The Growth Delusion

by David Pilling

  On the face of it, the secret Kale was keeping came under the category of “good.” Based on his three-year study, Nigeria’s economy was 89 percent bigger than previously imagined. When he eventually plucked up the courage to announce the results one Sunday afternoon in April 2014, the information proved electrifying. It carried huge symbolic significance, meaning Nigeria had leapfrogged South Africa to become the biggest economy on the continent.

  For a country with an often puffed-up sense of its own importance, this was of no little import. Nigeria is by far the most populous country in Africa, with a population of around 180 million people. The country has oil—and it has attitude. If you listen to a Nigerian, you can easily imagine Nigeria is a rich country, such is the level of ambition, drive, and entrepreneurship on constant, flamboyant, display. Indeed, since Nigeria gained independence in 1960, its citizens have never tired of reminding their neighbors that Nigeria is a “big, big country.” Here, at last, was proof that it was the biggest of them all, at least in Africa.

  The discovery would also come as a pleasant surprise to many global investors, from beer companies looking for the next big market to portfolio managers allocating investment funds. Division chiefs at multinationals, who might have always nurtured the suspicion that Nigeria presented richer pickings than their bosses realized, would be able to go to their boards in New York or Shanghai with proof that they were right.

  “The revision will have a psychological impact,” said Ngozi Okonjo-Iweala, Nigeria’s larger-than-life minister for economy and finance at the time. “It validates the investment thesis.” The point of recalculating GDP, she was quick to point out, was “not to be the biggest.” The main objective was “to measure the economy properly.” But being the biggest evidently came as a nice bonus.

  There were, however, downsides to being richer, as Kale knew only too well. On average, the figures were saying, Nigerians were much better off than they had previously thought. That came as news to the tens of millions of his countrymen who lived in squalor, without jobs, without water, or without electricity—all this in the continent’s biggest oil producer. In 2010, according to Kale’s own bureau, 61 percent of Nigerians were living in poverty, defined as subsisting on less than $1 a day. According to respondents in a survey, an astonishing 94 percent of Nigerians described themselves as poor, compared with “only” 76 percent six years earlier. “Despite the fact that the Nigerian economy is growing, the proportion of Nigerians living in poverty is increasing every year,” Kale lamented.

  Many Nigerians might legitimately ask why they were still poor in such a prosperous country, one that was now nearly twice as rich as previously thought. Presumably the answer was that the country’s elite, notorious for guzzling the nation’s wealth, was stealing even more than had hitherto been imagined. The truth, as Gloria Steinem, the women’s rights activist, is said to have remarked, “will set you free. But first it will piss you off.”

  Kale is something of an evangelist. For all the difficulties associated with defining and measuring an economy, he saw the pursuit of more accurate statistics as an almost sacred mission, part of the process of democratic consolidation following the end of military rule in 1999. There was, he said in remarks he had prepared to coincide with the release of the new numbers, “an increased demand for accountability and good governance backed by evidence.” People were sick of Nigeria’s leaders stealing the country’s patrimony. Much of the profit derived from pumping oil from Nigeria’s coastal waters and swampy delta simply vanished into thin air. Forming a more accurate economic picture, Kale thought, would help ordinary Nigerians hold their government to account.

  It was important to realize, he added, that growth could not be equated with well-being. “The fact that a country has a higher nominal GDP than the other does not, in itself, suggest that one country is ‘more developed’ than the other,” he said. “Development encompasses a broader set of measures of human progress than GDP, which is strictly a measure of economic output.” He highlighted both inequality and unemployment as societal ills missing in the national income statistics. Economic growth, he said, was of little use if the income generated was captured by a narrow elite and if it was not being used to create jobs and opportunity for most Nigerians.

  Internationally too, being richer was a mixed blessing. On the positive side, if the economy was almost 90 percent bigger, then Nigeria was less indebted than previously thought. Such is the fixation on GDP that almost all numbers are measured against it. GDP is the denominator in many of public policy’s most important ratios. For example, a country’s indebtedness is usually expressed in terms of debt-to-GDP. If GDP rises, then debt falls. Hey presto. That meant Nigeria, in theory at least, would be able to borrow more money from abroad. It could also expect to pay less since interest is charged according to perceived risk. And if Nigeria was less indebted, then naturally it was less risky too.

  Yet countries like Nigeria don’t always want to be seen as better off. Even a country as big and important as China is not comfortable with economic statistics that suggest it is doing too well. For months Beijing fought fiercely behind the scenes to prevent the release in 2014 of data, compiled under the auspices of the World Bank, that showed China overtaking the US as the world’s biggest economy measured in local prices.12 The Communist Party had long adhered to Deng Xiaoping’s dictum that China should mask its prodigious rise by “hiding its light” and biding its time. Here were meddling economists from the World Bank, of all places, blowing the gaff.

  Kale had realized just how delicate a subject he was dealing with three years earlier. In 2011, when he had first been approached to oversee the recalculation of Nigeria’s national income, he knew he would have to work out the practicalities of conducting the exercise carefully in such a sprawling and complicated country. That’s when things can start to fall apart, to borrow from the title of a novel by Chinua Achebe, the Nigerian writer. Statistics are only as good as the quality of the data collected. Even in rich countries with ample budgets, efficient civil services, and a long history of data collection, getting hold of accurate numbers is not easy. You can’t know everything about the economic activity of every single business, household, and individual. All you can do is collect a sample and cross-check results against as many pieces of real data as possible. In a country like Nigeria, with less money to spend and fewer series of existing data to work with, such problems are massively amplified.

  Just for starters, it is hard to know something as basic as exactly how many people there are. Population censuses in Nigeria are even more controversial than surveys of GDP. That is because the population of an individual state or region can determine everything from its political influence to its entitlement to tax transfers from the federal government. Nigeria is a young country whose borders were drawn by British imperialists, who created a country predominantly Muslim in the north and predominantly Christian in the south. In 1967 it was nearly torn apart when Igbos in the east declared the independent republic of Biafra, triggering a civil war in which several million civilians starved to death. So knowing how many people live in each region is controversial to say the least.

  There are also practical difficulties. The British used to count people only in Lagos, then the capital. An early national census was interrupted by swarms of locusts in the north and tax riots in the southeast.13 Most demographers have never really trusted Nigeria’s population figures, either the overall total or the breakdown between regions and ethnicities. Yet unless you know how many people there are, you cannot accurately calculate the size of the economy, which requires scaling up the results of surveys. “I don’t use the census: the numbers don’t make sense,” says Kale bluntly.14

  Kale had several other headaches. Nigeria is a huge country. Some parts are remote, reachable only after days of travel by car, motorbike, or even canoe. The people employed to fan out across the country collecting data
could not always be trusted to perform their arduous task; there was a history of staff making up the numbers from the comfort of their own homes. Kale used GPS tracking to ensure that his operatives were where they said they were and made random calls to those surveyed to verify they had actually been interviewed.

  Once, he says, he sent six of his 3,000 data collectors to a remote corner of Ekiti, a state in the southwest of the country. “They went into the village on their motorbikes and took out their gadgets and their iPads. The villagers weren’t used to seeing that—six people in their shiny coats and boots,” he recalls. “They rounded them up and took them to the chief and threatened to kill them. We had to call the local chief very quickly to intervene.” Kuznets, as far as we know, never had such scrapes to contend with.

  Kale had to be creative about survey questions. When people were queried about how much they earned, for example, they often underdeclared because they were suspicious of the tax authorities. Ask them how much they spent, however, and, chest puffed up, they often gave a more expansive account of their purchasing prowess. In surveys, says Kale, getting the question right matters.

  There were big issues over other data too. He had to rely on figures from the notoriously corrupt petroleum industry and port authorities about the amount of oil produced and the volume of goods shipped. The suspicion was always that the official figures underestimated the real amount, creating the scope to skim off revenue at source. The informal economy was so vast and unknowable, Kale says, that even after the 89 percent jump, he suspected he was still underestimating it. Technically, Kale was being asked to conduct what national accountants call a rebasing exercise. When countries calculate their national income they do so in relation to a base year, which serves as a reference point. The reason they need to do so is to take account of changing prices. Let’s say Nigerians produce 100 million bags of rice in the base year. (The figures are entirely fictitious and doubtless highly implausible.) The next year they produce 110 million bags. That makes it easy to compare one year with another. The increase is 10 percent. Conversely, if prices are taken into account, adjustments need to be made for an appropriate measure of inflation. It is far easier—and statistically cleaner—to compare volumes.

  So far so good. The problem is that the base year quickly becomes out of date. Economies change in nature. Some industries grow, others shrink or disappear. Perhaps Nigerians don’t grow rice anymore, but have switched to sorghum. Much of the country’s textile industry has been wiped out by cheap Chinese imports. The UN Statistical Commission recommends changing the base year every five years, but in resource-scarce Africa it can be decades before statistical offices get around to this arduous—and expensive—task. That is another reason many of the statistics the UN produces are wildly inaccurate. When Liberia calculates inflation it uses a basket of items put together decades ago. I like to imagine Liberian statisticians scouring the markets to work out today’s prices for bell-bottom jeans and vinyl records.15

  In Nigeria’s case the base year was 1990. By 2014, when the National Bureau of Statistics released its new numbers, a lot had happened. Mobile phones were a case in point. In 1990 there were almost no such devices in the country. Instead, Nigeria had about 300,000 fixed lines, perhaps 100,000 of them in actual working order. There was not even a reliable phone book, and this reporter remembers having to send a driver through chaotic Lagos traffic to someone’s house just to obtain his telephone number. By 2010 the situation had transformed: there were 80 million mobile phone subscribers, but because national statistics made reference to 1990, when telephony was a tiny fraction of the economy, this explosive growth was all but invisible.

  Nigeria’s economy had changed in other ways too. It now had a thriving movie industry, dubbed Nollywood, which churned out hundreds of films a year but which no one was bothering to measure. Films like The Last Flight to Abuja had gained an ardent following, not just in Nigeria but also across Africa and the African diaspora, yet to the compilers of national statistics, relying on the 1990 base year, Nollywood did not exist. Banking had grown exponentially too, driven by technology, rising wealth amid a certain stratum of society, and inflows of foreign money into Nigeria’s oil-soaked economy. Again, this was not reflected in the weighting given to banking activities in the 1990 base year.

  When Kale’s bureau eventually released its new national income statistics, using 2010 as the base year, they showed that the structure of Nigeria’s economy had radically altered. The new Nigeria had dramatically diversified. The share in the economy of oil and gas, assumed to be the country’s economic mainstay, had more than halved from 32.4 percent of GDP to 14.4 percent. Agriculture was relatively more important and telecoms alone was contributing 8.6 percent to output as opposed to just 0.8 percent in 1990. Even Nollywood, with its cheap production costs and massive piracy problems, was said to account for 1.4 percent of all economic activity. What had been blurred had come into some sort of focus.

  Yet when we earnestly compare the size of economies and living standards across nations, we should remember what Terry Ryan says: much of it is rhubarb.

  8

  GROWTHMANSHIP

  I was twenty years old when I first traveled to India. I remember the aircraft door opening and wading down the rickety staircase into air so hot it felt like bathwater. It was 3 a.m. and outside the airport I became aware of the quietly snoring presence of hundreds of homeless people sleeping in the open air. With no better place to go they had chosen to make their beds outside Delhi’s international airport.

  The year was 1985 and India was an extraordinarily poor country. In dollar terms, according to the World Bank, its income per capita was around $300. Life expectancy was fifty-six. The most abject poverty was visible everywhere, with gangs of shoeless children roaming the streets and beggars jauntily waving deformities at passersby. Sickness, malnourishment, and destitution were in plain view, in the cities, in the towns and in the villages.

  India today is still very poor. But it is another country. Its income per capita has quintupled to more than $1,500—or roughly $6,000 if you adjust for local prices—and life expectancy has improved by more than a decade to sixty-eight.* Infant mortality has fallen by almost two-thirds from one in ten live births in 1985 to thirty-seven per thousand today.1 Though poverty is still endemic and India retains the capacity to shock, the trappings of modern life are everywhere: cars, motorbikes, flyovers, mobile phones, supermarkets, tall buildings, call centers, pace, energy. For all its litany of indignities and daily injustices, India feels like a country that, as one author puts it, is “becoming”—though quite what it is becoming is yet to become clear.2

  It is important to state something unequivocally. Growth—and by that I mean even raw growth as measured imperfectly by GDP—has the power to transform poor people’s lives. The economist Ha-Joon Chang recalls growing up in South Korea in the 1960s. Two years before he was born, in 1963, per-capita income was $82, compared with $179 in cocoa-producing Ghana, a newly independent west African country that was thought to have great potential. Chang remembers the redness of the soil in Seoul, South Korea’s capital, where, he said, all the trees had been cut down for firewood. At that time relatively resource-rich North Korea was considered the wealthier half of the peninsula. Now South Korea’s capital is a prosperous city of frenetic pace, wall-to-wall neon, and street upon street of chic shops, restaurants and nightclubs. People the world over use South Korean smartphones and drive South Korean cars. Since 1960 what is known as the Miracle on the Han River has changed South Korea from a country significantly poorer than Ghana to one as wealthy as most places in Europe. Today South Korea’s per-capita income is approaching $30,000. The country has evolved into one of Asia’s most rambunctious democracies, one that in 2017 had the confidence to impeach a president for abuse of office.

  Certainly, modern-day South Korea has its problems, many of them associated with the stress
of advanced societies. Suicide rates are high. Social pressure to outperform and get rich is intense. Many youngsters come through the pressure-cooker education system with strings of qualifications but with little prospect of a fulfilling job or the status they crave. Yet it is important not to romanticize poverty. South Koreans today have immeasurably more opportunity to live the life they choose than their grandparents ever had. Collectively, they have done far better than Ghanaians, the majority of whom remain too poor to shape their own destinies. In 2017 South Koreans are more than eight times wealthier than their Ghanaian counterparts for one reason: the miracle of compound growth.3

  This book has argued that growth is not all it is cracked up to be—often it does not mean what you think it means. But if you are poor, economic growth can be transformative. Fast growth can alleviate poverty both by generating jobs—digging roads, constructing office blocks, or manning call centers—and by providing the government with tax revenue that it can use to redistribute wealth and build the physical and institutional infrastructure needed for more and better growth.4 Of course it can create other problems, pulling people from the countryside into urban slums or clogging up the roads with diesel-spewing vehicles. But unless you believe in the rural idyll, in very poor countries growth is the raw material from which better lives can be fashioned.

  That sounds like little more than a statement of the obvious, yet for decades the idea that India should prioritize growth was far from commonly accepted. Mahatma Gandhi, leader of the independence movement against British colonialism, held a romantic idea of life in the Indian villages. Those views influenced post-independence thinking, insinuating into national discourse the idea that there was something almost noble about poverty. Jawaharlal Nehru, India’s first prime minister and a towering intellectual figure, was much more in favor of development and modernization than Gandhi, but he had a strong socialist and distributionist streak. The problem was that there was so little to distribute.5 Influenced by the Soviet Union, under Nehru, India became a centrally planned and protectionist state. Its leaders sought to build up heavy industry and blocked the import of many consumer goods in an effort to spur local production, a policy of nation-building that had the unintended consequence of producing shoddy—and overpriced—goods for all.