Introduction
Thus far, my reflections on Guyana’s economic statistics have centred on its national accounts, and in particular the GDP. This focus is due to the fact that the 2006 GDP rebasing, undertaken by the Bureau of Statistics (BoS), (moving away from the 1988 base year), has raised concerns about “skulduggery”, arising from the inflated outcomes of that exercise.
Of equal importance, I have also taken for granted that, conceptually, the national accounts (and in particular GDP), provide an appropriate measure of Guyana’s economic size, well-being, and/or living standards. Additionally, annual changes in GDP size, adjusted for price changes (inflation), represent the best indicator of the rate of Guyana’s economic growth/development.
Several readers have rightfully queried this supposition. They have drawn attention to the fact that not everyone would accept the claim of Guyana’s GDP representing an appropriate measure of its economic size, progress or well-being. Starting today, I shall respond to this query, before pursuing further discussion of Guyana’s development. However, it should be observed upfront, such queries lie at the heart of the most contentious matters in economics today. And, as such, they have attracted numerous contributions.
In today’s column I shall proceed by 1) presenting ten of the strongest arguments in support of the view that Guyana’s GDP is the most appropriate measure; 2) in next week’s column, I shall offer a similar number of critiques of this; and 3) in the subsequent column, I shall both sum up the discussion (stating my position) and also highlight the most important emerging alternatives to the GDP as an appropriate measure.
In defence of the GDP (1-5)
Following the above, the ten arguments presented below are not introduced in any form of ranking. Furthermore, my resort to a serial presentation of the arguments is designed to benefit readers with limited exposure to economics. More generally, I believe this approach should lead to a better appreciation of these matters by all readers.
The first advantage of the GDP as a measure of economic size, progress, and well-being is its worldwide usage. It is by far the commonest measure of these features. This gives the GDP inordinate inertial force. Replacing it therefore, requires an enormous momentum in favour of change. And this is only likely if the GDP is totally discredited as an appropriate measure. There is no sign of that.
Second, the widespread usage of the GDP (whether fully informed by its users or not) is based on genuine acceptance by the vast majority of these that the GDP correctly represents what it claims to do. This holds true for governments, policy-makers, private businesses, social organizations, policy analysts and individual citizens. Indeed, almost all those who participate in markets, whether as investors, buyers, sellers, consumers, workers, or producers accept the GDP as the best available practical working measure of economic size, progress and well-being.
Third, the GDP is expressed as a single-number, usually denominated in the currency of the country concerned, or alternatively, a standard currency when used for purposes of comparison (for example, the United States dollar). In this way, the GDP is clearly a statistical artifact that is objective and therefore, useful for comparative purposes. Frequently, total GDP is divided by the population of the country concerned to arrive at a per person (or per capita) GDP value, which also has enormous additional usefulness.
Fourth, the GDP/national accounts are compiled/computed on an agreed universal methodology (through the good offices of the United Nations and the International Financial Institutions, (IFIs)). Periodic revisions/updates are made to this methodology and appropriate manuals prepared. The national authorities of each country, however, would compute their own national accounts from this agreed standard.
Fifth, the GDP is not only compiled uniformly on the basis of an agreed methodology, but it is also produced regularly (usually on an annual, semi-annual, and less frequently, quarterly and monthly basis). This ensures that systematic effort is geared towards data timeliness. Because national authorities compute their own national accounts, it is likely their quality would vary. However, readers should note, such risks would exist for whatever global measure is agreed to, and is therefore not specific to the GDP as a measure.
In defence of the GDP (6-10)
A sixth argument in favour of the GDP as a measure of economic size, progress, and well-being is that it computes both changes in prices and quantities. When quantities and prices are presented in the computation, one has GDP at nominal prices. However, when price changes (inflation) are removed the changes in quantities alone represent the measure of real GDP, which is the proxy indicator of economic growth.
Seventh, because of the long number of years for which national accounts have been prepared, there is a rich accumulation of data. This data can therefore be subjected to statistical analysis, focusing on historical trends and deviations as well as comparisons between countries, regions, other groupings (common markets, economic and political unions, free trade areas and so on). This is of inestimable value.
Eighth, research has ensured this passage of time has yielded immeasurable improvements in the way GDP is computed as can be seen from even a cursory examination of the UN System of National Accounts manuals.
Ninth, and allied to this, GDP has encouraged policymakers to rely heavily on GDP-led indicators of progress. Thus the Millennium Development Goals (2000-2015) and the Sustainable Development Goals, (2015-2030) are both substantially based on GDP-led indicators and means of compliance.
Finally, it is fair to say that, despite its controversial nature, there is over the foreseeable picture no alternative that truly challenges this premier position of the GDP. In the two remaining columns, I shall explore this observation.
