Gross Domestic Product (GDP) and its growth rate have become an obsession with Indians in recent years; GDP growth is a sexy metric that starts and ends every conversation about the economy, supposedly a panacea for all ills plaguing our country. Even a minor decimal point dip is presumably disastrous whereas a small move up could signal “all is well” with the economy. While there is a lot of merit in using GDP as a measure of a country’s progress and the well-being of its people, exclusive reliance on it, especially without an appreciation of its nuances, could be highly misleading.
In my article last year
, I had given a detailed explanation of the concept of GDP, its wide acceptance and limitations. Sustained growth in GDP is a sin-qua-non for improvement in the living standards of people. No country has become rich without having experienced sustained, long term growth in its national income. China has grown at 9% annually for the last three decades, transforming the country beyond imagination. India’s relatively powerful rise also coincides with a substantial increase in GDP over the last two and a half decades. (Read: GDP: A Primer – I
and GDP: A Primer – II)
As always, economic truisms hide facts that can be critical. For instance, the rise in productivity has lately been rather muted, especially in Western economies. This has surprised many experts, including some economists. The wide penetration of information technology (IT) in the economy and the spread of automation were expected to boost productivity significantly. Statistics reveal such productivity improvements to be largely a myth.
One explanation is that corporate profits are derived increasingly from economic rents rather than through greater efficiency. Gaming of political rules and regulations plays a significant role in the revenues and performance of companies. In their study, economists Peter Orszag and Jason Furman have been effectively able to establish this fact, as have many other similar studies.
In a similar vein, more than thirty years back, economist William Baumal had warned against unproductive business enterprises generating profit by using influence and power, without adding real value. Such jobs, according to Baumal, may arise from competition for income and status by different people. It is now a well documented fact that capitalism and free markets are not as efficient as previously believed.
One of the most interesting manifestations of the lack of productivity enhancement and capitalism’s inefficiency is the rise of what Professor David Graeber of the London School of Economics terms ‘the bullshit jobs’.
According to Graeber, bullshit jobs are those that hardly add value or make a difference to people’s lives, but continue to be an integral part of the economy.
These jobs don’t seem to produce anything and have become an end in themselves. Many of us have often felt the futility of working and wondered, does my job add any value and what would happen if it did not exist. How many people would even notice if tomorrow fashion designers, consultants, public relations (PR) agents, telemarketers, lobbyists, middle level managers in the corporate sector and dare-I-say, a large number of government officials, were to vanish? The absence of teachers, doctors, bus drivers, garbage collectors and farmers, on the other hand, would make a huge difference to people’s lives.
A second set of bullshit jobs are those that may add value, but by snatching value from others; in a sense, they only perform a distributive function. Overall, the economy does not benefit. Think of hackers and those tasked with prevention of hacking, corporate accountants and government tax officials, corporate lawyers arguing opposing sides of a case, the reckless volume of financial trading, competitive marketing campaigns by two companies vying for market share; the net benefits to society from these activities are almost zilch. Some of these jobs and functions may be value additive at the individual level, but at the consolidated society level, they merely redistribute benefits amongst different people and companies.
A study by the UK government in 2012 conducted in the wake of the financial crisis concluded that “lots of ﬁnance is senseless zero-sum activity that drains investment away from useful enterprise.”
Finance is not the only activity that is guilty of distributive rather than value additive behaviour. In many other sectors too, companies are engaged more in carving out a larger chunk of wealth for themselves, than in creating value.
What is significant is how common these jobs are in the economy. According to Gaeber, they could be contributing as much as 30% of the value of GDP. Given the preponderance of such jobs in the economy, the estimation of GDP becomes misleading, if not an exercise in futility.
India of course, as always, has its own perspective on such issues. We have our own unique problems and behavioural pattern that render the correlation between GDP and welfare rather tenuous. We have jobs and functions that may be essential but hardly add any value. Let me illustrate.
One of the fastest growing sectors in India today is the security services. Our law and order is a mess; therefore, people hire private security services. Government offices, commercial establishments, malls, housing societies, private bungalows, the ATM and the banks, private security services are pervasive; they hit you in your face wherever you go. However, can we legitimately say that our life or welfare is improving if the security services industry grows annually at 25%? Efficient establishment of law & order by the government and better behaviour by people in general, can render these security services redundant, leading to reduction in GDP but overall improvement in welfare! In fact, while the security guard and his family may be badly in need of his job, I am not sure it can be described as high quality work that provides satisfaction and personal development. India must worry about not just the number but the quality of jobs too!
Such examples can be multiplied easily. Use of cars and other private vehicles is high because the government is unable to provide efficient public transport. Provision of potable drinking water is suspect; hence, people use bottled mineral water and water purifiers. When I see a traffic policeman manning a traffic signal, I often wonder why we need him. Why can’t people be self-disciplined in a manner that obviates the need for regulation? Given the absence of alternatives, these have become essential services. However, it is a moot point whether they add to our well-being. India thus adds a third dimension to Graeber’s bullshit jobs.
While the emphasis on increase in GDP is warranted, it is important to appreciate the constituents of GDP growth. If the increase in GDP is due to growth in sectors that don’t add value, and are what we have termed bullshit jobs, it may not have much meaning. If the jobs being created are low quality ones, there is no concomitant improvement in welfare.
The government has a significant role to play in two ways. It must ensure justice and security for everyone. And, it must deliver basic public services effectively.
Without this, the link between GDP and welfare will remain fragile. While there is not much we can do about some of ‘the bullshit jobs’ that exist, we can certainly ensure that other non-value additive constituents of GDP that are typically Indian, are taken care of. The quality of the GDP is as important as its quantum.
(Sunil Mahajan, a financial consultant and teacher, has over three decades experience in the corporate sector, consultancy and academics.)