Governments everywhere, quite naturally, make every effort to portray the state of the nation in the best possible light. How does one account for the fact that in countries, including our own, official spokesmen can proudly, and in one sense accurately, boast that Gross Domestic Product is increasing while the mass of ordinary people feel and know their standard of living is falling?
Observe how these two concepts – increasing GDP, declining standard of living – can be reconciled.
First, of course, an adjustment to total GDP has to be made for population growth to arrive at per capita GDP – but, since in Guyana emigration seems at least to balance the natural increase in population, that is not a factor that applies to us. However, an increase in total GDP could very well be the sum of a large increase in wealth of, say, 25% of the population accompanied by a hard-to-bear reduction in wealth for the rest – meaning that while statistically the country is doing well 75% of its people are dissatisfied with progress.
Secondly, to judge national income you have to deduct from national product the interest component of debt servicing. It is much better than it was but for Guyana this remains a factor reducing the goods and services actually available to the domestic population.
Thirdly, what counts in assessing living standards is not gross but net national product. And net national product in a country like ours should be calculated by taking into account inadequate maintenance and the widespread neglect of replacements which leads to a steady deterioration of buildings, equipment, roads, wharfs, sea defences, bridges, factories, plant, hospitals, schools and so on and on. Official statements on the subject of increasing GDP omit to take any account of such deterioration and decay because national accounting conventions are formulated on the assumption that reasonable maintenance and replacement expenditures will occur as a matter of course. In this way do we continually delude ourselves at the national level. At the personal level, of course, we are not deluded.
Fourthly, and comparable to the deteriorating infrastructure resulting from the neglect of maintenance, is the decline in the real value of most government services. The causes are well known. They start with insufficient public revenues and continuing inflation. The government budget deficit has to be controlled – public capital formation is cut first as being the easiest thing to do. Then the recurrent budget also needs trimming. This is done by cutting down on the purchase of provisions and supplies – especially imported supplies – as being politically less unpopular than cutting down numbers in the civil service. The civil servants, however, are left without the equipment and supplies necessary to do their job properly. Hospitals might sometimes have to go without drugs they need. Extension workers cannot visit because fuel is expensive. Schools may not be given the materials to function properly.
Civil servants remain at such a demotivated level that the service they provide and the initiative they show also remain at an unproductive level. Instead of just sitting at their desks doing not very much, numbers of civil servants even absent themselves from the office tending their kitchen gardens or looking after the demands of a second job. Service to the public becomes a residual activity. Customer satisfaction no longer matters and corruption proliferates.
Crime at the same time increases and increasingly infects society with fear. And how is all of this familiar sequence reflected in the national accounts? It isn’t. Because government departments do not normally produce a marketed output, the convention has always been that the volume and quality of the public sector’s output should be measured by the cost of its inputs. Thus, for example, the greatly increased money value of educational inputs is assumed to result in greatly increased quality of education. A more unrealistic assumption it would be difficult to imagine yet it is an assumption made in all national accounts.
Finally, in judging the real standard of living as opposed to official GDP, an adjustment has to be made for inflation. Important elements in the national accounts are estimated in money terms and then deflated by a price index. If the official price index understates the actual inflation, the drop in living standards will also be understated. Such understatement regularly occurs because it suits government or because statisticians ignore ‘parallel market’ prices. Thus the impact of inflation is underestimated in measuring and announcing GDP figures.
In these various ways must we step by step adjust the good news we get about increasing GDP so that we can arrive at the distressing reality of the ordinary person’s actual standard of living and quality of life.
When next you hear that our GDP is going up by some impressive percentage, take the statement with at least five pinches of salt. Out there in the real world life is measured differently.
