Our economic yardsticks are broken – they offer no warning of catastrophe; The government’s central measure of success should be improvements in the incomes of typical families, not GDP

Our economic yardsticks are broken – they offer no warning of catastrophe

The government’s central measure of success should be improvements in the incomes of typical families, not GDP

Andrew Harrop

theguardian.com, Wednesday 12 March 2014 09.00 GMT

In next week’s budget the chancellor, George Osborne, will announce the best economic headlines for years: solid economic growthfalling unemployment and low inflation. But headlines can deceive: the last time the main economic indicators were this good was 2007 and we know what happened next.

Back then, even as bankers were clearing their desks at some of the world’s leading financial institutions, the standard economic measures provided no warning of the catastrophe that was unfolding. As Britain sailed into the worst economic storm in living memory, the economic numbers said “steady as she goes”.

And unless you read beyond the economic headlines, the risks the economy faces today are once again impossible to see. For the global financial crisis revealed not only the structural deficiencies of our economy, but also the total inadequacy of how governments monitor economic progress.

new Fabian report on alternative ways of measuring economic successuncovers warning lights almost everywhere you look. The research shows that the recovery is founded on a menacing combination of economic short-termism and rising inequality. Indeed, since inequality breeds lower consumer spending over time, it is a form of short-termism itself.

You can divide the reckoning into two halves by looking at what is happening to business and to families. Business investment, which drives the economy’s potential for growth, has been flat since 2006; the gap between exports and imports is at its highest since comparable records began; and worker productivity has been at a standstill since 2007, when it normally rises year by year. Only the economy’s robust record on job creation gives any cause for celebration. Unless these numbers change the recovery will be a “dead cat bounce“, led only by consumer debt,overheated house prices and stock market profits. This is not a route to long-term sustainable growth.

The signs aren’t any better for family finances. The number of families who don’t have enough to pay for the basics is up, so too is the number in debt, and poverty is forecast to be rising. These are not just problems of recession; some are a result of recovery. Most of the rewards from renewed growth are going to the wealthy, with top pay and profits forging ahead as typical wages stagnate. Alongside this, housing is now no more affordable than it was at the peak of the last boom.

Our Measure for Measure report proposes 20 alternative measures of economic success, including whether median household income and earnings have risen or fallen, the numbers of people on low pay, the ratio of house prices and private rents to earnings, and the gap between middle and top earners.

Half of these measures show there is no sign of improvement despite the “recovery”. Some of them reveal structural problems that have bedevilled the British economy for years, for example our lack of good non-graduate skills, the dependency on low-paid work and the rising gulf between the top 1% and the rest. But other problems only emerged in the 2000s, such as pay stagnation, the housing bubble and tumbling household savings.

We propose that the next government should reject growth in GDP as the main yardstick for judging progress. Instead, its central measure of success should be improvements in the incomes of typical families, measured by median household income. After all, what is the purpose of GDP growth if it does not flow into rising long-term prosperity for the majority?

These measures of success pose a challenge to Ed Miliband and anyone else who aspires to rewire Britain’s economy. It is one thing to make stirring speeches about economic rebalancing, the squeezed middle, responsible capitalism and corporate long-termism; it is another to say, in numbers, what “good” looks like and to design reforms which might plausibly bring it about. But ministers will need to sign up to targets, just as New Labour did with child poverty and climate change. That way any “rebalancing” will be more than a soundbite. A new understanding of long-term economic success must be hardwired into how Britain is governed.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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