The GDP magic may have gone, but though it needs replacement, we are unlikely to match the coherence and stability the GDP tool once fetched. The daunting task of developing a GDP replacement should keep our economists plenty busy, writes Imtiaz A. Hussain
Imagine measuring a hunting-gathering society's economy, for example, to compare with today's counterpart: it would be next to impossible given the absence of production, and the income stemming from it. If we now turn to measuring the immediate future, how relevant would a gross-domestic product (GDP) measurement remain when relating mechanised (roboticised) production to wages would throw new wrinkles, or the growing service-based anchor would fudge the direct connection between production and wages, or even offshore banking/production disassociating transactions from country accounts?
Since offshore production, banking, and financial hideaways have reached a tipping-point, as the most recent scandalous exposure, the Panama Papers, revealed, we have reached a no-return point in changing measurement models. One of the hidden messages in the distinction between the first two and last two industrial revolutions might hold an answer. Whereas the first two were anchored upon the factory, a fixed production location highlighting the key innovation of the past two-odd centuries (mass-production), the latter two rest upon flexible output-manipulation levers and too transnational operations to fit national account books. Just as "hardware" characterises the former mode and "software" the latter, the distinction directs one's fingers to varying workplace relationships. For example, the former relies on the modus operandi linking businessmen and workers (and therefore the tussle between them through institutional mechanisms, such as the greater business influence than the worker's leverage over policy outcomes, or conversely, unions defending worker rights against business interests). Likewise, the latter (a) not only is there no referential modus operandi since automation might displace the worker, but also a variety of services must also sprout to keep the mechanised contraption functional; (b) may involve too divergent emergent platforms, as against the monolithic assembly-line substructure of the "fixed" model; and (c) as alluded to, offshore production locations increasingly escape the accountability radar.
Making an essentially similar argument, Heather Boushey's Guardian/Brookings article pinpoints the income-level disjuncture (see Guardian, May 01, 2019; and Brookings, Newsletter, op-ed., May 05, 2019), but in the process, implicitly depicts how the first two factory-based industrial revolutions differed fundamentally with the Internet-driven latter two: business groups suddenly seeing their benefits multiply with the latter two, while workers find themselves increasingly out-priced at the production level on the same playing field. It is this income-based rupture that demands a GDP substitute: under factory-based production, workers could hold their own (armed as they were with rights, institutions, and governmental protection after the 1930s Great Depression), until the late-1980s, when the Washington Consensus institutionalised liberalisation and privatisation. That began the eclipse of unions across the western world, governmental supports for workers, including the downsizing of worker's rights (since offshore low-wage availabilities of workers decimated the heart, mind, soul, and wallet of the industrialised country's workers). Since then, the roll that businesses have been on and the plunge workers have been taking cannot obscure the many exogenous variables permeating the production process challenge the efficacy of the GDP measurement.
Although a GDP measurement helps compare and contrast country performances, as well as single-country past-present statistics, Boushey's appraisal cannot even admit Bangladesh within that framework. To her, GDP relevance springs from a strong labour force backed by an active organisation: only when this weakened in the west during the 1980s did the GDP tool serve lesser purposes. Bangladesh never really had a strong workforce, either when agriculture served as the economic driver in the 1970s, or from the 1990s when its RMG (ready-made garment) sector took off.
If we add remittances to that structural deficiency, the GDP framework becomes even less relevant. On the negative side, we cannot accurately measure if the country's economic ascendance really depicts the true nature of worsening business-labour conditions through the expanded GDP income: even if workers have moved out of abject poverty, or even remain close to the poverty line, either a cut above or below it, other social and economic conditions, such as housing or food costs, not to mention the many more items any individual needs to be economically functional (such as a cellular phone), deepens the dents wages earned before.
On the positive side, though, the window is opened to develop a new tool, more attuned to what the country's economy currently reflects, and of future viability. Since we have sanctified low-wage labour in an offshore industry and remittances as part and parcel of our growth, we might as well include property marketing, which has helped thicken our upper class without invoking market production, and, sadly, so too money laundering and smuggling, since drug-trafficking and border transactions have leaped in size, value, and impact upon the economy.
Among the new measureable elements in redesigning economic barometer, Boushey noted the attention being paid cross-national labour rights, as opposed to nationalistic trade unions of yesteryears (the European Union promoting such transnational organisations exemplifies). That is barely replicable outside Europe, given the greater "crony capitalism" persisting, among other factors. Our counterpart would have to be cross-national business production, in other words, offshore, of which we have said plenty thus far. This will be a harder transaction to measure than before, but it may be a preview of the future, not only for globalised economy, but a global economy resorting to production outside the typical assembly line, provision of services too ill-fitted today to be incorporated, and a vastly more consumptive society.
Added to these would be a host of other, mostly defensive, market-impacting actions and policies. Environmental protectionist policies, as well as all the Millennial Developmental Goals (MDGs) and Sustainable Development Goals (SDGs), illustrate the new factors rendering the GDP measurement obsolete. "It is critically important," Pushpam Kumar, a UN Environment Advisor, observed last year, to "monitor societal progress and design responsive policies to 21st century challenges." Among those challenges, he identified "climate change, the marginalisation of more than a billion people, resource depletion and emerging pollution-driven health crises" ("GDP is no longer an accurate measure of economic progress: Here's why," World Economic Forum, Newsletter, November 13, 2018). That widens the opened lid as to what a new GDP measurement (or replacement) must include.
Countries would get harder to compare, but that should not deter the tasks: with the growth of dual-citizenship worldwide, labour migration spiking to eye-opening (and hair-raising) levels, smatterings of large-scale refugee movements every now and then, and a cross-border payments business booming, in addition to previewing the future, the daunting task of developing a GDP replacement should keep our economists plenty busy. Actually, in the same vein, with the economy diversifying, "economists" alone may not be able to satisfactorily fulfill that urgent duty-call summons alone. Throwing the net wider to capture more nuances as these to adjust to forthcoming trepidations may be the only way to go, though we know from market behaviour, the more inclusive policy-making becomes, the looser the outcomes will get. In a gist, the GDP magic may have gone, but though it needs replacement, we are unlikely to match the coherence and stability the GDP tool once fetched.
Dr. Imtiaz A. Hussain is Professor & Head of the Department of Global Studies & Governance at Independent University, Bangladesh.