What’s sustainable growth? It’s more than just GDP numbers

By July 25, 2017Current

TL;DR – Not all growth are equal.

Singapore is looking to transform our economy. We aim to have 2% to 3% economic growth every year over the next 10 years. That’s quite different from the rate of growth that we had in the past. Naturally, Singaporeans worry if our standard of living will be adversely affected as a result.

It may. Or it may not.

It depends on what sort of growth we achieve. There are sectors of the economy that improve the welfare of society, but may not necessarily contribute to GDP numbers. Conversely, there are sectors of the economy that contribute to GDP numbers, but have little, if any, positive effect on the welfare of society.

These sectors grow GDP but aren’t helpful

There are some sectors of the economy that engage in “zero-sum” activities. A lot of high-talent manpower is devoted to activities that cannot possibly increase human welfare. These activities compete for the existing economic pie and don’t enlarge it.

These activities include: legal services, policing, and prisons; cybercrime and the army of experts defending organisations against it; financial regulators trying to stop mis-selling and the growing ranks of compliance officers employed in response; real-estate services that facilitate the exchange of already-existing assets; and much financial trading.

These activities contribute to GDP growth and even productivity growth. But that just reflect accounting conventions. If people spend more to compete for scarce housing, driving up property prices and rents, GDP and “productivity” increase, because housing rent is included in GDP. However, the aggregate supply of housing services is unchanged.

Similarly, more and better-paid divorce lawyers increase GDP, because end consumers pay them. And more and better-paid commercial lawyers don’t raise output, because companies’ legal expenditures are an intermediate cost. These zero-sum activities swell GDP but deliver no welfare benefit.

Also, these sectors generally shift wealth into the hands of an elite few. As a result, the middle class gets “hollowed” out, and income inequality increases. That negatively affects the stability of society.

On the other hand…

There are sectors which may not necessarily grow GDP significantly, but do improve the lives of people. For instance, information technology may improve human welfare in ways not captured in measured output. Billions of hours of consumer time previously spent filling in forms, making telephone calls, and queuing are eliminated by Internet-based shopping and search services.

Similarly, technological advances would make services that actually improve our welfare a lot cheaper. Imagine the world in 2100, where solar-powered robots, manufactured cheaply by robots and controlled effortlessly by artificial intelligence systems, delivering most of the goods and services that support human welfare super efficiently. All that activity would account for a trivial proportion of measured GDP, simply because it would be so cheap.

Grow STEM-related sectors

In general, the sectors of the economy that truly improve human welfare would be related to science, technology, engineering and mathematics (STEM). These sectors include research, medicine, and manufacturing. Such sectors build a strong middle class, which would result in a stable, more inclusive society.

As such, if Singapore wants to have inclusive, sustainable growth, we need to put in place the systems and processes to grow the STEM-related sectors. This includes getting our youths excited enough in STEM that they will want to pursue careers in those sectors.

It won’t be easy. For many years, the focus had been on growing the services sectors, especially finance. As a result, STEM-related sectors have been somewhat neglected and haven’t been able to attract the best minds. It would take a lot of effort to turn this situation around.

But for our future, we’ll have to try I guess.


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Jake Koh

Author Jake Koh

Recovering sushi addict, I'm a man of mystery and power, whose power is exceeded only by his mystery.

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