Bill Gates: how GDP understates economic growth

GDP may be an inaccurate indicator in sub-Saharan Africa, which is a concern for those who want to use statistics to help the world's poorest people

Even in good financial times, development aid budgets are hardly overflowing. Government leaders and donors must make hard decisions about where to focus their limited resources. How do you decide which countries should get low-cost loans or cheaper vaccines, and which can afford to fund their own development programmes?

The answer depends, in part, on how we measure growth and improvements in people's lives. Traditionally, one of the guiding factors has been per capita GDP – the value of goods and services produced by a country in a year divided by the country's population. Yet GDP may be an inaccurate indicator in the poorest countries, which is a concern not only for policymakers or people like me who read lots of World Bank reports, but also for anyone who wants to use statistics to make the case for helping the world's poorest people.

I have long believed that GDP understates growth even in rich countries, where its measurement is quite sophisticated, because it is very difficult to compare the value of baskets of goods across different time periods. In the United States, for example, a set of encyclopedias in 1960 was expensive but held great value for families with studious kids. (I can speak from experience, having spent many hours poring over the multi-volume World Book Encyclopedia that my parents bought for my sisters and me.) Now, thanks to the internet, kids have access to far more information for free. How do you factor that into GDP?

The challenges of calculating GDP are particularly acute in sub-Saharan Africa, owing to weak national statistics offices and historical biases that muddy crucial measurements. Bothered by what he regarded as problems in Zambia's national statistics, Morten Jerven, an assistant professor at Simon Fraser University, spent four years examining how African countries obtain their data and the challenges they face in turning them into GDP estimates. His new book, Poor Numbers: How We Are Misled by African Development Statistics and What to Do about It, makes a strong case that a lot of GDP measurements that we thought were accurate are far from it.

Jerven notes that many African countries have trouble measuring the size of their relatively large subsistence economies and unrecorded economic activity. How do you account for the production of a farmer who grows and eats his own food? If subsistence farming is systematically underestimated, some of what looks like growth as an economy moves out of subsistence may merely reflect a shift to something that is easier to capture statistically.

There are other problems with poor countries' GDP data. For example, many countries in sub-Saharan Africa do not update their reporting often enough, so their GDP numbers may miss large and fast-growing economic sectors, like cell phones. When Ghana updated its reporting a few years ago, its GDP jumped by 60%. But many people didn't understand that this was just a statistical anomaly, not an actual change in Ghanaians' standard of living.

Ghanaian youths learn new skills on computers. When Ghana updated its reporting a few years ago, its GDP jumped by 60%

In addition, there are several ways to calculate GDP, and they can produce wildly different results. Jerven mentions three: the World Development Indicators, published by the World Bank (by far the most commonly used dataset); the Penn World Table, released by the University of Pennsylvania; and the Maddison Project at the University of Groningen, which is based on work by the late economist Angus Maddison.

These sources rely on the same basic data, but they modify it in different ways to account for inflation and other factors. As a result, their rankings of different countries' economies can vary widely. Liberia is sub-Saharan Africa's second-poorest, seventh-poorest, or 22nd-poorest country in terms of GDP, depending on which authority you consult.

It is not only the relative rankings that differ. Sometimes, one source will show a country growing by several percentage points, and another source will show it shrinking over the same time period.

Jerven cites these discrepancies to argue that we cannot be certain whether one poor country's GDP is higher than another's, and that we should not use GDP alone to make judgments about which economic policies lead to growth.

Does that mean that we really don't know anything about what works (and what doesn't) in development?

Not at all. Researchers have long used techniques like periodic household surveys to collect data. For example, the Demographic and Health Survey is conducted regularly to determine things like childhood and maternal death rates. Moreover, economists are using new techniques like satellite mapping of light sources to inform their estimates of economic growth. Although such methods are not perfect, they also are not susceptible to the same problems as GDP.

Other ways to measure overall living standards in a country are similarly imperfect; but they nonetheless provide additional ways to understand poverty. One, called the Human Development Index, uses health and education statistics in addition to GDP. Another, the Multidimensional Poverty Index, uses 10 indicators, including nutrition, sanitation, and access to cooking fuel and water. And, by using purchasing power parity, which measures the cost of the same basket of goods and services in different countries, economists can adjust GDP to gain better insight into living standards.

Yet it is clear to me that we need to devote greater resources to getting basic GDP numbers right. As Jerven argues, national statistics offices across Africa need more support so that they can obtain and report timelier and more accurate data. Donor governments and international organisations such as the World Bank need to do more to help African authorities produce a clearer picture of their economies. And African policymakers need to be more consistent about demanding better statistics and using them to inform decisions.

I'm a big advocate for investing in health and development around the world. The better tools we have for measuring progress, the more we can ensure that those investments reach the people who need them the most.

Azure Global’s vision is to be widely recognized as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us On Facebook

Article source : http://www.guardian.co.uk

UK unemployment starts to rise again

Number of people out of work increased 15,000 in the first quarter of the year as jobless rate pushed up to 7.8%

Unemployment jumped and average wage rises dropped to their lowest rate on record in the three months to March, underlining concerns at the slow pace of the UK's recovery.

There was an increase in unemployment of 15,000 in the first quarter of the year, while during the same period regular pay rose by just 0.8%.

Total pay rises, which include bonuses, came in even lower than average pay rises, said the Office for National Statistics, increasing by only 0.4% at a time when inflation remains stubbornly high at 2.8%.

The worsening unemployment picture sent the jobless rate up from 7.7% to 7.8% and left the total number unemployed at 2.52 million.

Chancellor George Osborne has come under increasing pressure to stimulate economic growth from a wide range of critics, though they differ in their remedies, especially in areas such as construction.

A report for the London Assembly this week found that there are 150,000 skilled construction workers in the capital claiming jobseeker's allowance, at a cost of £2.1bn in benefits. A similar picture of empty and half-built construction sites is repeated across the country as the industry, which accounts for 7% of economic activity, remains in the doldrums.

Unemployment is rising, according to the ONS

 Martin Back, UK economist at Capital Economics, said the labour market data provides "something of a reality check" following recent positive news on the economy. "There was a triple whammy of bad news, with employment in the three months to March down by 43,000 and unemployment, on the ILO measure, up by 15,000. Meanwhile, the squeeze on real earnings has intensified, with average earnings including bonuses falling by 0.7% year on year in March, the first drop since 2009."

The employment minister, Mark Hoban, conceded there had been a "disappointing increase" in the headline rate of unemployment, but said other indicators showed the government was making progress. "There are record numbers of women in work, fewer young people unemployed and more vacancies available for those looking for work. We are also seeing continuing falls in the number of people claiming jobseeker's allowance, which is positive."

The number of job vacancies rose in the three months to March to 503,000, the highest total since 2008, though well down on the 950,000 jobs on offer in 2007.

The number of people claiming jobseeker's allowance in April fell to its lowest level since May 2011 at 1.52 million, down 7,300 from March 2013 and down 67,800 from a year earlier.

Analysts said some of the drop in the claimant count could be ascribed to the slight improvement in the economic picture this year and the success of benefit offices in shifting workers back into work.

Hoban said: "These statistics also show that the UK's employment rate, which currently stands at around 71%, compares favourably to the US, where it is 67%, and the EU and the eurozone, where it is even lower – at 64%."

Louise's story

Louise Thomasson never imagined she would still be doing her part-time student job six months after graduating with a first in English. Since last autumn, the 22-year-old from Bolton has applied for more than 100 jobs, but is still looking for that elusive break into graduate work in marketing.

"I've put a lot of effort getting a first because I though it would at least help my CV stand out a bit from all the other grads that are applying, but it doesn't seem to have made any difference."

Thomasson, who has £24,000 in debts, expects not to be as well off as friends who didn't go to university when she lands a job. The young graduate was given yet another reminder of how tough the labour market is when she went to an assessment day for an admin assistant job paying the minimum wage. "When I turned up, it looked like the boardroom of The Apprentice. There were people there who had done masters. There were people who had come from prestigious universities. One of them had set up their own charity. It was quite intimidating and I was sort of startled by the kind of calibre of the people who had turned up."

She didn't get through to the next round, and for now continues to work 20 hours a week in a sales job at an electrical equipment superstore and do two days a week volunteering. Although she finds her situation bleak, she is not giving up. "I did work very hard in my degree and I do have a passion for what I do."

Selling televisions would be a welcome break for Lisa Brownlie, who has not had a job since she left school without qualifications two years ago. "The jobs I have been applying for have been any job I can get hold off supermarkets, sales, anything." She has been called to interview only twice, failing both times because she lacks school certificates. "Me with no qualifications against 10 other people that have something, I've got no chance," she said.

Brownlie recently passed a maths NVQ and is close to finishing two courses in English and customer service at Rathbone, a Manchester-based charity that helps young people not in education, work or training. Although the charity gives her £40 a week to meet lunch and travel expenses and she lives rent free with a friend's parents, money is tight.

Once she has finished her exams, she hopes to study childcare. "I would like to focus on younger children because I think the first couple of years of a child's life are the most important."

Azure Global’s vision is to be widely recognized as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us On Facebook

Article source : http://www.guardian.co.uk  

George Osborne urges business leaders to hold their nerve over austerity

George Osborne has asked business leaders to hold their nerve and continue backing the government's austerity measures after the Bank of England gave the first signal since the financial crash of a sustained economic recovery.

The chancellor told the CBI annual dinner on Wednesday night that the business community should ignore critics of his economic policy who advocate a stimulus package to spur growth and reduce unemployment.

"Now is not the time to lose our nerve," he said. "Let's not listen to those who would take us back to square one. Let's carry on doing what is right for Britain. Let's see this through."

His speech followed a series of forecasts from Threadneedle Street showing the UK recovery strengthening and inflation falling over the next three years. Sir Mervyn King said the outlook had improved, with growth likely to reach 0.5% in the second quarter of 2013, after the 0.3% registered in the first three months.

The Bank of England also forecast that inflation in two years' time was likely to be around its 2% target – down from the 2.3% it forecast in February and a major improvement on the current 2.8% annual rise in prices.

Osborne said: "The fact is, the most recent economic news has been more encouraging. The economy is growing. Surveys are better. Confidence is returning to financial markets. This is all reflected in the Bank of England's Inflation report. As the governor says, 'There is a welcome change in the economic outlook'."

Labour accuses Osborne, pictured, of being in ‘total denial about the failure of his economic plan’ while the IMF says Britain needs temporary tax cuts and greater investment in infrastructure.

But Chris Leslie, Labour's shadow treasury minister, said Osborne was in "total denial about the failure of his economic plan", adding that the recovery remained on track to be the slowest in 100 years.

"If we're to have a strong and sustained recovery, and catch up all the ground we have lost over the last three years, we need urgent action to kickstart our economy now and reforms to strengthen it for the long-term," he said.

"Even the IMF has warned the chancellor he is 'playing with fire' by sticking to the same failing policies and called for temporary tax cuts and greater infrastructure investment to boost the economy. It's time George Osborne listened before any more long-term damage is done."

The modest improvement in output over recent months comes against a backdrop of rising unemployment, the lowest wage rises on record and a report showing that the Obama administration's efforts to stimulate the US economy have brought down the government's annual deficit more quickly than the UK.

According to the Office for National Statistics unemployment rose by 15,000 to 2.52m in the three months to the end of March. Wages were 0.8% higher in March than a year ago and only 0.4% better if bonuses are taken into consideration, which is the lowest rise in incomes since records began in 2001.

The Congressional Budget Office's report was pounced on by Labour after it showed the US budget deficit falling this year to almost half the UK level of 7.6% of GDP, and projected to fall below 3% by 2015, two years ahead of Britain.

Labour has accused the coalition of increasing the UK's debt pile by £245bn more than had been expected as a result of its austerity measures. In contrast, the US deficit has declined faster than forecast after Obama's $447bn stimulus in 2011, which maintained payroll tax cuts to boost consumer spending, coupled with a multi-trillion dollar injection of funds by the federal reserve.

The chancellor is aware that several areas of the economy have yet to improve and that the annual shortfall in the government's budget remains stubbornly high at £120bn, down from £147bn in 2011. But he insisted he needed to keep a tight rein on government finances to keep the economy on course for a sustained recovery. Only the Bank of England could support the economy further with additional policies to support lending, he said.

"The most powerful weapon we have in supporting economic demand is monetary policy," he added. "So we have been monetary activists, helping keep interest rates low for families and firms, keeping credit channels open, using our balance sheet to encourage private investment, and repairing the banks.

"You cannot have an activist monetary policy if you're not fiscally responsible. So we have set out a credible deficit reduction plan that has brought the deficit down by a third while switching more money into productive capital investment and allowing the automatic stabilisers to operate."

King gave no sign that the Bank's monetary policy committee was about to add further stimulus, describing the £375bn it has injected into the economy and the funding for lending scheme to ease the supply of loans as "highly stimulatory".

"The economy is likely to see a modest and sustained recovery over the next three years," the central bank said, despite predicting that the recovery would "remain weak by historical standards".

Azure Global’s vision is to be widely recognized as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us On Facebook

Article source : http://www.guardian.co.uk