GDP: Key Performance Indicator
One of the most influential indicators within most country’s suite of economic indictors is Gross Domestic Product (GDP), or more particularly it’s annual rate of change, ‘growth’. GDP itself was essentially invented to act as a measure of a country’s economic condition and for driving the growth needed prior to warfare, a proto-key performance indicator if you will.
Many companies will use a suite of Key Performance Indicators (KPIs) to measure, reinforce and drive their performance, whether the KPIs be financial, safety-oriented or otherwise. In order to transfer the strategy embodied within the KPIs, they may cascade them with their derivative targets and associated projects through the organisation to provide some form of coherence to strategy and enable all to prioritise and direct their own local tactics accordingly.
In other parts of this site, indeed in The Manufacturer in 2011 (Homewood, J., Found, P., Samuel, D. (2011). “Lean lens on the economy”, The Manufacturerl 14 (02) January, 30-33. ISSN 1-477-3201), I have suggested that governments adopt a public ‘dashboard’, that visually relates it’s KPIs to it’s policies and actions, as business often does.
GDP : Key Performance Indicator ?
It has become evident in the last few days (see Peston, Guardian) that the Office for National Statistics (ONS) has had to recalculate past Gross National Income (GNI) & GDP performance with the inclusion of estimations of elements of the ‘black economy’, more specifically ” the Inclusion of Illegal Drugs and Prostitution“, a comprehensive document by the ONS. It appears that some forms of smuggling are already included.
Now, it should be fairly obvious that if one includes activities that are illegal (and to be discouraged) within one’s accounts that measure the ‘success’ of a country’s economy, one is, by definition, encouraging those illegal activities and ultimately the suffering that they cause. Other countries, notably France, have refused this demand from the EU, for these reasons.
Extract from Guardian article: “Eric Dubois, a director at INSEE, France’s equivalent to the ONS, told Le Monde that in drug use “there is a dependency and the person who takes drugs does not consent freely to the exchange”, while street prostitution is the result of “mafia networks and trafficking illegal immigrants. Prostitution is not a voluntary commercial activity.””
The measurement or estimation of such activities is important however, but only in the context of gauging the ‘size of the problem’, in order to reduce it, as one might do for ‘work related deaths’ in industry. It would be absurd to add some form of positive financial measure of death & injury (and associated pain and distress) to the ‘company performance’. If anything such a measure should form the basis of a penalty to the company or country.
In short, estimations of the black economy, I propose SHOULD NOT be included in calculations of GNI or GDP.
JAH, Oct 2014