDP figures capture the capital costs of building educational institutions, the wages paid to their employees and the maintenance costs but the value of these inputs is not measured as they are transformed by human beings into that rather nebulous concept of education.

Pilling argues that the values of economic measurements are determined by policy objectives. Thus, again using the education example, if the policy objective is, say, to provide schooling for all children up to the age of 16, measurement is made in terms of establishing whether this headline objective is achieved. What is not captured – but is far more important – is the quality and scope of the educational process.

It really does not take that much effort to see why this GDP achievement [by Hong Kong ] is not causing the citizenry to flood onto the streets in celebration

Hong Kong might not like being towards the bottom of the happiness league when in the international league of GDP per capita, the SAR proudly sits in 19th place. Yet it really does not take that much effort to see why this GDP achievement is not causing the citizenry to flood onto the streets in celebration when most of them are in jobs that take them just above the subsistence level, where home ownership is an unattainable dream and where the joys of parenthood are highly circumscribed by worries over the costs. These same considerations apply on the mainland but more so.

This is why when mainland tourists go to Japan, which is derided for its more than more two decade- long period of GDP slump, they are amazed to observe a nation of well-dressed people moving around in pristine streets with shops filled with more or less everything, and even in remote rural areas there is a standard of living that can only be dreamed of in the remote rural areas of even in more prosperous provinces such as Guangdong.

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This mismatch between perceptions of prosperity and the reality of living standards is mirrored elsewhere in the world. Take Italy, for example, “the poor man of Europe”, where most citizens eat and live pretty well even if the statistics say they should be doing nothing of the kind. So, clearly there is something wrong with this GDP fixation.

As Pilling writes on Twitter, GDP outcomes are not to be ignored but they are only “a good measure – so far as it goes. We just need to emphasise a few others: median household income, health, jobs, sustainability (C02 perhaps) and some recognition of quality not quantity”.