There are times when I find myself agreeing with both sides in an argument and end up scratching my head as to whether they’re arguing about the right thing. Today’s extensive coverage in the Western Mail’s Business section of the GVA vs. GDHI argument is a case in point.
The Welsh Government has chosen to adopt GDHI as its headline economic measure and the Western Mail set about finding people to explain why that was the wrong measure to adopt. They half succeeded.
The Welsh Government argues that GDHI is a better measure of people’s real wealth, whereas a number of economists argue that GVA is a better measure of economic performance. It seems to me that they’re both right. The argument isn’t really about what the ‘best measure’ is, but about what it is we’re trying to measure and why. It was a question which was skated round, rather.
If we are setting out to measure the relative wealth of people in Wales compared to the UK average, then I’d agree that the Welsh Government has probably selected the best measure to do that. What it is not, however, is an effective measure of Welsh economic performance. Because it includes all household income, it includes the fiscal transfer which results from the taxation and benefit system, which to some extent hides or disguises underlying economic performance.
That highlights an interesting point in itself. It is theoretically possible for Wales to reach 100% of the UK average for GDHI with absolutely no underlying improvement in the Welsh economy, simply by increasing the redistributive impact of taxes and benefits - and without any action at all from the Welsh Government. I can’t conceive of any UK Government actually doing that, but that doesn’t mean that it couldn’t be done. It might even satisfy many people in Wales that we were getting a ‘fair deal’; but it wouldn’t really mean that the Welsh economy was successful.
On the other hand, if we want to measure underlying success, then GVA is a much better measure. It tells us the extent to which we are paying our way rather than depending on fiscal transfers.
The question that needs to be asked – and really doesn’t seem to have been probed in any depth – is why the Welsh Government feels that measuring household wealth is better than measuring the state of the Welsh economy. Why measure equality of wealth rather than equality of performance? Surely anyone concerned about the Welsh economy would be more interested in measuring to what extent we are economically self-sufficient – even if we never actually decide to turn that into political independence?
It is difficult to avoid the conclusion that the measure has been chosen primarily because it makes the numbers look better. That would make it another victory for spin over substance.