GDP still best measure of economic health

Today Online 21 Feb 08;
Letter from Lim Bee Khim
Director Corporate Communications
For Permanent Secretary
Ministry of Trade and Industry

We refer to the article, "A silver lining to a lower GDP?" (Feb 15), which makes several assertions about Singapore's economic performance that we would like to comment on.

First, the article argues that gross domestic product (GDP) is not a good measure to gauge a country's economic progress.

It is true that GDP has its limitations as a measure of economic welfare or progress. It does not reflect externalities like environmental costs nor does it reflect income distribution.

What GDP does measure is the income generated by economic activities within a country — and this is still the best gauge of an economy's progress. Knowing a country's GDP per capita tells us a lot more about the economic well-being of its people than any other single measure. Other measures can complement GDP but cannot replace it.

Second, the article suggests that GDP growth has benefit- ted mainly capital owners. The fact is that GDP growth has benefitted owners of both labour and capital.

The wage share of GDP has remained fairly stable over the years. Excluding the years of economic slowdown, the wage share has ranged from 41 per cent to 44 per cent over the last 20 years with no discernible trend up or down.

Third, the article argues that GDP growth came largely from immigration. But this ignores the complementary role that foreign manpower plays in our economy. It is true that of Singapore's total employment growth of 237,000 in 2007, local employment growth accounted for less than half — at 92,000.

But the pertinent question is not whether foreign employment grew faster than local employment, but whether the inflow of foreign manpower has helped labour-short businesses to expand, attract investments that might otherwise not have come to Singapore and create jobs for locals.

A more relevant measure of the role of foreign manpower is the local unemployment rate — which has fallen to 3.0 per cent, the lowest in a decade. Local employment growth has been setting record highs for three consecutive years.

Fourth, the article infers that Singapore is losing competitiveness since labour productivity declined by 0.9 per cent in 2007. Assessments of productivity and competitiveness cannot be made on the basis of just one year's data.

Measured productivity is strongly influenced by cyclical factors. Productivity is best assessed over a longer horizon. Over the past five years (2003-2007), annual productivity growth averaged 3.1 per cent — a respect-able rate of growth for a mature economy like Singapore.

The strong GDP growth of recent years has benefitted Singaporeans. In 2007, the average nominal monthly household income of resident households rose 9.6 per cent, the highest increase in a decade. To ensure the well-being of all Singaporeans, we must continue to focus on economic growth and the quality of that growth.