Gross Domestic Product (GDP) is currently being projected to grow at 6.6% for the year 2013.
This optimistic forecast is supposedly indicative of the excellent economic performance of the Aquino administration. GDP numbers are bigger than those achieved in the past administrations.
This is due, according to this present administration, to the trust and confidence of the economic elements, both domestic and foreign, in the honesty , competence , fair competitive playing field and facilitative and enabling governance of the administration. Amen. Let it be, we pray.
However, let us point out a few elements of the equation and its economic indices. GDP is the total value of goods and services produced by an economy within a given period, usually one year.
If we add the value of net factor income earned abroad, we get the standard Gross National Product, GNP.
If we deduct the value of the depreciation of national assets used for all these production activities, we get National Income, NI. GNP, GDP and National Income measure in monetary terms the total value of the performance of the economy in terms of goods and services produced or , from another viewpoint, goods and services consumed and saved.
To put it simply, these are periodic additions to a countery’ s assets or wealth.
Since these assets which normally increase over time and are the bases or factors of production, logically with an increased base, the value of output for the next period should increase.
It should, therefore, be clear that the economic performance of previous periods and administrations lay down the springboards and capacities for current performances.
Another point in quoting increased numbers for these economic indices is the fact that prices of goods and services tend to increase over time. If the economy produced one banana last year worth Php 1.00 and repeats the same production of one banana this year now worth Php 2.00, then the totaL value increases 100% but the good produced is the same in number or volume. Total value is price times quantity.
The increase must be in more goods and services in real terms. It should not be confined to price increases alone or inflationary reasons. We, therfore, must be careful in quoting GDP et al in real terms, factoring out inflationary factors.
The totaL value of production is clearly dependent upon the magnitude of the resources of a nation— land, labor, capital, technology, and intangibles of development.
Therefore, to reduce the indices to cross comparability, the numbers are quoted in per capita terms, or per the number of the population. GDP et al are divided by the population to get percapita GDP, GNP and NI.
This makes the indices more useful for appraisal but it assumes one major fallacy— that the values are divided equally. There is no such situation where incomes, production, consumption and savings are divided equally among the population.
It may be that even with increased national incomes, there is no filtering down to the masses. It may be that the rich are getting richer and the poor are getting poorer.
We must also review and evaluate what our economy is producing in terms of goods and services which comprise the values of GDP et al. Are these the goods and services needed by our people?
Are the production and consumption activities in accordance with our values? Are we depleting our natural resources and debasing our environment in the process? We can have a very rich marijuana, jueteng, gambling and export-orientation of domestic helpers, combo players, cultural dancers and mercenaries economy.
It is likewise misleading to be comparing our GDP et al numbers over time and space.
We must remember that the basket of goods available before, say, before the war, or in the fifties, sixties and even the nineties is different from the basket of goods to which we now have access. Purchasing power is only meaningful if there is something to purchase. Comparison with other nations lends itself to same limitation.
You can be the richest man in a nation where there may be nothing to buy. Or there may be different things available. Much more important in terms of time and spatial comparisons is what economists call purchasing power parity.
Your numbers of income values may be small but you may need a few of your pesos or yuan or whatever currency to buy the goods and services you need because the prices are cheap.
I remember buying a pack of Marlboros in Kuala Lumpur for the equivalent of Php 300. In Tokyo, a cup of coffee was around Php 250 in Hotel Okura and the Mcdonald’s Big Mac was almost Php1000.
Its too bad I was just a poor goverment employee earning relatively low purchasing powered pesos in comparison to my Japanese friend earning high purchasing powered yen.
The basic issue, therefore, is what and how much can these economic indices really buy in terms of the real goods and services that we need and want. Sya nawa.
