With South Africa’s projected GDP growth for the year estimated at 1,2%, there’s a lot of negativity about what this means for our overall economic prosperity as a country.
The economics I studied at University many years ago is faded not only with the passing of time but also in an abundance of theory – so as an economic layman almost 20 years later, I have often wondered what economic growth looks like in the 21st Century.
GDP: the dangerous headline
GDP (Gross Domestic Product) is the generally accepted marker as to the health of an economy, but there’s some key points to bear in mind, like that a car accident is good for GDP (all those expenses), and in the same way so is war! In addition, someone working less hours for the same income will not see his/her increased quality of life reflected in GDP figures, pollution isn’t reflected, items grown for your own usage aren’t included and neither are any informal sector activities like bartering, or any volunteer work. Volunteer work is actually much bigger than most people realise – people adding value to Linux or other open-source software, for instance, won’t see that reflected anywhere.
So while GDP is the most commonly used and accepted indicator of growth, it’s by no means a perfect one.
What growth needs
For an economy to actually grow, which I’d (perhaps with a slightly socialist bent) describe as the average person having more real disposable income, simply speaking we need a few key elements:
• Population increase drives growth. More people mean more cars, houses, clothes, shops and everything else. If population numbers are stagnant, or even decreasing like in some countries, it’s a massive dampener.
But… if jobs aren’t increasing at a similar rate, then tax income doesn’t grow and social services become increasingly strained. And there are major concerns being raised as to how many resource-hungry people our planet can actually handle.
• More jobs means more people earning income, and more tax income for governments. Informal jobs won’t reflect in GDP figures but they’re almost as important – they just don’t increase state revenue through taxes.
But… without a highly educated population, technological advances mean that unskilled work will become even scarcer. I don’t foresee any major job growth in South Africa while our education system remains so shambolic, except in low-income, servanthood type work which is politically a real hot potato.
• More disposable income, which obviously comes from more jobs – but also (among the top 5%) from existing companies doing well (or appearing to do well) and increasing their share prices and dividends, and from increasing property prices. So long as there are no new sustainable jobs being created, the rich will get richer and income inequality will grow even greater. Full stop.
On that sombre note, in the next blog I’ll discuss one left-field idea to reduce this growing inequality.