Recently, the issue of Gross Domestic Product (GDP) has resurfaced up quite a fair bit during the election campaigning. It can get frustrating, especially if you hang out with certain friends who have studied economics or finance, and having them talk about it on every occasion possible (no, we are not talking about ourselves).
There are two solutions to this problem. You either try understanding it a little better, or you completely ignore them and unfriend them on Facebook. We hope you choose the former, and with that decision, continue reading on this article.
Unknown to many, GDP is the bloodline of all countries. A dip in this figure will have multiple repercussions such as the reduction in wages, unemployment and closure of many businesses. Therefore, our leaders are on a constant lookout to grow this figure and ensure that we remain one of the highest earning countries per capita in the world.
GDP is similar to total income earned in a household
It is very hard for us to fully comprehend GDP because we understand earnings as money that we earned. However, for a country, it also includes products and services produced that have a certain market value to it.
Imagine your household as Singapore. Through hard work, your parents bring home $5,000 per month. In your free time, you and your siblings bake cakes with the intention to sell it at the market price of $30 per cake. At the end of the month, you and your siblings bake a total of 221 cakes to be sold.
Simplistically, the GDP of your household, in that month, is $11,630 ($5,000 + $30×221 cakes). Although you have not sold those cakes yet, you have already baked them and the market intends to purchase each cake for $30.
Salaries make up 43% of GDP in 2014
Salaries in Singapore make up 43% of our GDP. Of total products and services created, totaling $390.1 billion, $166.2 billion are paid out in salaries, bonuses and others. The rest are operating surplus that is kept within the companies for further usage in the future.
Using the above example, 43% ($5,000 of $11,430) are salaries brought in by your parents. The remaining 57% ($30×221 cakes of $11,630) are the cakes baked by you and your siblings.
Singapore’s growth has slowed since GE2011
GDP growth has slowed to 3.1% at end-2014 from 7.4% at end-2011. If we take into account inflation, real GDP growth would be 2.9% at end-2014 from 6.2% at end-2011.
We have heard a lot of opposition candidates stating that the incumbent government has been growing our economy at all costs, and that profits are all that they care about. If that were true, Singapore would be in a very precarious position, because our growth figures have dipped drastically despite our government’s “growth at all costs” push to drive it.
Based on observed statistics, it is in our opinion that the government probably took their foot off the pedal slightly after the last General Elections.
Heeding the opposition cries for slower growth leading to happier Singaporeans, we take a look at how that could translate for Singaporeans.
Slower GDP growth = Slower salary growth = Unhappier people?
As of 2014, 43% of GDP is made out of compensations to employees as salaries and bonuses. We cannot expect companies to pay out their entire earnings as salaries to their employees. That would mean that these companies would not have surpluses to reinvest in their business and they will eventually go out of business. No one creates a business just to breakeven, not even DollarsAndSense.sg.
Hence, if we keep this 43% of GDP paid out as remuneration constant going forward and GDP does decreases, that would mean Singaporeans will be taking home lower salaries. That is not something we look forward to.
We highly doubt anyone would want to choose slower growths resulting in lower salaries. That would not be healthy for Singapore or Singaporeans in the long run.
Increasing productivity is the only way out
The best and easiest way to reduce overcrowdedness and the influx of foreign talent is to boost Singaporean’s productivity. Ensuring everyone is educated enough to use technology and machinery to do the work is the straightforward solution that we all have to embrace.
However, it takes time for people to learn and get accustomed to new technology. It also takes time for people obtain experience on how to enhance their know-hows and use these new technologies in an optimal way.
In a nutshell
Despite the slowing in GDP growth, we still maintained our standing as one of the highest GDP per capita countries in the world. This shows that our economy is robust enough and can withstand some amounts of changes and bashes… Provided that the people and government continue to stand strong TOGETHER.
Your country, your vote, your choice.
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