It is ill-suited to today’s digitally connected, globalised worldby Paul Wallace / March 10, 2017 / Leave a comment
The February security conference in Munich saw US Vice President Mike Pence deliver a stern lecture to European members of Nato. The western alliance would be eroded, he said, if so many countries continued to shirk their fair share of defence spending, which is supposed to be at least 2 per cent of their GDP. Here was a reminder of how the big number with the little name can creep into every corner of life, including international relations.
Soon after the Munich conference, a humbler gathering of statisticians and economists took place in south Wales. Organised by the Office for National Statistics (ONS), which is based in Newport a few miles away, its title was Economic Statistics in a Digital Age. Quite a lot of the proceedings were about the ONS itself and its attempts to restore a reputation tarnished by mismeasurements in areas such as investment, trade and construction.
The main thread running through the conference, however, was a much bigger question. Gross domestic product—the total value added in an economy within a given period—rules the roost of economic indicators; a Google search for GDP throws up 112m results. GDP is used as the prime gauge of economic achievement both in the short and the long-term. Beyond its use by Nato, it is deployed to rank countries’ spending on health, the size of their banking sectors or debt burden, and a host of other measures.
But is GDP fit for purpose? It has long had its detractors. Half a century ago, Robert F Kennedy famously lamented the shortcomings of closely related gross national product (GNP), which counted everything “except that which makes life worthwhile.” A decade ago a commission backed by the French government and chaired by Nobel prize-winner Joseph Stiglitz called for less focus on the economic production captured by GDP and more emphasis on a broader set of measures covering “well-being.”
The latest bout of soul-searching is even graver than these earlier critiques since it calls into question the reliability of GDP as well as its relevance for modern economies. One number recurred during the conference: the revision to Irish GDP made in July 2016, which lifted growth in 2015 from a frothy 7.8 per cent to a preposterous 26.3 per cent.