GDP Growth - A convenient beacon that can hurt

“GDP measures everything except that which makes life worthwhile.”
Robert Kennedy
U.S. Senator
By Nguyen Tue Anh - Visiting Postdoctoral Fellow Center for International Development, Harvard University

Đọc bản tiếng Việt tại đây. 

Despite the COVID-19 crisis, Vietnam remains its positive GDP growth in 2020.(1) Besides, thanks to economic successes, poverty head count reduces while income per capita increases.(2)

However, developing countries like Vietnam are facing the classic conundrum: growth vs. sustainability and equality. Whilst it has been enjoying the triumph of the world’s fastest GDP growth in the last years, the repercussions on our environmental and social equality have not gone unnoticed.

It’s hard to dismiss developmental and material gains in Vietnam due to economic growth; the critical question is whether the gains we have celebrated outweigh the costs to the environment and society in years past and to come. And to a large extent, the answer is “no” for Vietnam.

“Not all that can be counted counts” (3)

GDP is a convenient tool, but an oversimplified one.(4)

Included in GDP statistics are not all activities that are economically quantifiable or visible. Reliance on GDP as a guide for economic policies easily puts women’s role in the shade and shadows the value of household welfares.

A rough calculation based on the United Nations’ report indicates a significant underestimation of the value of work.(5) On average, women in both developed and developing countries are underpaid by half of a typical working day while for men, it’s approximately a sixth to a fifth of a day’s salary respectively.(6) The total value of unpaid care and domestic work is estimated to range from 10 to 39% of GDP, more significant than that of many key sectors.

In Vietnam, women in all sectors earn less than men, up to 22% in some sectors, equivalent to an average of 1 month of unpaid work per year.(7) Women are more likely to work for less in exchange for more secured and flexible jobs since it’s widely and culturally believed that the responsibilities for family housekeeping are in women’s hands. Uncounted in GDP, women devote more than 5 hours a day to household tasks while their male partners spend a third less.(8) Policies focusing on growth can magnify the role of men vs. women in the midst of already- existing gender discrimination problem.

Wealth is neither Happiness nor Stability

If GDP zooms in a country’s wealth and its relative size to the world, it blurs the important background of well-being and social welfare in such an environment. In maximising GDP and chasing GDP growth, countries enter an ever-growing-and-never-can-be-won race.(9)

Relaties of patients sleep along a corridor at a hospital in Da Nang City, central Vietnam [Photo: Pham Vo Hoang Giang / Oxfam]

Economic growth had made a difference to Vietnam but not to relative poverty.(10) While the gap between the 20% poorest and 20% richest did not change in 1990-2016, disparities between the super-rich and the super-poor have become more apparent and inequality between different regions and ethnicity has got worse.(11) With uneven distributions of hospitals and schools among different regions, people of poor background and of ethnic minorities are deprived of opportunities to mobilise and develop, which then would create next generations of similar destiny.

The popular idea that GDP growth translates into better well-being for the common has been recently criticised at length.(12) Trickle-down effects of wealth concentrated in the hands of the richest population were merely hypothesised but have not been adequately proven.(13) Whilst the rich get richer, rather than distributing wealth, they might be incentivised to keep wealth by influencing economic and political institutions. The decoupling relationship between inequality and growth may also harm the political stability of a country.(14)

Wealth vs. Sustainability

What we know for sure is that pro-growth liberalisation policies come with huge environmental costs. Impacts on the environment are believed to be offset when higher income makes new ecological technology more affordable and production more efficient.

A key driver for policy focus is how much economic growth has driven demand for electricity. In Vietnam, while average annual GDP growth is around 5-6% per year, energy demand has grown around 14% p.a. Power production has grown roughly 15% from 2000-2010 and shot up to above 25% from 2012. In fact, since 1990, electric supply growth has surpassed that of GDP.(15) One prominent issue in any power sector in the era is a transition from fossil fuels to renewables in generation. It should especially be so in Vietnam where CO2 intensity is higher than the world’s average and its 2 metropolitan areas are among the world’s most polluted cities.

The challenge for the sector under pressure of strong growth is to maintain affordability, reliability and sustainability in energy generation. Since the beginning of 2000s, Vietnam embarked on the market liberalisation path in the energy sector to meet these objectives via private participation in renewable generation. However, the belief to rely on private sector to pick up on incentives to invest in renewables should be revised. Even the UK with the most liberalised energy sector has started to question this model as their system has failed to deliver reliable and affordable electricity. As our climate clock is ticking, the share of fossil fuel has risen, coal share more than double(16) while solar power projects are still pipelined. If current power plant projects carry on, worryingly, our energy is not getting greener.(17)

Prosperity vs. Longevity

An obsession with GDP data is a problem as the focus on growth is distracted from other issues.

GDP growth acts a helpful beacon as long as it is thoroughly understood by users of what it can and cannot tell. While the most commonly used indicator in economics certainly shows us useful snapshots of the economy and its key components, these statistics should not be confused with measures of development and well-being. Even so, when abused, this misconception can bring about long-run detrimental consequences, much more than what differences it can make to our material life. In fact, the persistent pursuit of growth is taking its toll on the ecological and social balance that our lives are depending on.

Increasing inequality is not only rooted in the pursuit of economic growth driven by the rich and the mythical reasoning of trickle-down economics, but also could lead to political instability while growth based on mass consumption and production would worsen the existential issue of climate change.

As an emerging economy, Vietnam still needs to grow. But what matters is not the fastest possible growth but how such growth could be translated into well-being and sustainability. In order to do that, it’s crucial to step back from growth-driven economic policies and the one-size-fits-all neoliberal growth model. What matters is not how much growth but its quality.

 

References:

1 GSO (2020). Socio-economic situation in the fourth quarter and the whole year 2020. https://www.gso.gov.vn/en/data-and- statistics/2021/01/socio-economic-situation-in-the-fourth-quarter-and-the-whole-year-2020/

2 Data from the World Bank Group

3 Quote by Einstein

4 As a post-war economic indicator, the statistics based on GDP narrow governments’ focus on tax revenue, household spending vs. business investment and governments’ debt. At war, a country can see expanding GDP as government spending on military equipment increases, however undesirable it might mean.

5 United Nations (2015), The World’s Women 2015: Trends and Statistics.

6 Ibid., calculated based on Figure 4.22 (page 112) compiling of data from 10 developing and 25 developed countries. A typical working day is 8 hours. Women in developing countries spend, on average, 4 hours and 30 minutes per day on unpaid work, and men 1 hour and 20 minutes, hence, over 56% and 16% respectively. In developed countries, women spend 4 hours and 20 minutes (over 54%) and men spend 2 hours and 16 minutes (around 26%) per day on unpaid work.

7 I. Chowbury, H. Johnson, A. Mannava, and E. Peerova (2018), Gender Gap in Earnings in Vietnam: Why do Vietnamese women work in lower paid occupations?

8 L. T. Thu et al. (2018), Women’s Economic Contribution through their Unpaid Work in Vietnam.

9 Real GDP per capita was traced back to 1000 B.C. and the study shows that materialistically, we are on average earning many times more and at a faster rate in these couples of centuries than ever before. See more J. B. De Long (1998). Estimates of World GDP, One Million B.C - Present. Data collected by the World Bank and World Development Indicators from 1961 onwards also shows a consistent increase. Since everyone is racing and all is getting wealthier, the race is non-stop.

10 Gini Index from 1990 to 2015 has remained between 25 to 40. Distribution of income by poorest and richest quintiles remain roughly the same. The World Bank (2019), Poverty & Equity Data Portal.

11 The World Bank (2014), Taking Stock An Update On Vietnam’s Recent Economic Developments.

12 Stiglitz, J.E., A. Sen, and J. P. Fitoussi (2009), Report by the Commission on the Measurement of Economic Performance and Social Progress.

13 Kuznets himself also said that his theory was a hypothesis that needs to be proven. See Kuznets (1995), Economic Growth and Income Inequality.

14 D. Acemoglu and J. A. Robinson (2002), The Political Economy of the Kuznets Curve. This paper warned of these dangers.

15 Data from U.S. Energy Information Administration (2019) International Energy Statistics - Vietnam.

16 Data from Danish Energy Agency (2017) Overview of The Energy Sector: EXECUTIVE SUMMARY.

17 Renewables and fossil fuel energy both increase consistently from 1964 to 2017 and outlook to 2020 based on 2016 updated data shows that the share of fossil fuel is getting bigger. See more at T. A. Nguyen (2017), Liberalisation, the World Bank and investment in the electricity systems of Vietnam.