GDP is important but we must go beyond Ggoobi’s thesis

Mr Michael Buteera Mugisha

What you need to know:

Yet, despite having some money, some of these private and public goods are out of reach of the majority of citizens...

In an article published in the Daily Monitor on February 12, titled “Why GDP is everyday life”, Mr Ggoobi decided to nostalgically wear his professorial hat and school us on the importance of gross domestic product (GDP) — the value of goods and services produced annually in an economy.

Indeed, he concludes the piece by inviting us all to work towards raising GDP, which, as he argues, is a source of happiness for all.

 Yet, the analysis and reasoning around GDP Mr Ggoobi provides as well as its importance, offers an uncritical explanation that only captures one side of the argument and leaves the critical reader unable to resolve some of the problematic issues his argument invokes.

For instance, he writes, “for income or money, we all know how important it is. It is the grease that lubricates the wheels of our daily lives by enabling us to meet the basic needs of life in a sustainable way and with reasonable flexibility”.

And then he continues, “GDP is highly correlated with three goals of humanity. Despite the inherent shortcomings, GDP is critical in meeting all of them,..” The use of GDP, however, in isolation of other more context-based measures such as Gross National Product (a measure of GDP produced by only citizens of the country minus that of foreigners) may provide a rosier picture of progress than is. Which perhaps explains the puzzle of why GDP has been expanding year-on-year for the past 35 years and yet also accompanied by rising or stalled poverty levels.

In 2012, for example, the Ministry of Finance’s Poverty Status report, reported a decline in poverty rates from 24.5 percent to 19.7 percent between 2009/10 and 2012/13 and yet recent reports from the same Ministry have reported a rise in poverty levels to 20.3 in 2019/2020. These facts are puzzling because if, as Mr Ggoobi argues, that GDP growth equals increased happiness and prosperity for all, why then are we witnessing a rise in poverty levels despite continuous growth in GDP?

Another faulty reasoning is found in the deduction he makes from implications of GDP growth. He writes, “when GDP grows, a society is able to find ways to produce more of the goods and services that its citizens need. We all need good health, a house to live in, education for our children or ourselves, good food, peace and security,…and generally a life full of happiness…all these things depend primarily on having our own money” and of course, by his assumption, money depends on GDP.

Yet, despite having some money, some of these private and public goods are out of reach of the majority of citizens, not only in Uganda but indeed in major parts of the world, including the developed countries that he lionises as the standard we should emulate or aim to catch up with.

We know, however, that even in the current advanced economies, the rise of populist politics that reflects a rupture in post Second World War social contract, results from the observed and reality of the growth in GDP that has benefited only a few citizens at the top: the 10 percent, while the income of the bottom 50 percent has stagnated for the past 40 years.

By writing in such uncritical terms, therefore, Mr Ggoobi does a poor job in helping Ugandans who are grappling with the conundrum of why continuous monetisation of the economy has on one hand enriched some, and indeed allowed them to live more happier and safe lives, while on the other hand, has dispossessed, marginalised, and impoverished others.

A good thesis must, therefore, account for the variation in the structure of GDP and then attempt to explain the conditions under which GDP growth may enrich some whilst also impoverishing others.

Economists, however, are always ill-suited to engage with such questions unless of course that economist is also well-grounded in political economy and sociological explanations to identify connections that properly establish, contextualise, and account for varieties of GDP growth between and within countries. I will return to this question in my next piece.

Mr. Michael Buteera Mugisha is a PhD Candidate at the London School of Economics and Political Science and a Lecturer at Makerere University.