Economist Phạm Chi Lan. — Photo cafef.vn
Gross domestic product (GDP) is still an important indicator needed to assess the current level of a country’s growth. However, Governments are advised not to try to increase GDP at all costs while neglecting sustainable development. Economist Phạm Chi Lan talks to Tia Sáng (Ray of Light) Magazine about the issue.
Some economists have long assumed that GDP is an inadequate measure of economic development and social well-being, and therefore should not be the sole concern of policymakers. What is your take on this?
Measurement of growth using GDP is still recognised today by many countries. It is true that GDP is not the only measure, but it is still the main measure when it comes to the growth of the global as well as individual countries or regions, or to compare different countries. It is still a necessary tool, there are no countries that have stopped using GDP or do not announce their growth rate of GDP each year. Even highly-industrialised countries which have huge GDP foundation where rising GDP rate by 1 per cent or less is a tough task, still have to set that goal.
Therefore, GDP as an indicator cannot be disregarded.
In the case of Việt Nam, if it wants to catch up with other countries, it has to improve growth quality, but at the same time it has to pay attention to growth rate. We might have a growth rate of 6 or 7 per cent, but in comparison to other countries it’s much smaller. For example, 1 per cent in the growth rate of Thailand is equivalent to 2 per cent in the growth rate of Việt Nam. That means if we want to catch up with Thailand we have to reach a growth rate that is as twice as much as theirs.
However, I want to strongly emphasise that GDP growth rate has to go side by side with quality and efficiency. Efforts to increase GDP growth rate must not be taken at all costs, and most importantly it must not be done in a manner just to achieve short-term goals during a working tenure of any officials. It is something we must absolutely stand firm against.
In Việt Nam, are we still trying to pursue growth and performance based on GDP, rather than improving the quality of growth?
Setting a goal for better GDP growth every year is essential. In fact, if there is no growth, there is no way to catch up with other countries. The problem is how to understand it correctly, because the key is not only growth rate, but also improving the quality. Experts have long criticised when GDP has been achieved at all costs. For example, there was time when the growth rate was not achieved as the end of the year was approaching, and then Government “pumped” another million tonnes of oil for sale while oil prices were going down sharply. Selling oil at such time means a loss, but on the other hands it pushed up GDP. In another example, officials required the coal sector to exploit more coal when nine million tonnes of coal had not been sold yet. That is the kind of growth at all costs.
Given these shortcomings, how have we tried to improve it?
The National Assembly added other social indicators to growth measurement, such as the employment index, the poverty index, the environmental index, not just GDP. However, usually when the year-end meeting was held, GDP is still the most controversial and most questioned issue by the National Assembly, while other indicators get very little attention even if they are very low or not meeting the target.
That is also a problem for the NA who sets the criteria. Should the criteria system be correct, the NA should also monitor the whole set of indicators and be clear about the indicators of quality and effectiveness, rather than be satisfied with a high GDP number and ignore all other indicators.
Secondly, on the assessment of growth, if we want to adjust to have more concentration in efficiency, quality and institutional reforms, we have to accept lower growth rate. When all the reforms are done properly then we can expect higher and more sustainable growth rate.
But the whole system, including the National Assembly and the Government, is not uniformly consistent. They all want growth speed and number. Reforms can’t be successful in a year, or after a night, it must take five to seven years. We could only do this by unanimous consent.
Reports from Central Institute for Economic Management (CIEM) or Việt Nam Institute for Economic and Policy Research (VEPR) for several years have raised a concern that we have not generated new momentum for growth, while the old momentums stalled.
It’s true. If we set a high growth rate in the future, it’s almost impossible to reach.
Most of the country’s growth is based on cheap labour, which is largely due to Foreign Direct Investment (FDI) and partly to exports of resources such as crude oil. We have high export rates coming from the FDI sector, but it is not stable. The role of natural resources exports is also declining, for example, crude oil contribution to Việt Nam’s growth is dropping due to depleted resources, and falling crude oil prices.
The key element is that productivity is not rising. Now it’s time to push productivity up. This has to be done by innovation, with better quality and more skilled human resources. We are now shifting from agriculture to services, to industry. But the service is mainly retail trade, an industry which has low labour productivity and little added value. In order to move up in the value chain, making more sophisticated products requires better-skilled workers and businesses must invest in technology. But looking back, the largest businesses are all real estate. Allocating too much investment in real estate will deprive other sectors of the development opportunities. — VNS