“Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.” – Sen. Robert F. Kennedy
You neither have to look at the strength of Nigerian marriages nor the patriotism of our youth to find what GDP (Gross Domestic Product) does not capture and yet, 50 years after this speech by the aspiring United States president, economic growth remains the most important number for a country. Never mind the poverty rate, literacy rate, and even life expectancy, GDP growth trumps all; for better or worse, the fate of nations and governments rise and fall on this single statistic. Yet, our obsession with GDP is puzzling as we ought to know better. So often, we see its flaws. The consistency of GDP growth numbers in a country as diverse as state-led China has moved from joke to parody, and the United States, perhaps the most prolific perpetrator of the “growth is good” maxim, still has millions of people living in poverty.
What does Nigeria want? Sustainable development and a general rise in living standards. If so, she should remember that economic growth guarantees neither. GDP measures commercial activity, not economic or social value; it counts nuclear output as positive, for example. Moreover, it does not even capture all commercial activity in a country as it excludes the informal sector. In Nigeria, with an informal economy estimated to be at least half the size of the formal one, this exclusion erodes the usefulness of official economic growth estimates. Worse, efforts to increase our GDP could actually reduce welfare if they hurt the informal sector.
It is not only the informal sector left out of GDP calculations. Any activity that has an economic or social value without money being exchanged suffers the same fate. Again, this exclusion is worse in Nigeria where services that would be paid for in more developed markets are provided free of charge by friends and family— think of grandparents catering for a child’s early childhood education or relatives coming together to prepare the food for a small traditional wedding ceremony. All these activities contribute to improved welfare but are missing from GDP statistics.
Perhaps the cardinal crime of GDP is that it treats everyone the same. An extra naira to a billionaire is considered equivalent to an extra naira to someone below the poverty line. As a result, GDP is utterly oblivious to inequality and two countries can enjoy the same economic growth rate but experience different qualities of growth. And we have justifiable reasons to care about inequality. Not only are we concerned about how the people near the bottom of the pile are faring (arguably more than those at the top), recent research suggests that welfare is relative, i.e. my perceived quality of life is significantly dependent on how others are doing—the wider the gap between us, the worse off I feel.
But the costs of economic growth are not just psychological; rather they are pervasive, and our refusal to acknowledge them has often caused suffering. Nigeria ignored the environmental cost of oil production until parts of the Niger Delta became an inhabitable swamp that bred militants, and the western world gorged on robust GDP growth through the mid-2000s, ignoring the fact that it was fuelled by speculative finance and the growth of worthless and harmful financial products. And then it blew up in all our faces.
The criticism of GDP is endless. It only partially accounts for changes in the quality of goods and services, and it is subject to multiple revisions, even in the most sophisticated countries. But in defence of GDP, it is probably still the most comprehensive and reliable way of measuring welfare. The issue isn’t the indicator itself, but the economic and political obsession with it, and our blasé refusal to adopt complementary measures. The mythification and supremacy of GDP forces us to forget that it is a man- made measure, one vulnerable to our specifications. That’s why a country’s GDP can double within a day (when it is rebased) or decline by 20% in one year without anyone realising, as was the case of Macau** in 2015.
And all of this is not just of academic interest. As I mentioned earlier, economic growth is a singular target of many nations, and most of our societies and economies are organised in pursuit of achieving the fastest growth possible. But even when we attain economic growth, we don’t get what we care about: better living standards, equal opportunities for all, and a sustainable future.
The fundamental issue with GDP—and what makes it so attractive—is how standardised and objective it is. But we can’t place a naira value on everything that matters, and we shouldn’t try to anyway. Nigeria ought to use GDP as part of a broader package of welfare indicators: happiness surveys, GINI coefficients of inequality, and select measures of sustainability and inclusiveness, like metrics of gender equality, for example. And even then, we must accept the reality that not everything that counts can be measured and remember that not everything that can be measured counts.
**The decline could be attributed to a slump in the casino industry following the Macanese government’s anti-corruption drive. Gaming and tourism account for a bulk of the Macanese economy.
The author, Michael Famoroti is Chief Economist at Vetiva Capital Management Limited. The views expressed in this article are personal to the author and may not reflect the opinion of Vetiva Capital Management Limited or any of its affiliates.
About the Author
