Syed Bakhtiyar Kazmi

“Most importantly, why is a ratio which increases when you consume more, and hence save less, deemed to be an indicator of economic growth?... pretty soon GDP will be ditched and substituted by its critical component only, the trade balance; the sign are already there in the form of Brexit and the American elections. In fact if you Google it, certain economic pundits have already started questioning the usefulness of GDP. From Pakistan’s perspective, unless we dissect GDP and figure out the implication of all its components, we will continue with a struggling economy until comes the Minsky moment”, extract from my article published in The Daily Times on January 14, 2017.

A competing publication last week published current views coming out of Davos on GDP, and interestingly titled their news item, “Gross Development Problem”. Readers who follow my columns regularly, and I would like to imagine that there are many, may be aware that I have perennially been critical of GDP and should therefore be elated to have finally been vindicated; well, yes and no! While some would say it’s good to be proven right even if for the wrong reasons; I believe it is best to continue with the debate!

As reported by a local English newspaper, the new thinking coming out of Davos suggests supplementing brute economic data (GDP today) with measurements covering human capital (skills and education), infrastructure, intangible capital (computerised data and patents), environmental quality, social capital (how united or divided a country is), black markets, income inequality, inclusivity (including the larger part of the population) and environmental degradation. Personally, short of Aladdin’s lamp, I am not aware of any option which can suggest a measure that encompasses all these variables; accordingly, I can only retort, “The plot thickens”!

Contrary to GDP being a problem, my controversy theory has been to frame GDP as a plot whereby the developed world got, by hook or by crook, the rest of us chasing a chimera (the English version of truck ki batti), namely GDP growth, for their own economic objective of opening up third world markets. And I repeat from above, how can an indicator which grows when a nation consumes more be good for a poor country?!

And why is it like running after truck lights? Well in a finite world, infinite GDP growth is impossible; you cannot keep creating money forever to maintain an impossible illusion. Attempts to sustain GDP growths through “easing”, as recent experiences prove, have driven governments to take desperate measures, all of which have mostly resulted in speculative bubbles, real estate hikes and debt traps. Sound familiar?

On a separate note, it has been a surprise for me to know that most people, including the educated kind, still believe that money can only be printed; perhaps more on that in a future article.

Getting to the spending part, do you have any idea what is the percentage share of consumption in Pakistan’s GDP? Try searching it on Google, it will drive you nuts! Taking a cue from the fact that we have a worryingly increasing trade deficit and stagnant, if not decreasing, capital investment, but still have GDP growth, my guess is we as a nation are spending like crazy!

I simply ask, at the risk of repeating again and again: how spending, rather borrowing to spend, and not saving, is good for anyone?

Remember the good old days when the focus was on savings? Ever wonder why the savings rate is no more a critical indicator for those who lend us money? How will we invest in manufacturing facilities and create jobs in Pakistan when we have stopped saving; we cannot keep borrowing forever, and in fact more importantly, how will we pay all this debt if we don’t save? Why our domestic businessmen are not interested in investing in manufacturing and would rather speculate in real estate in Pakistan or Dubai? How will we get the dollars to pay for all the foreign luxuries we have become addicted to when we export less and less day by day?

For me the biggest mystery, however is, why have we stopped asking, let alone answering, all of the above, to my mind, very pertinent questions?

Undoubtedly, net trade and capital investment are the components of GDP which matter; adding consumption, mostly private, but also government spending, as part of GDP, was the plot.

So when I read that current western economic thought coming out of Davos is in agreement that “the kind of statistics we’ve used in the past just aren’t working anymore”, I am convinced that the plot thickens. And if I were to venture a guess, developing nation’s data is the next “Consumption”.

Admittedly, my plot conspiracy theory is all hogwash and hot air, but one thing is for sure, back then in 2017 and now: Pakistan needs to focus on the critical components of GDP, trade deficit and capital investment, and for that we need to save, not consume!

(The writer is a chartered accountant based in Islamabad. Email: [email protected])