Over the last few days, we have witnessed an exchange between the Penang state government and Gerakan over the economic and development performance of Penang.
Much focus on GDP and GDP per capita rankings by state. The implicit suggestion is that higher GDP translates to improved wellbeing of the people. But if that’s the case, then why is it that many, many Malaysians don’t feel better off despite rising Malaysian GDP per capita over the years?
To me, there are serious flaws in using GDP as a measurement if we are really concerned about holistic development.
I wrote about this for Aliran in 2012 and I reproduce that piece further below. I just want to highlight this paragraph:
What is Gross Domestic Product? Simply put, it is the market value of all the final goods and services produced in a country over a specific period.
That’s the mainstream definition. And that’s a problem: GDP only measures the “goods” and services produced but not the “bads” (resource depletion, pollution, carbon and green-house gas emissions, toxins that are the by-products of our economic system). We are harvesting the “goods” for the current generation but leaving behind the “bads” for future generations to bear. And they will curse us for it.
In a nutshell, GDP measures the output of goods and services, but it doesn’t measure all the costs to society in producing those goods and services. Take land reclamation for property development, which will no doubt add to GDP: what are the costs that are not being included in GDP measurements? The loss of sand and rocks, some of them from outside the state, the loss of marine life and fisheries (and thus the impact on our food security), the adverse impact on a socio-cultural asset like Gurney Drive, which will soon be separated from the coast by an eight-lane highway.
In this era of climate change and resource depletion and environmental degradation, we cannot afford to ignore all these serious costs to the ecology.
By just looking at GDP figures alone, we also ignore how the income from producing that output is distributed. Has it given rise to greater or less income inequality? Remember, the bulk of national income goes to profits for corporations and dividends rather than to workers’ income.
And even if the Gini coefficient (which measures income inequality) is lower i.e. if income inequality has narrowed – how well off do the ordinary people feel? Are they now saddled with higher food prices, scarcity of marine fish (as opposed to caged fish), exorbitant property prices and higher household debt (which includes housing loans for expensive homes). What about the impact of the regressive GST, the need for which was contributed by federal government mismanagement of the economy and rampant corruption?
Do the people have enough green spaces to promote their mental and physical wellbeing? Are they working longer hours with more stress? Is the food they consume healthy and wholesome?
No, all these factors, many of them qualitative, are not measured by your GDP; so what’s the point in arguing who performed better using such statistics?
This is the article from 2012.
The problem with GDP
Anil Netto explains why GDP growth is a poor measure of economic performance and why we need to move towards ecological economics.
Every year, when it comes to the Budget, one of most-watched figures is the GDP growth rate forecast. Can we really achieve 5-6 per cent growth this year, in the face of a global economic slowdown? (The forecast has now been reduced to 4-5 per cent.) That seems to be the main question. Similarly, many other countries look to GDP growth rate as a key indicator of how well their economies are performing.
The unstated assumption is that a higher GDP growth rate will translate to a better quality of life and greater prosperity for the people. But that has not happened for many people, has it? Instead in cities around the world the “99 percenters” have protested in the Occupy movement against an unfair distribution of resources and the wealth accumulation by the top 1 per cent.
What is Gross Domestic Product? Simply put, it is the market value of all the final goods and services produced in a country over a specific period.
That’s the mainstream definition. And that’s a problem: GDP only measures the “goods” and services produced but not the “bads” (resource depletion, pollution, carbon and green-house gas emissions, toxins that are the by-products of our economic system). We are harvesting the “goods” for the current generation but leaving behind the “bads” for future generations to bear. And they will curse us for it.
In fact, conventional economic thinking assumes that raw materials are unlimited: it does not even contemplate a world where these resources are being rapidly depleted and where it will need several planets to obtain the natural resources for everyone to achieve an affluent life-style.
Tenaga is already feeling the effects of the depletion of natural gas supply in Malaysia and it is only a matter of time that electricity tariffs will rise significantly.
Alternatives to GDP
Instead of focusing so much on GDP, we could pay more attention to the UN human development index, which aggregates statistics for life expectancy, literacy, education and standards of living by nation. Malaysia was ranked 61 according to the Human Development Index for 2011.
But even this may not be a satisfactory measure as the gap between the rich and poor may be large and calculating an average indicator for each component may mask the reality. The UN has attempted to overcome this by coming up with an inequality-adjusted human development index.
The UNDP is now working with the Malaysian government to come up with a National Human Development Report for Malaysia by this year – a step in the right direction.
It would be timely to come up with other indices of our own to measure quality of life including health care, housing and health care indicators, access to safe and nutritious natural food, food self-sufficiency, recreational public green spaces per capita, forest cover, resource depletion and pollution.
And how do we take care of the most vulnerable and marginalised in our society – or is ‘development’ only meant for a select few who can afford expensive houses, cars, housing and health care?
Bhutan has come up with a Gross National Happiness (GNH) Index as an alternative to GDP. The thinking behind this is that happiness and well-being result when material and spiritual development take place side by side and reinforce each other. The index stresses the promotion or preservation of sustainable development, cultural values, the natural environment and good governance.
GNH has been refined to include several metrics such as psychological well-being, ecological (including perception of pollution and ecological knowledge), health, education, culture, living standards (such as income sufficiency to meet daily needs and food security), time use (including hours of sleep), community vitality and good governance. Of course, Bhutan has a feudal system but the GNH provides an alternative indicator to GDP growth and FDI.
Indonesia has recently launched the People’s Welfare Index (or IKRAR, Indeks Kesejahteraan Rakyat) to measure the effectiveness of programmes to reduce poverty and income inequality. The index has three main indicator clusters, namely Economic Justice, Social Justice and Democracy.
A fourth cluster should be included: Environmental Justice and Sustainable Development.
Ecological and steady-state economies
Like an accelerating locomotive about to plunge into a ravine, the corporate-led global economy is rapidly hurtling towards environmental catastrophe, loss of biodiversity and even species extinction. Unfortunately, mainstream economists do not even talk about these ecological trends.
Instead it’s all about GDP growth and FDI and what-not. Part of the problem is that the ecosystem and the environment are assumed to be a sub-set of the economy.
But that was not always the case. Even free market economist Adam Smith recognised there was a limit to economic growth. He knew that over the long-term, growth in population would suppress wages and natural resources would be depleted.
Philosopher and economist John Stuart Mill believed that after a while, the economy would reach a steady state of population and stocks. This he thought would not be a bad thing. “It is scarcely necessary to remark that a stationary condition of capital and population implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress; as much room for improving the Art of Living and, much more likelihood of its being improved, when minds cease to be engrossed by the art of getting on.” (Limits to growth: the 30-year update by Donella H. Meadows, 2004, Jørgen Randers, Dennis L. Meadows).
Other economists like the Catholic thinker E F Schumacher wrote about “Buddhist Economics” in his book Small Is Beautiful. His economic model was based on a sufficiency in consumption. And he envisioned vibrant communities supported by peaceful and cooperative efforts. Dorothy Day and Peter Maurin, the founders of the Catholic Worker movement, attempted to put into practice ‘distributism’ that focused on the local economy – the idea of making people self-sufficient in food and turning workers into the owners of their own businesses.
This leads us to ecological economics and the study of ‘steady-state economies’, where the economy is manoeuvred to reach a stable, sustainable level. In ecological economics, the human economy is embedded in Nature and not the other way around.
In wealthier nations, ecological economics may even find that de-growth could be necessary if it can be seen that the present level of economic activity is harmful to the ecosystem and against the long-term interests of future generations. Ecological economics also emphasises a fair distribution of resources. It is morally wrong for the top 1 per cent or top 10 per cent to control the majority of wealth while others have insufficient to meet even basic needs.
How apt. The economy should serve the people (not only the present generation, but future generations as well) and it should be sustainable within the context of the larger ecosystem. We have to explore alternative, more just and sustainable economic models – before it is too late.
Anil Netto is honorary treasurer of Aliran.
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Saw this interesting comment on Msiakini: I am surprised that the manufacturing sector in Penang still registered a zero growth and not a negative growth. However, this blame must be placed squarely on the Gerakan government for failing to anticipate regional competition from Vietnam, Thailand and Philippines for labour intensive manufacturing jobs when they were in power. In actual fact, the growth had started to slow down at the start of the new millennium, which the previous government failed to anticipate and take quick action to stop. At that time, Gerakan was still in power. Penang, despite many years of… Read more »
Obviously posted by a DAP fanboy with little understanding of the economy or the industry. It might be even possibly by one of those numerous DAP cyber foot soldiers who prowl the internet to intimidate the party’s opponents and sing praise of their Great Leaders. The modus operandi is still the same – when the result is good, then take all the credit and talk big at ceramahs and international press conferences and meetings about the superman-like quality of the Dear Leader. And when the results are bad, blame Gearkan and UMNO. Long before DAP came to power,Penang has a… Read more »
GDP/capita, GNI/capita et . are mean figures, not median. They conceal poverty. Another example is measuring household income instead of (falling) wages. It is the job of economists to conceal the ills (e.g. “externalities”) and highlight the supposed benefits of Kapitalism. If a government such as Cuba is determined to spread wealth and political power systemically, it faces the most barbaric brutality. Russia and China are major threats as their leadership is becoming more responsive to their people and harder to blackmail/corrupt. They also represent alternatives to every lie from Kapitalism.
Check out how US manipulated global oil market with its own oil reserves to punish Russian oil production.
US never cares about its own global oil manipulation effects on oil producing countries but for its own agenda.
What a good diplomatic tight slap recently by Philippine President Rodrigo Duerte on US & its President Obama.
Philippine P01 Fire to received July national approval ratings of 91%, pushing away drug lords to neighbour that boleh tolerate corruption vices.
Philippines people rejoice over tough leadership stirring the country away from Obamacare towards fairer trading golfing partners with XiPutin
Any views on the 2017 budget?
Looks like more borrowing with easier loans will increase the household debt, already shockingly high per GDP.
Anyway Goodies given to civil servants will rot etc BN votes.
Hard-working, honest and literate Malaysians have more pride and dignity than MO1. His 2017 Budget speech is for those ostrich who do not see through this shameless MO1 bags of lies. From achieving a developed state by 2020, it has now become TN2050 and the failures are due to the massive corruptions never seen in the history of Malaysia. Just imagine,the Sabah Water-works DG and his Deputy were found with more than RM52 MILLIONS IN CASH BESIDES JEWELLERY, 9 CARS, HUGE MANSIONS AND OVER 120 LAND TITLES! The saddest case is that (many of) the UMNO Malays just don’t give… Read more »
The latest Najib’s budget is commited to please the already bloated civil service with less than 19% for development. RM500 bonus for civil servants regardless of job performance and easier access to loan (from smartphone to housing without due care for the ability to service required loan payment) is to hold on to the fixed deposit votes for GE14. Meanwhile we are told to spend on cheaply unlicensed roadside food (nasi lemak anak dara)
From Kang Kung to Nasi Lemak!
Is that an IQ of a PM that we want for the 21st Century???…
All is forgiven just because of BR1M?
Think carefully if you still have a rational mind.
Support Bersih 5.
Last Friday’s budget is just one of many budget. Soon by January, there will be a supplementary budget. All the time, there are off budget items which are as big as the National budget. Then sometimes there are two supplementary budgets per year. So in one year, there can be 3-4 real budgets. This allows them to … hide and look good. All the while, our economy is going downhill and getting from bad to worse. Younger generation, they are pawning our assets and borrowing money ( to keep afloat ) that you people must repay. I am not great… Read more »
Soon, there will be a supplementary advice (as economy & lifestyle going downhill) coming from that Kang Kong > Nasi Lemak Financial Guru @ Putrajaya:
Kang Kong > Nasi Lemak > Putu Mayam
FYI: Putu Mayam is much cheaper than Nasi Lemak for those who already cannot afford Nasi Lemak!
https://en.wikipedia.org/wiki/Putu_mayam
Anil, shouldn’t ‘social engineering’ – an economic-forced emigration of one’s residence to another place due to unaffordable housing or higher rentals or cosmopolitanisation of state (gleefully allowing foreigners to drastically change the property landscape for no other reason than state’s coffer) – be factored into the state’s highly self-applauded GDP and per capita GDP skewed rankings? FYI, ‘social engineering’ often causes great unhappiness & stress & loss of economic means to affected people & borrowing from Bhutan’s Gross National Happiness (GNH) Index will severely affect the Index (ranking) to come to the truth. In assessing & measuring state performance, the… Read more »
Yes, the full impact of higher house prices on the people will not be reflected in GDP rankings. We know that housing and car loans make up a large chunk of household debt and many ordinary Penang Island dwellers can no longer afford housing prices where they are.
Anil, TQ!
Tunlang moving to Taiping and thanking Anil ? Bon Voyage!
Pls read a sentence & comprehend better the next time. Gosh!!!
Malaysia has achieved the status of an upper middle-income nation based on its Purchasing Power Parity (PPP) per capita, according to PM Najib.
http://www.thestar.com.my/news/nation/2016/10/21/budget-2017-malaysia-now-an-upper-middle-income-nation/
At what cost to the nation? GDP growth in tandem with very high administrative cost over development (provided no leakage ala Sabah water dept $candal).
Below article a reflection whether GDP figures matter more over dignity?
http://www.freemalaysiatoday.com/category/opinion/2016/10/22/where-is-your-dignity/
More unemployment among graduates today.
Not sure how many the civil service could absorb them.
civil servants fixed deposit votes for najib.
simple logic.
While I understand why you dispute GDP but I think the Penang Govt is not being transparent. Penang Institute’s refusal to answer ten straight-forward questions is bringing disrepute to them and causing people to think they are scared of LGE’s warning to them not to be dogs that bite their hands. PI was paraded by LGE to answer Gerakan and said their credibility is top-notch but when Gerakan directs the questions direct to them instead in order to avoid further dispute about the data sources, they said they are non-politicians and refuse to answer. Why can’t PI just answer them?… Read more »
agree with what was mentioned in the article, but I believe the larger concern is whether the momentum for economic growth for Penang is still on going ? are there more job creations ?
and are we progressing or declining, when compared to other fellow member states of the federation ? the confidence of the Penangites on the current state leadership is also in question, whether they hv any clue for the future of Penang, economically.
GDP as well as new Gurney Wharf both have different interpretations from different folks.
In The Star today Anil Netto was mentioned in page 4 on Gurney Drive Past, Present and Future talk. We hope Anil can inform readers of such kopitiam talk so than Penang-lang can attend to provide moral support on issues affecting the future.
Okay, Ho, will keep you posted. Quite a few talks like that are organised by Penang Heritage Trust.
Anil showing his accounting skills, keep it up!
Perhaps Niaokong vs BohHootGelaksn should debate on COGS that is cost of goods (rakyat$) sold? I am sure Anil can be the moderator of such debate.