Why Hong Kong needs a better measure of wealth than GDP
Richard Harris says the textbook indicator of economic size does not give an accurate picture of an economy dominated by the service industries, robust cross-border trade, and speculative sectors like property and shares. Besides, what about equality and sustainability?
Economic growth for 2017 was 3.8 per cent as a whole (after just 2.1 per cent in 2016).
But not so fast. Not leaving anything to chance, the Jeremiahs arrived – without giving pause to let us enjoy a small moment of gross domestic happiness.
The government said that the first-quarter result was “rather exceptional” and kept 2018 growth estimates unchanged at 3.5 per cent. The cloud on the horizon is rising interest rates.
For now, let’s enjoy the economy doing well – but the real debate is whether GDP was ever a good measure for Hong Kong. GDP is irreverently defined as being the total of activities that you can drop on your foot. In an imaginary high-productivity manufacturing country, where the data is collected properly and there are few imports and exports, GDP might better reflect growing wealth.
Yet our economy is dominated by four service industries: logistics (22 per cent), financial services (18 per cent), professional services (13 per cent), and tourism (at a measly 5 per cent). These are about the worst group of activities to measure GDP by – and our cross-border trade is so high that much of our economic activity takes place outside Hong Kong itself. GDP does measure property and shares – two sectors in which we excel, and which are speculative in nature, and dominated by narrow, fat-cat vested interests.
David Pilling, in his book The Growth Delusion, talks about GDP being a poor way to measure prosperity. It does not measure inequality, sustainability, desirability, or human or natural capital. Better analysis might incorporate median or modal household income, carbon emissions and pollution. It is these factors, together with the production of goods and services, that measure economic well-being.
Only then will more Hong Kong people get to enjoy the real benefits of our stunning economic growth.
Richard Harris is a veteran investment manager, banker, writer and broadcaster and financial expert witness. www.portshelter.com