While GDP may well be the best measure of economic performance we have, it needs some adjustments to provide a clear picture of macroeconomic statistics.
I made a presentation mid this month at the 5th IMF Statistical Forum, whose theme was “Measuring the Digital Economy.” My presentation centred on the impact of mobile money on the economy and the emerging concept of real-time estimation of demographic data.
The forum was necessitated by increasing concern by governments, especially from developed economies, that the slow growth of Gross Domestic Product (GDP) and productivity is as a result of failure to comprehensively capture the necessary data.
In their evaluation, the problem arises from the omission of the gains made by digital and digitally-enabled products and activities in the national accounts, leading to the understatement of microeconomic statistics.
IMF’s objective at the forum was to provide “a platform for policymakers, academics, researchers, and compilers of economic and financial data to come together to discuss cutting-edge issues in macroeconomic and financial statistics and to build support for statistical improvements.”
Although GDP remains the best measure of economic performance of any country at any given time, debate on whether GDP still is relevant or needs to be revised to include the well-being of the citizens is still on-going.
Indeed, economist and statistician Simon Kuznets, who came up with GDP concept, warned that, “The welfare of a nation can scarcely be inferred from a measurement of national income.”
This perhaps explains why ordinary citizens often fail to understand why their welfare remains unchanged even in times of growth. With this misunderstanding, some economists think that GDP has been misused, abused and is being used to explain things that it was never meant to do.
There is need, therefore, to revise it to encompass welfare, either through the social component of GDP, or as a standalone GDP plus welfare.
Indeed one of the papers at the IMF forum even proposed computations to measure welfare and use the same to make GDP a comprehensive measure of economic performance and wellbeing.
Whilst digital platforms are being blamed for slow growth in GDP and productivity in developed economies, the same isn’t true in developing countries.
In my view, these platforms are fuelling growth not just in developing economies but also in developed economies.
Ultimately, growth is driven by productivity and digital solutions are the next/last frontier of productivity enhancements because they can cut out all the waste.
Change in developing nations is fast as evidenced by increasing transformation of informal economies that characterised virtually every developing country.
This sector was never part of GDP computation due to difficulties in gathering data but with digital, the informal sector as we know it, is thinning and enabling governments to expand tax brackets into economies that were hitherto, chaotic.
There is greater productivity too with mobile money enabling droves of people to participate in the formal banking and making it possible for their data to be captured in national accounting.
In the developed economies, however, perhaps due to cumulative efficiencies, the intrusion of digital platforms offering free goods and services have brought measurement of these value adding products into focus.
Services like, Google, YouTube, Tweeter, WhatsApp etc. enable households to substitute home production for market production.
Access to cloud computing and open source software has enabled globalised production with significant benefits to the extent that it may not be possible to provide comprehensive view of changes in production, consumption and inflation in national accounts.
It is some form of advanced informal economy that the developing economies are used to. In my view, these complexities, both in the developed and the developing countries, can be streamlined for national good.
However, policy makers must focus on the need for big data from all sources as imperative and urgent requirement for positive impact on macroeconomic statistics.
Data has become a powerful factor of production. The greatest concern therefore lies not with the failure to capture all data into national accounts, but with the growing monopolies of data resources refusing to share the resource that makes corrective adjustments to GDP and defines our well-being.
The conference concluded that while the GDP may well be the best measure of economic performance we have, it needs some adjustments to provide a clear picture of macroeconomic statistics.
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Note: The results are not exact but very close to the actual.
