Cover Feature


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“The valuable capacity of the human mind to simplify a complex situation in a compact characterisation becomes dangerous when not controlled in terms of definitely stated criteria.”


Senator Robert F Kennedy delivered a now-famous assault on GDP growth: “Too much and for too long, we seemed to have surrendered personal excellence and community values to the mere accumulation of material things. Our Gross National Product now is over US$800 billion a year, but Gross National Product… counts air pollution, cigarette advertising and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of redwood and the loss of our natural wonders in chaotic sprawl. It counts napalm and nuclear warheads and armoured cars for the police to fight the riots in our cities…”


“Agriculture holds some prospects [for growth], but that needs to be done in a very careful manner and talked through so that you don’t have a situation like… Zimbabwe,” cautions the UWC’s Ocran.


Deloitte’s Davies is less sanguine: “No sooner do we have Ramaphosa as State President – someone who’s obviously very pragmatic and hopefully will do a much better job – and no sooner do we have patriotic, pragmatic and competent Ministers of Finance and Public Enterprises – Nhlanhla Nene and Pravin Gordhan respectively – than, literally a few days later, the radical left in the party is undermining confidence once again by using radical phrases that are clearly populist rhetoric and not economically sound. It’s one step forward, two steps back.”


But we live in a highly institutionalised political economy. Pragmatically, Davies suggests that investors should “ignore what the party says and watch what the government does”.


Wits University’s Bond says investors should definitely stay in South Africa, if only because interest rates right now are extremely high. Avoid equities, he says, because the JSE, according to the Warren Buffett Index which correlates share values to GDP, has the highest-valued share market in the world: “…That’s going to crash, no doubt about it.


“Invest as if you care about the country’s future. Invest in local basic needs.” exhorts Bond. “We need a patriotic bourgeoisie,” he says, recalling the days when “the Oppenheimers and the Ruperts put their money into the country. That’s what we’re missing.”


Sorry, Wrong Number Is GDP growth the right measure?


The concept of gross domestic product (GDP) originated in late-1600s England, designed as a measure to stave off a new-fangled thing called income tax, raised to fight a war against the Dutch.


The modern father of GDP growth was American economist and Nobel Economics Laureate Simon Kuznets. In the 1920s and ’30s, it was referred to as Gross National Product or Gross National Income, but in a seminal 1934 report to America’s Congress, Kuznets warned explicitly against using the number on its own as a general measure of human welfare: “The valuable capacity of the human mind to simplify a complex situation in a compact characterisation becomes dangerous when not controlled in terms of definitely stated criteria. With quantitative measurements, especially, the definiteness of the results suggest, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse…”


The concept of using such a broad number as a measure of human progress or wellbeing has drawn fire almost from the moment of its introduction. Writing nearly 30 years later, Kuznets qualified his view further: “Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.”


In 1968, shortly before his assassination, American


He continued: “Yet [our] Gross National Product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning… it measures everything, in short, except that which makes life worthwhile.”


Kennedy’s words have echoed down the years. Recently, University of Pretoria political economist professor Lorenzo Fioramonti published a withering critique of GDP growth, called Wellbeing Economy: Success in a World Without Growth (Pan Macmillan).


Fioramonti argues that an economic measure – GDP growth – which fails to account for the true cost of mining, including things like air pollution, the resulting health issues and always-necessary environmental rehabilitation, is fatally flawed.


Wits’ Bond shares this view and reminds us that GDP also ignores the work of women in the house and the community.


Bond and Fioramonti add their names to a long list of distinguished economists, including Nobel Laureates Amartya Sen and Joseph Stiglitz, who believe that the world needs a different and better measure, one which accounts not only for health and happiness, but also for humanity’s impact on the planet.


So why still use it? As Kuznets himself observed, it appears to be precise and simple. In other words, it is easy.


. Gradient Issue 2 17


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