The Pandemic Exposed the Gaps of GDP
In January of this year—when we were already aware of COVID-19 but before the virus took over our lives and the economy—I wrote about the perils of over-relying on Gross Domestic Product (GDP) as a measure of economic achievement.
An important tool in its own right, GDP was developed out of a historic necessity. Prior to its creation, there was no other reliable measure of aggregate economic output. For more than 60 years, economies were developed, poverty was reduced, and lives were bettered through policy determined through the lens of GDP.
But calls for complementary measures for economic progress are not new. Moreover GDP does have its blind spots, which the APEC Policy Support Unit have enumerated on with some detail last year.
As the agenda setter for 2020, host economy Malaysia made “improving the narrative of trade” one of APEC’s priorities, in part because 2020 is the deadline of the Bogor Goals of free and open trade and investment in the Asia-Pacific region, marking an inevitable shift in priorities within the forum—a change in narrative, if you will. Given this, Malaysia has spearheaded an initiative to find mutually agreed upon economic measures beyond GDP.
While the pandemic has since coopted the resources and attention of every government in the region, Malaysia still managed to push for some exploration on this issue in this regard—the most recent manifestation of which was the SOM policy dialogue held last week. After all, it is still a relevant issue.
The COVID-19 pandemic has in fact added to the urgency of finding ways to shed light on what GDP cannot see. When deciding the agenda for 2020 and defending the need to change the narrative of trade, Malaysia cited “more and more debate on inequality.” This was written in 2019, and such debates today should not be considered moot. The past year has been a pageant for showcasing the consequences of rising inequality. COVID-19 can be seen as a major “disrupter” as it does not affect all people equally and its impact has been exacerbated by several preexisting conditions, such as poverty, food insecurity, and lack of access to health care.
We know, for example, that the portion of GDP expenditure on public health care in the region is below 5 percent. This accounts for the sorely lacking capacity of hospitals to meet with surges in cases, especially the early spikes of infections in March and April. More worrying, we are seeing a second wave of infections surging in different parts of the world.
Jobs disruption, a major complication of the pandemic, did not affect everyone equally. Many older citizens were forced to exit the labor market over concerns of complications in pre-existing health conditions. Employees who work in front-facing positions and have likely experienced a recent layoff or furlough in the last few months are likely to be women and young people. We know that women who work from home have disproportionately carried the burden of household and home-schooling responsibilities, which has addled their focus, affecting productivity. This might incentivize companies that have relatively high female employment to invest more in automation.
We know the pandemic has exposed minorities and the poor to more health scares and economic danger and that small businesses are in greater danger than large corporations of going under.
As GDP does not capture distribution of economic benefits, the case for looking beyond it is strengthened when we explore policies to remedy social and economic inequality.
Neither does it account for the costs of pollution or environmental degradation. These would be useful measurements after a pandemic that has only worsened the global solid waste problem, especially in terms of the usage of single-use plastics.
GDP also does not capture the value of services provided via digital platforms, which is quite crucial. The digital economy is here to stay and will continue to play an outsized role in our lives. COVID-19 only hastened the ongoing digital transformation.
Work to expand our definitions and measurements of economic progress is not all that new within APEC. The APEC Growth Strategy got us started on the path to seeking balanced, inclusive, sustainable, innovative, and secure growth ten years ago. Since then we’ve seen initiatives such as the 2015 Strategy for Strengthening Quality Growth and the 2017 Action Agenda on Advancing Economic, Financial, and Social Inclusion. Like many similar initiatives focused on inclusion, these are more important in the COVID-19 era than we thought they were when they were being put on the table for discussion among senior officials and Leaders.
It is fortunate and timely that Malaysia’s priorities have kept this Beyond GDP initiative on APEC’s radar. COVID-19 should not distract economies from implementing such long-term projects. If anything, it should inject our efforts with a renewed exigency. We need better economic measurement tools and new indicators to inform policy in this new world with its emerging challenges.
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Dr Hew is the Director of the APEC Policy Support Unit.