of Bonuses and GDP

In the Singapore Government's continuing arguments about the salaries of civil servants the discussions have turned to a new system for bonuses. The suggested (implemented?) system for bonuses for civil servants is linked to Gross Domestic Product (GDP). If the country’s GDP grows by more than 2% the civil servants get a several month bonus, the number of months is dependant on the amount the country’s GDP growth is above 2%. In this way, the argument goes, the government will be driven to make the country not just by some underlying moralistic urge, but also by a financial urge.

It’s not a bad idea, linking governmental officer’s pay to the country’s performance as a whole. The big question I have, just like many of the minsters in parliament, is whether it’s really a good idea to use GDP. Why are we so hung up on GDP? In most economic reviews and magazines they tout the GDP growth of countries and we all accept it blindly, but what is GDP really and is it really a good measure of how well we’re doing?

I mean, I know that GDP is the total value of goods and services produced by a nation and that it’s considered a very good measurement of how well the economy is doing. That’s not what I’m talking about, what I’m talking about is how valuable is it really to measure how much a country produces? Wouldn’t it be better to measure something else, like the average wages of the people in the economy, or the average happiness of individuals in that economy? Isn’t that a better measurement than how much extra the factories can produce?

For example, if a company automates its entire production line and becomes 20% more effective, while laying off half its staff, GDP goes up and the economy is supposedly better off, but the same can’t be said for those workers who’ve been laid off. No, I’m not touting protectionist or socialist principles here (I’m all for making production more efficient), what I’m questioning is this blind following of quantitative economic growth.

If civil servant’s find their salaries linked to GDP then they will obviously try their best to jack up GDP. In many ways this will be a good thing, but it will also have the effect that those same people will concentrate less on other things, such as social cohesion, wellbeing and satisfaction. For example, if a health minister has to choose between pumping money into researching drugs that boost productivity, or drugs that increase longevity, they will probably chose productivity. After all, this will boost GDP, while longer living people will probably have an adverse effect on the economy, as they will probably still retire around the same time.

What’s more, short term GDP boosting will be encouraged (a bonus this year is better than one next year) while long term GDP growth won’t be very interesting (as the civil servant might not even be working for the government then anymore). This will shift the focus in the wrong direction, away from the long term, towards the short term. We can see what effect that has in many countries around the world already (where ministers are afraid of getting voted out of office) and it’s not a good thing.

No I think this needs to be rethought. Normally I agree with the economic policies of the Singapore Government, but not today.