A Teacher Writes to Students Series (53): Listen to Kolodko-6
Annavajhula J C Bose, PhD
Department of Economics (Retd.), SRCC, DU
I am choosing and reproducing six pragmatic discussions from the experiential perceptions of the great Polish economics Professor Grzegorz W. Kolodko for your perusal and consideration. He had his own political-economic practice as a four-time deputy prime minister and a minister of finance. Undergrad econ students are better off, in gaining good grounded knowledge, reading him than mainstream textbooks, journal articles and newspapers. What follows is, as if Prof. Kolodko is talking to you.
The theme of the sixth one in this posting is:
A Beyond GDP Economy
“It is becoming increasingly clear that these are the times of economy which I call Beyond-GDP Economy. And the beyond GDP economy calls for beyond GDP economics and beyond GDP economic policy. Even more fascinating issues are popping up in that respect. In particular, the issue of the purposes of economic activity of an individual, society and mankind calls for a fundamental debate. It is, after all, nonsense to still maintain that the purpose is a maximized output, usually measured on a macro-scale by the level of GDP, gross national product and its growth rate, and on a micro-scale, it is reduced to maximized rate of return from invested capital.
We need a mental breakthrough here as the direction in which we are going and how we’ll get there depends both on what we measure and on how we do so. It should make us wonder how it’s possible that, despite a number of alternative measures of social and economic progress, we are still stuck in the straitjacket of the narrow-minded gross product measurement, which completely ignores more than one significant aspect of the social reproduction process. It is not only because it is relatively easy to calculate, surely much easier than prosperity, satisfaction, well-being, happiness. The GDP category overlooks such elementary issues as distribution ratios, leisure time, the condition of the natural environment, and subjective sense of satisfaction, which should all be taken into account by development economics in the future.
Even if you are not a professional economist you will see immediately that if the volume—these kilograms, meters, liters and pieces, of wine and cloth, in the old days, then coal and steel, cars and iPods these days and 3D printers and genetic modifiers in the future—or the output value expressed in money ceases to be a maximised function of purpose, then we look at economic ventures differently.
How could we, in assessing the economic situation, leave out the value of free time and commuting? How long can we cherish the illusion that Americans have a much higher living standard because their GDP per capita is nearly $50,000 while that in France is only about 70 percent of that amount, if the former work for their income 1,787 hours per year and the latter only 1,476? If the French, with their hourly work efficiency, worked for the same amount of time as Americans, their income would be just 10 percent lower. They prefer to have less money but more time to spend it. Earlier quitting time, faster weekend, longer vacation, earlier retirement—it all makes a difference, doesn’t it? Time is money, vice versa. The more you work, the more you earn but the less you work the more time you have. And free time is an intrinsic value, even a greater one if somebody knows how to use it to boost their life satisfaction.
National income expressed as a purchasing power parity (PPP) is a better measure for international comparisons as it tells us how much it is really worth, considering price levels and structure. The PPP income answers the question: how much can be purchased for its unit compared to price conditions prevalent in the home of the dollar, in the USA? If, for example, in Poland, 1000 zlotys can buy, on average, as much as $455 can buy in the USA then the US dollar is worth 2.2. zlotys at PPP rather than its current market price. Thus, Poland’s GDP per capita calculated as per market rate in 2013 amounted to $14000 while at PPP it was 50 percent more, about $21000. The latter measure is more adequate as in the Polish reality the dollar, from the perspective of its actual purchasing power, is worth about one-third less than its market exchange rate. And vice versa, the purchasing power of the zloty is about 45 cents, rather than about 30 as the market rate suggests. It goes without saying that income measured according to the exchange rate is constantly changing because in a liquid market environment the exchange rate keeps changing while income measured with PPP changes according to differences in labour productivity and inflation rate variance. There are countries where these ratios are much higher, up to 25:1. This means that in such a country the equivalent of one dollar in the local currency can buy as much as $25 can buy in the USA. This could, for example, be the case when comparing Cuba and the USA. And that explains “How one could live on $10?”. On $10 it’s impossible but on the actual equivalent of $250 you can somehow scrape by.
Polish people, working the classical 40 hours a week on average, actually work as many as 1,937 hours a year (if we assume that they take four weeks off for vacation and holiday) for their average GDP, amounting to US $21000, at PPP. In this respect, among 34 OECD member states, they are only outdone by the less-well-to-do Hungarians, Chileans and Mexicans and—yes, yes!—those lazy Greeks, who work 2032 hours a year on average, which is nearly 100 hours long than the Polish.
All this has colossal implications for economic activity, especially in affluent societies, where, in the future, a progressively bigger portion of the growing work efficiency will be spent on increasing free time resources rather than on obtaining a higher income. More importance will be given to what happens outside GDP and around it rather than within it and to it. Not only with regard to the dichotomy between work time and free time, but also with regard to culture, the natural environment, the quality of non-material services, including satisfaction (or lack thereof) with the political regimes.
That is why we need a beyond-GDP economy. A mental revolution in this respect would do us good but the inertia and, as always, other people’s interests leave us doomed to a long-term evolution.
Reference
Grzegorz W. Kolodko. 2014. Whither the World: The Political Economy of the Future. Palgrave Macmillan.
