It is the highlight of every National Day Message from the Prime Minister. No National Day Rally speech gets delivered without its mention. Economic statistics dished out by the government never fail to mention it. It is used as the main measure of how well our nation is doing economically. Indeed, it is such an important statistic that the bonuses of all the Cabinet ministers and 60,000 civil servants are pegged to it.
I am talking, of course, about Singapore’s Gross Domestic Product (GDP).
The GDP is the market value of all final goods and services produced in a country in a year. Specifically, it is the sum of consumption, investment, government spending and exports, minus imports, in one year. Economists usually talk about GDP in terms of its year-on-year growth, measured as a percentage increase (or decrease) from the previous year. Also frequently quoted is the GDP per capita, which is the GDP divided by the total number of residents in the country.
GDP a poor measure of performance
While GDP is a broad measure of a country’s economic performance, it falls way short as a comprehensive measure of the economic health of a nation in more ways than one.
Firstly, GDP measures economic activity, not necessarily economic benefit. For example, if a factory here manufacturers 20,000 semiconductor chips and exports them, that income adds to Singapore’s GDP. But if the government dips into our reserves and gives $4.5 billion worth of ang pows to companies during the recession, or MINDEF spends $1.6 billion on new F-15 warplanes, those also increase the GDP.
Secondly, GDP does not measure the income that Singaporeans earn. GDP per capita is often wrongly used to gauge the average salary earned by Singaporeans. With 46% of GDP made up of profits earned by corporations – half of them foreign-owned – Singapore’s average per capita household income of $24,309 is far less than our oft-quoted $53,192 GDP per capita.
Thirdly, GDP fails to measure the distribution of income. Our GDP per capita gives the impression that we are an incredibly rich nation. However most of those riches are in the hands corporations, wealthy elites and foreigners. Singapore’s Gini coefficient ─ a measure of income inequality ─ is 55% higher than the OECD average. (The OECD is a grouping of mostly rich nations. The higher the Gini coefficient, the more unequal the country is.)
Fourthly, GDP ignores all activities and services that have no price attached to them. Homemakers who raise Singapore’s next generation and volunteers serve the less fortunate are all making a tremendous contribution to society, yet their efforts add nothing to the GDP.
The list could go on. The main issue here is that GDP does not measure the well-being of Singaporeans. It may measure how much economic activity is going on in the country, but it does not measure whom that activity benefits.
This is why I think the use of GDP to determine ministers’ and civil servants’ bonuses gives them the wrong goal to strive for in their work. The government can easily boost GDP by giving tax breaks and subsidies to attract foreign companies to Singapore. These companies may end up employing mainly foreigners to increase their output, leaving Singaporeans not very much better off.
For example, the biomedical industry, which was aggressively promoted by the Economic Development Board, is very capital intensive and employs a very high proportion of foreigners. The industry’s output boosts our GDP, but with questionable benefit to Singaporeans.
Alternative measures of economic health
It is time that Singapore looks beyond GDP as a measure of the economic health, progress and performance.
For a start, we could take a page out of the report by France’s Commission on the Measurement of Economic Performance and Social Progress, chaired by Nobel economics laureate Joseph Stiglitz, which was released in September.
The Stiglitz Commission recommended looking at income and personal consumption rather than production as a measure of economic progress. Domestic consumption is one area where we rank quite lowly for a developed economy. It currently stands at less than 40% of GDP, compared with 60% for Hong Kong.
The Commission also recommended giving more prominence to the measurement of distribution of income, consumption and wealth. The Gini Coefficient should be a key figure to track, rather than dismissed as unimportant, as Mr Lee Kuan Yew recently did at an NUS forum.
I would like to see the Department of Statistics (DOS) put out more data not just on household income, but per capita household income. A search on the DOS website throws up many reports about household income, but the only one which lists per capita household income is dated 2003 ─ some six years ago!
Our government statisticians should also publish separate figures for Singaporeans and permanent residents (PR), since new arrivals ─ and we had almost 100,000 of them last year ─ tend to be financially much better off than the average Singaporean, and may make the overall “resident” data look more positive than it really is.
The unemployment rate is a measure of the state of the economy that frequently appears next to the GDP. Unfortunately in Singapore, the unemployment rate for Singaporeans and PRs are always lumped together as the “resident unemployment rate”. This tends to cloud the real employment situation among citizens.
We should also look at productivity growth more closely. Singapore’s labour productivity growth has been declining since 2004. It has been in negative territory since the third quarter of 2007, dropping to a low of -7.5% in the second quarter of 2008. Declining productivity coupled with increasing costs augurs badly for the Singapore economy.
One contributory factor to our decreasing productivity could be the influx of cheap foreign labour into the economy. Cheap labour often reduces companies’ impetus to invest in mechanisation, automation and training their local workers for higher value-adding work. A simple example in Singapore is the use of foreign workers to man the “stop and go” signs at road construction zones. In other developed countries, the portable traffic lights are used, while the workers are put to more productive use operating complex construction machinery.
We should examine more comprehensive ways to measure the welfare of our workers. One such measure is the total hours worked per week and the amount of leisure time enjoyed by workers. Singapore ranks highest in the total number of hours worked per week compared to countries in Asia and the Pacific. It doesn’t take a rocket scientist to figure out that if you are working longer hours but earning the same pay, your economic situation has not improved.
The contributions of homemakers who care for and educate children, and the work of volunteers should be measured and reflected in our nation’s overall economic health.
Finally, environmental damage and pollution caused by “productive” activities like oil refining and petrochemicals processing should also be counted as a cost to the economy.
I have outlined just a few of the measures of economic progress that I feel our policymakers, academics, the media and ordinary citizens should be looking at alongside GDP figures. How we choose to summarize and present them will be tricky, given there is no globally agreed metric to measure both economic health and citizens’ well-being.
But one thing is for sure, the government must stop feeding Singaporeans with a diet of only GDP and resident unemployment rates as a gauge of how well our country is performing economically.
Do you have any ideas on what metrics Singapore should use to measure economic performance? Share your ideas in the comments section below.
 The Prime Minister’s National Day Message in 2007, 2008 and 2009.
 Reassessing Singapore’s economic future by Manu Bhaskaran, The Edge.
 Key Indices 2008, Department of Statistics.
 Key Household Income Trends 2008, Department of Statistics
 OECD data.The average OECD Gini coefficient is 0.31, while Singapore’s is 0.48.
 View full report here.
 Strategies for the future by Basant Kapur, Straits Times, 16 June 2009.
 Singapore’s Declining Productivity Growth: An Exploratory Paper by Neo Boon Siong and Susan Chung, Lee Kuan Yew School of Public Policy.
 International Labor Organization (2009). Labor and Social Trends and the Pacific 2006- Progress towards Decent Work.