The GDP number is very important as it is the most widely used barometer of economic activity the world over. Much thought has gone into conceptualising and standardising it. And Singapore, like many countries, has zealously worked to keep this number on a sustainable upward trajectory.

 

Yet, this number doesn’t tell the whole story. For instance, on a GDP per capita yardstick, Singapore weighs in at about 83% of the per capita GDP of the US in 2000. However, on a metric called economic welfare, Singapore comes in at just 44% of the comparable US number. This welfare measure, created by Stanford University academics Charles Jones and Peter Klenow, takes into account data on consumption (both government and private consumption), leisure (deduced from hours worked per year) inequality (as reflected in a nation’s Gini index) and mortality (measured via life expectancy).

 

In their September 2010 study, the professors explain that the dramatic gap between Singapore’s GDP per capita and welfare per capita numbers is largely due to the city-state’s “exceptionally high investment rate, which reduces its level of consumption for a given level of income”. Singapore’s consumption share of GDP is substantially below 0.5. Long hours logged at work and a high capital accumulation rate are well-established means for raising GDP, but they are costs not reflected in the GDP itself. The professors believe their welfare metric, which adjusts for lower leisure and lower consumption figures, paints a more accurate picture of living standards in countries such as Singapore. 

 

Jones and Klenow’s analysis throws up another interesting find, by framing the “lost decade” of Japan in a welfare context. After 1990, the Japanese economy entered a prolonged period of sluggishness. If you compare the US and Japan between 1980 and 2000, you will see that income growth in both countries averaged just over 2% per year. However, over that time, Japan also saw increasing life expectancy, a rising consumption share, more leisure time, and falling inequality. That more than doubles Japan’s welfare growth to 4.45% per year. It also makes it one of the fastest growing economies in the world over this period when the additional components of welfare are included.