Friday, July 10, 2020
Martin Hennecke

Don't count on GDP answers
<p>The situation in Hong Kong seems to be easing, but if the government continues to do superficial work without addressing the underlying issues, it will only repeat the mistakes of 2014 after the &quot;Occupy Central&quot; incident. And if there is one trigger, large-scale demonstrations and conflicts will reappear.</p><p>One of the issues the government needs to pay attention to is that it should not be too keen on promoting economic growth to solve the problems of people&#39;s livelihood. Or even if it makes policies to promote the economy, it should not put too much faith in the GDP data, because whether China or the United States, Europe or Asia, the reliability and credibility of GDP are questionable.</p><p>In fact, as early as in the 2007-2008 financial tsunami, the market had started to discuss the defects of GDP. One of the most widely discussed problems is GDP underestimates the real contribution brought by the low wages of the emerging countries for global wealth while overestimating the GDP performance of developed countries.</p><p>The main cause of distortion is due to the price, value and the additional value that affects the statistical calculation of GDP, trade and productivity. The result is that though GDP seems objective and unbiased, it hides a lot of the truth.</p><p>The most talked about example is the huge gap between the production cost of the iPhone and its final selling price. Moreover, because the number of workers who produce the iPhone is far larger than the number of people employed by Apple, the iPhone drives the GDP of the US far more than that of other producing countries such as China, and the gap of GDP per capita is nearly 100 times larger.</p><p>And it&#39;s not just the iPhone that produces this phenomenon. Even your daily coffee is relevant. About 25 million people in the world are coffee farmers, but the dominant global coffee traders are only four major brands in Europe and America.</p><p>The remuneration of these coffee farmers is only 2 to 3 percent of the final retail price. But as early as 2009, the GDP of nine main coffee input countries increased US$31 billion because of the production and sales of coffee. It is believed that a decade from today, the impact of coffee on the GDP in these countries will be more apparent.</p><p>The above example, however, can only explain that more labor input doesn&#39;t have to mean more impetus to GDP. This can only explain the original inequality problem, which occurs between countries.</p><p>But if you know that Bermuda in 2007 had the highest per capita GDP, then you will understand the absurdity of GDP because the only productive activities in Bermuda were those of beach-bar cocktail bartenders and other high-grade tourism services.</p><p>Simply put, there was not much productivity. The reason that led to Bermuda people becoming the world&#39;s most productive was that after &quot;9/11&quot;, it became a new tax haven. An influx of hot money to Bermuda made its GDP rise sharply.</p><p>Therefore, if you think that pursuing GDP growth means that people&#39;s livelihood problems can be solved easily, you will only fail in the end.</p><p>It&#39;s not just Hong Kong that needs to be careful. Maybe US President Donald Trump&#39;s way of boosting the economy in exchange for re-election may turn out to be the wrong idea.</p><p><em>Andrew Wong is chairman and CEO of Anli Securities</em></p>
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