TYRANNY OF THE NUMBERS GAME

 by

 Prem Sikka
Professor of Accounting
University of Essex
(The  Tribune , 14 May 2004, pp. 18-19)
============================================================
"Never mind the quality, feel the numbers" has become the dominant mentality of any discussions about economic and social welfare. This is highly evident in discussions about the Gross Domestic Product (GDP) and economic growth rates.

 International reports from the World Bank and the Organisation for Economic co-operation and Development (OECD) suggest that Britain is likley to achieve economic growth of around 3%-3.5% for the next year. In the now customary fashion such estimates have been queried by the oppostion parties and various think tanks.  None ask any questions about the quality of the data or whether economic growth is an adequate indicator of social welfare.

 GDP is a total of monetary estimates of consumption, investment, government expenditures, and exports minus imports. It makes no distinction between whether any of the underlying activities are good or bad, positive or negative, for the present or the long-term well being of society. In true accounting fashion, apples, bananas and pears are all added up to give answer in lemons.

 Millions of people are suffering from endowment mortgage and pensions mis-selling, mutual funds and accounting scandals. It is bad news for all concerned and many innocent people have lost their savings, investments, pensions, jobs and homes. But such tragedies provide a double boost to economic growth and GDP figures. Fleeced citizens have already spent the money on dodgy financial products and investments and now will be spending even more on lawyers, court cases, lobbying, postal campaigns and marches.

 Environmental disasters like the oil spill from the Prestige or Exxon Valdez kill marine life, birds and deprive many of their livelihoods, but are considered to be a fillip for GDP and growth rates because millions will be spent on cleaning the beaches, the seas and on battles for compensation. Hours spent sitting in traffic jams belching out cancer and asthma inducing fumes are good for GDP because it makes us spend more on cars, petrol and medicine. Depletion of forests, fossil fuels, minerals and seas generate economic growth and GDP, but are also storing up ecological and environmental problems for future generations.

 Fees paid to accountants, lawyers and bankers to dream up aggressive tax avoidance schemes boost GDP and economic growth. Yet the outcomes are a curtailment of social investment in healthcare and pain and misery for those caught up in longer queues for hospital treatment. Lack of government expenditure on higher education has forced many to take out loans to pay fees and also reduce their chances of joining the property ladder. Yet the social consequences of such practices and policies form no part of any GDP calculation or growth rates.

 People are concerned about the increase in muggings, burglaries and street crime. This creates insecurity, fear and wholesale abandonment of city centres at night. But this too is considered to be good for GDP and economic growth as it leads to more expenditure on home security, locks, burglar alarms, CCTV, counselling, police, insurance, prisons, prison warders, legal fees and compensation.

 Divorces can be traumatic for the parties involved. Children can be torn between their parents and may be scarred for life. Yet the GDP regards this as positive as spouses sell matrimonial home and search for separate homes, spend money on matrimonial disputes, child care and legal fees.
 
If parents look after the children, families take care of the elderly and people do voluntary work for neighbourhood watch, local schools, or hospices, it plays no role in the economic calculation even though it improves the quality of life. On the other hand, if children are abandoned, placed in care and the elderly are sent to nursing homes, they boost the GDP and economic growth figures because it involves expenditure. So any destruction of family and community is good news for growth and GDP.

 No doubt some will claim that higher GDP and growth rates mean that we are all economically better off. Well, this is not true either. Certainly, the fat cats are getting fatter, but wealth is not percolating down. The gap between the highest-paid and the lowest-paid workers is greater than it has been for at least fifty years. Even the government acknowledges that the "proportion of people on low incomes in absolute terms has remained roughly constant since 1979 despite average income growth of over 40 per cent". Women receive less than 80% of the wages received by men for equivalent work. Despite having the world's fourth largest economy, some 12.5 million Britons, including 3.8 million children and 2.2 million pensioners, live below the poverty line. Just to make ends meet, some individuals work long hours, give-up leisure time and cannot spend enough time with their families. The negative effect of these is ignored by the GDP and growth rate figures, which mask institutionalised inequalities and tell us nothing about poverty, social exclusion, or discrimination.

 Progressive societies cannot live by GDP and economic growth alone. At the very least, there are four things that matter to all of us. These are satisfaction, happiness, the future of the human race and the very survival of planet earth. Yet none of these are captured by the GDP or growth rates  and not surprisngly despite considerable economic growth people do not always feel better off.  

It is time to for the government to produce a qualitative index, the Genuine Progress Index (GPI) or Human Progress Index (HPI). This would adjust the GDP figures for crime, ecological problems, inequalities in income, pollution, leisure time, discrimination, community work, and all other things that affect the quality of life. The net effect may well be that despite higher GDP, due to inequalities, frauds, rip-offs, crime, discrimination and ecological disasters; we are actually worse off and need to consider alternative social and economic policies.