GDP GROWTH NOT GOOD BAROMETER

THE line taken by the opposition in the run-up to Sabah’s 16th state elections was the low gross domestic product (GDP) growth in the two years of the Parti Warisan Sabahled government.

This would strike as a smart argument but it also reflects a long-standing misconception about economic success among political leaders and decision-makers.

For 80 years since Bretton Woods, the 1934 invention, reformulated in 1940s by John Maynard Keynes, has been the sine quo non of economic progress, used by governments almost entirely as a benchmark of performance and to compare quality of life in different countries.

Guided by the success stories in Latin America and East Asia, it became the central goal of economic policy in the high noon era of free trade and industrialisation in the 1980s through 1990s, with books and articles hailing the lessons of East Asian Miracle to promote progrowth, pro-business policies.

The World Bank even decided to commission a research to explain the miraculous feat. It quickly became the best-selling publication in its history.

Such focus on growth is not entirely misplaced. A rising tide lifts all boats. Much of social gains — poverty alleviation, jobs creation and increase in wages — can be attributed to economic growth.

For the most part of the last three decades, the average earnings of the bottom 50 per cent nearly doubled. The World Bank data shows that the number of those living in extreme poverty has dropped by more than half since 1990, from nearly two billion to around 700 million.

In Malaysia, the poverty rate dropped from almost 50 per cent in 1970 to below two per cent by end-2010, while the income of the Bottom 40 per cent increased by 33 times from RM76 in the 1970s to RM2,537 in recent years. But there is a limit to growth. It evaporates. It shifts from one region to another.

In the decade before the 21st century, Malaysia was a high-growth centre for Southeast Asia. At the turn of the century, the baton had been passed to Vietnam. The change happens not simply because of economic crisis but for a variety of reasons the economists have been quite unable to explain.

Apart from its fickle nature, GDP is an incomplete barometer of progress. It takes into account the number of factories and the growth of industries, but ignores the environmental degradation they cause.

It includes public consumption in its overall calculation, but does not discount the amount of debts accumulated to fuel the spending. In a recent case, it celebrates the spectacular growth in profits for glove makers in the time of the Covid-19 pandemic, but has no regard to the reprehensible wages these companies paid to their workers. In short, GDP only measures the size of the economy, not its wellbeing.

As I traversed Sabah, the shortcomings of GDP as a yardstick of economic performance became even more striking.

As the political opponents argued, its economy indeed grew 8.2 per cent in 2017 from 4.6 per cent in 2016, and for the 10 years prior, the GDP was averaging 7.6 per cent. Yet, any visitor to Sabah could see how the high percentage point had little to do with realities on the ground.

A news report chronicled how the whole population in a village had to walk for three hours to get access to clean water.

And as the need for online learning due to the pandemic recently revealed, about half of the students in the state do not have access to the Internet or smartphones.

With a Gini coefficient of 0.402, it is no surprise that Sabah is the most unequal state in Malaysia.

This incongruity calls for a more comprehensive metric to drive policy-making and a policy paradigm that growth is not the end but the means to the overall wellbeing of the people.

The Organisation of Economic Cooperation and Development has developed Better Lives Index as an additional marker of progress and quality of life.

Malaysia, to its credit, publishes its own Wellbeing Index. But these indices will not have a meaningful impact or change the way we design policies without the departure from our model that prioritises exclusively on economic growth.

Even the inventor of GDP himself, Simon Kuznets, had in 1934 cautioned against using GDP growth as an indication of economic health and wellbeing.

With a Gini coefficient of 0.402, it is no surprise that Sabah is the most unequal state in Malaysia.