JEDDAH, 27 December 2004 — Human beings have a unique character, unfound in other species such as animals, that they have no limits to what they can do in life. They accept no boundaries to what they can do economically and financially under the labels of greed and selfishness.
Fact one, economic growth is a process that involves many known and unknown factors to human beings — it produces something — and no process can be sustainable indefinitely unless a point is reached at which another process, “decay”, destroys what has been created.
It has been the motto of almost all politicians to propose to their people that the ultimate goal is “to raise their standard of living through sustainable economic growth”. However, little they realize that there are differences between “standard of living” and the “quality of life”. The former terms means “the per capita rate of consumption of purchased goods and services”, which in reality it means the rate at which governments and citizens use up their respective countries’ limited resources. The latter terms “quality of life” is subjective in nature and cannot be measured in economic or financial terms. Equality, justice, education, culture, personal beliefs, social values, family and home life etc... represent non-material factors and are far more important to citizens than GNP growth, money supply, stock markets, etc...
Economists have naturally failed to include these non-material factors in their economic growth model, thus, making their statistics models inefficient.
One question that must be raised is could higher economic growth leads to lower quality of life? Higher work productivity means one spends more time at work which could affect relationships at home and cause far more misery than could ever be compensated by higher income. The increased income could increase unnecessary spending which could be contradictory to social values. How many times have you heard of Muslim weddings whose costs exceeded $1 million in Beirut, Cairo, Paris and London; or shopping for clothing at a cost of thirty thousands euros paid by fellow Arabs while the majority of the people could barely secure a decent meal. And just a country is producing more goods and services does not necessarily mean that its people get to enjoy them. The extra revenues might be exported to pay off debts or be used for investment in new factories, roads, things that bring no pleasure to the people at large.
The quality of life is determined largely by the general health of the populace, the level of cultural activity, the standard of education, quality of housing availability, the strength of one’s family, home and community ties, the fair distribution of income, employment, safety of our children future, working conditions, the quality of the environment people enjoy and the quantity of goods and services produced and consumed.
Various economic statistics in the Arab world have shown that while the level of consumption has increased, the quality of life has significantly been reduced.
Arab governments are using the rate of economic growth such as GNP rather than their citizens’ well being and happiness as their sole guide to reveal how well, or badly, they were doing, even though it had long been confirmed that economic growth is very poor guide to almost anything at all.
Economic growth measures changes in “gross national product” (GNP) — the total sale value of all the traded goods and services produced in a country during a year. It only includes the value of things that are bought and sold, and the vast array of activities outside the monetarized part of the economy is ignored entirely.
In fact the more self-sufficient citizens are, the lower their GNP will appear to be at a given level of consumption. If they build their own homes with their hard-earned monies (without bank debts), are self sufficient in food, forego any debt and instead relies solely on capital, GNP would retrench drastically. Thus, GNP reveals only the size of the legal monetarized sector, not an economy’s true size. Another distortion of GNP is the exclusion of the extent to which a country’s natural resources are used up and sold off in the production of the goods that the GNP figure represents.
Any country that use and sell its natural resources and spends the proceeds freely and lavishly without increasing its wealth, would appear from its national accounts to have gotten richer in terms of GNP per person. Another distortion in the GNP figure is the inclusion of exports, which are not consumed in the country that makes them. Many Arab countries have shown impressive GNP growth as a result of higher exports but, because the earnings from them are used to pay interest (and capital), their citizens are becoming worse off. We have yet to see one Arab country that has reduced unemployment and increased its wealth and its social and economic productivity on a global scale. If we strip down GNP and make corrections for the depletion of natural resources and for items that never get used for people’s welfare or enjoyment, GNP becomes irrelevant and meaningless.
In the Middle East, economic growth has drastically altered the distribution of income and made it less equitable, thus, one cannot say because overall GNP is higher, overall well-being has improved. A case in point, while most industries and real estate are monopolized by less than 1 percent of Arab population, poverty and unemployment has dramatically cut into people’s lives.
The fact is that GNP is measure of production which is unimportant to the average citizen, while the main interests of all citizens is in the level of his/her consumption. Thus, one must exclude from the GNP figure the cost of police force, national defense, infrastructure projects, health and educational expenditures. A more reliable measure would be the source of benefits citizens receive from their respective country, the stock of knowledge, skills and techniques; the stock of houses, roads, factories, machines etc...and the natural resources along with nature’s services such as climate regulation and pollutant disposal. It is the obligation of each and every Arab country to ensure that the total value of its human and capital resources which is handed on to the next generation is not less than our generation received.
(Abdelmenem Jamil Addas ([email protected]) is a professor of financial markets, at the College of Business Administration. He is based in Jeddah.)
