Rebutting the harsh reality of slower growth

I refer to the 31 Jul 2013 Straits Times letter “Harsh reality of slower growth” by Mr Ng Ya Ken.

In response to a previous letter by Ms Catherine Ho Shull, Mr Ng raises the question of whether the GDP is a bunch of irrelevant numbers and explains its importance in reflecting the amount of consumption, government services, net exports and savings accumulated each year. But Ms Ho’s letter didn’t question the relevance of the GDP. Instead it questioned whether GDP should be the over-riding concern above all else including happiness, suicide rate, rich-poor divide, fertility rate, innovation and creativity and simple enjoyment of life. Should we sacrifice all these for GDP?

Mr Ng explains how lower GDP growth means one or more components of the GDP is growing more slowly or even shrinking. Growing more slowly doesn’t mean shrinking. Even in zero growth there is no shrinkage of GDP. Slower growth is also not the same as slow growth as slowing down from a high growth rate could still mean a good growth rate. Moreover, too high a growth rate may lead to higher inflation leading to lower real GDP growth. It is possible to achieve the same real GDP growth with slower nominal GDP growth rate at correspondingly lower inflation rate.

Mr Ng takes issue with those who blamed the government for growing at all costs. He likens the country to a company which must set a reasonable growth target failing which market share may be taken away resulting in smaller or no bonuses for workers. But a responsible company will grow within its means and not over-reach itself by for example over leveraging itself and placing shareholder capital under undue financial risks.

Mr Ng says slowing down may mean raising interest rates, tightening money supply, trimming public expenses, scaling down or delaying infrastructure projects, restricting labour supply or raising consumption or income taxes. But if we hadn’t grown at all costs to begin with, why would we even need the extra infrastructure projects, extra labour supply or greater public expenses?

Countries like Germany have shown that growing slow and steady doesn’t necessarily harm the long-term survival of the country. Having no natural resources is no excuse to grow at all costs as most First World nations derive less than 2% of their GDP from natural resources. Making as much hay as possible while the sun shines doesn’t mean suddenly jam packing the farm with workers to make two years’ worth of hay in one year without adequate provisioning.

Natural resources rent as percentage of GDP

The reality is that many Western nations have better work-life balance and higher living standards through higher wages despite lower per capita GDP. They show us how it’s possible to trade away the single minded pursuit of GDP for better work-life balance and higher living standards.

Country Average annual hours worked per worker (2000-2011) PPP (consumption) adjusted average annual wage 2000-2011 (2011 USD) PPP (consumption) adjusted average annual wage per hour worked 2000-2011 (2011 USD)
Luxembourg 1,619 $51,512 $32
Netherlands 1,398 $44,473 $32
Switzerland 1,644 $50,048 $30
United States 1,799 $52,212 $29
Norway 1,422 $40,340 $28
Belgium 1,563 $44,296 $28
Ireland 1,635 $45,910 $28
Germany 1,428 $39,388 $28
Denmark 1,572 $42,274 $27
United Kingdom 1,670 $43,529 $26
Australia 1,720 $43,822 $25
France 1,489 $36,225 $24
Austria 1,765 $42,062 $24
Canada 1,738 $40,558 $23
Sweden 1,613 $35,009 $22
Finland 1,708 $34,492 $20
Spain 1,694 $32,367 $19
Japan 1,775 $33,139 $19
Italy 1,813 $32,911 $18
Israel 1,948 $30,593 $16
Korea 2,337 $32,984 $14
Singapore 2,406 $32,361 $13
Greece 2,065 $27,741 $13
Portugal 1,768 $22,911 $13
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