Indonesia must move beyond GDP to assess welfare, equality, economists say
INDONESIA needs to move beyond the gross domestic product (GDP) as the tool for measuring the nation’s prosperity, as the indicator fails when it comes to assessing welfare and inequality, economists have said.
The chairman of the Meeting of Minds Forum, Ismail Serageldin, said the country should not only rely on GDP growth to “fully assess the economy”, citing the rise of inequality in several countries from Sweden to Somalia as the main reason that the GDP did not capture the entire economy of a nation.
“The GDP has been growing in Indonesia but it does not measure the welfare of the citizens and inequality in society, among other things,” Serageldin told the audience during his presentation at the Meeting of Minds Forum in Jakarta on December 11, adding that the flaws in the GDP “are well-known”, as it served as a flow measure rather than stock or wealth measure.
“For instance, a forest standing up is valued at zero, while employing people to cut it down adds a positive number to the GDP. Unremunerated work is also not counted, and thus women’s contribution to society is grossly undervalued,” he said.
Serageldin, who served as vice-president of the World Bank from 1992 to 2000, said many countries relied on the GDP as it was used due to its “shorthand measure” and its correlation with employment. “[But there are still] a lot of things wrong with GDP [as an indicator].”
Indonesia’s GDP growth is expected to remain sluggish next year as weakening exports and commodity prices in addition to global uncertainties continue to take their toll on the economy. The country’s economy is expected to expand by five per cent this year and by about the same rate next year, Singapore-based lender Bank DBS said.
Meanwhile, global credit rating agency Moody’s estimates
Indonesia’s GDP will expand by only 4.9 per cent this year and by 4.7 per cent in 2020 – the slowest pace since 2016’s fourth quarter – as a result of low commodity prices.
The country’s annual GDP growth stood at 5.02 per cent in the third quarter of this year, down from 5.05 per cent in the second quarter, as investment and exports plunged while household spending stagnated, Statistics Indonesia (BPS) data shows.
World Bank data shows that Indonesia’s GDP per capita has steadily risen from $823 in 2000 to $3,932 last year.
By global standards, Indonesia’s economy is growing fast, but not all Indonesians can enjoy their country’s above-average growth, with 25 million still living on less than $1 per day as of March this year, BPS data shows.
A recent report by the Asian Development Bank revealed that 22 million Indonesians endured hunger in the period of 2016 to 2018.
Inequality in Indonesia increased from 2000 to 2016, as reflected in a rising Gini ratio, but has since dropped to a Gini reading of 0.382 as of March this year, the SMERU Research
Institute said. The Gini ratio is a measure of inequality ranging from 0 to 1 – the higher the value, the larger the gap.
Indonesia’s top one per cent still account for 45 per cent of the country’s household wealth, which is a high figure by international standards, Credit Suisse’s Global Wealth Report 2019 said.
Separately, New America Security think tank fellow Patrik K Meyer said a large majority of world leaders, multinational companies and international organisations agree that economic growth is fundamental to securing the well-being of humanity and world stability, despite several experts, including Nobel Laureate in Economics Joseph Stiglitz, having argued that economic growth was “not a good measure of economic performance”.
“Despite productivity in developing countries having seen a 30- to 80-fold increase . . . economic growth is still preached as a fundamental necessity to ensure people’s well-being,” he wrote an opinion article titled Economic growth at any cost! A deceptive mantra, published in The Jakarta Post on October 16.
“Despite this massive increase in productivity, people spend most of their time and energy on making a living, working 40 to 50 hours a week, and still feel that their survival is not secured.”
Meyer, however, did not dismiss t he concept t hat economic grow th needed to be achieved.
“While economic growth is fundamental to improving the living standards in developing countries, seeking economic growth fuelled by consumerism in developed economies brings with it numerous detrimental consequences,” wrote Meyer, adding that it could result in a “never-ending consumption race and the destruction of the vital environment”.
Contacted separately, University of Indonesia rector Arie Kuncoro said the main weakness of GDP as a gauge was that it only measured goods and services produced in a country without considering the environmental costs.
“GDP does not measure environmental damage, because it only measures [goods and service] production. For example, the GDP does not count [the environmental cost] when a country extracts coal but when the coal is being produced [and] sold as electricity, then it counts as GDP,” Arie, who is also a senior economist, told the Post.
Arie said the country should push for a better method rather than rely only on GDP, such as by using national happiness indicators.
“Measuring the economy using happiness [indicators] is still controversial but a step forward, as GDP is unable to measure people’s welfare. It would need several methods and not only GDP to measure a country’s economy,” he added.