GDP growth is always a positive sign - but is not a goal in itselfComment on this story
SOUTH Africa’s gross domestic product (GDP) – the total value of the production of goods and services in the country – grew by 0.6 percent in the second quarter. So what?
To be fair this is better than the 0.6 percent decrease recorded in the first quarter, so there’s a positive to take from that. And it is better than France’s economy, which showed zero growth over the same period.
But others will say it is near disastrous. The BBC reports it is not as much growth as “avoiding recession”.
Local commentators say we need to have at least 6 percent or 8 percent growth in order to reach the goals of employment that the country has set itself.
Not even under the best imaginable circumstances is this possible in the near future, and that stands for almost every country in the world.
So if it is an impossible goal, why do we keep hiding behind it? Is it because we like to stay positive and motivational, thinking that somehow we can turn economic policy around or that miraculously the world economy is going to suddenly boom again and take us with it? Is it because such an ambitious goal at least allows us to steer policy in the right direction and make major gains, even if we don’t get the prize?
No. It is because we are cowards.
GDP is an easy goal and that’s why we like it; it’s comfortable. We can measure it and give it pretty numbers on a quarterly basis. We can compare it with that of our fellow nations and pit ourselves against the world. We can hold policymakers and economists to account when this clean-cut metric is not met, one way or the other.
The problem is that all of this is a bit meaningless. A GDP growth figure says nothing about where the extra wealth created is coming from, or who it is going to. Yet most of the economic and social problems of South Africa stem from this very detail. GDP growth is touted as the saviour to job creation.
Yet among South Africa’s industries the largest contributor to GDP growth (by a long way) is finance, real estate, and business services – one of the least labour-intensive industries we have.
It would be far better for the country and its people to have a slow-growing economy with growth emerging out of manufacturing, construction, or agriculture than a fast-growing economy where growth was found in high-skilled and specialised services.
GDP growth is only useful so far as it is felt. There will always be a trickle-down effect; a case of a rising tide lifts all boats. But the economy is not the sea; it very much depends on where you raise it as to how many boats will be lifted.
Instead of aiming at the holy grail of “8 percent growth”, or whatever number is the fashion of the time, policymakers need to focus on the real objectives and then steer the economy to achieve those.
These real objectives are: more jobs, reduced inequality, less crime, basic infrastructure to those who are still without it, and better access to education and health care. If GDP grows as a consequence of the policies that tackle these issues – fantastic. But to think that GDP growth will solve them is to put the cart before the horse.
GDP has a large role to play and its growth will always be a positive sign. But it is not a goal in itself and its numbers should be interpreted in context.
Pierre Heistein is the convener of UCT’s Applied Economics for Smart Decision Making course. Follow him on Twitter @PierreHeistein