[FOUNTAIN]Statistics and interpretationIn December 1999, U.S. Secretary of Commerce William Daley said that the development of the concept of gross domestic product, or GDP, was the biggest achievement of the 20th century for his department. Mr. Daley said that the government could respond to market changes better thanks to the bigger picture drawn by the concept of GDP. The duration of economic slumps had been dramatically shortened from an average of 21 months to 11 months, and serious economic recession had been prevented. He credited the GDP concept for having “armed the United States with the systematic, comprehensive, and accurate information it needed to help plan and win World War II.”
Before gross domestic product became the world’s economic benchmark statistic in the 1990s, a similar statistic, gross national product or GNP, was the premier statistic. Both indices are sums of production in a country for a given period, but GNP measures production by a country’s citizens both in and outside the country and excludes production by foreign investors in the country. GDP measures all production inside and only inside the country. As globalization freed up flows of capital and human resources across borders, GDP replaced GNP as an index to reflect what is really going on in the economy.
GNP was born in the U.S. Department of Commerce in the 1930s during the Great Depression. Simon Kuznets, a researcher at the department’s Division of Economic Research, developed the concept while studying the U.S. economy. GNP was first calculated by summing the incomes of U.S. citizens, but its focus shifted to production during World War II to better judge the amount of supplies necessary to fight the war. In 1942, the first statistics that we now call GNP were calculated by summing production at home and abroad. Mr. Kuznets won a Nobel Prize in economics in 1971 for that work.
It is important for policymakers and business executives to have an eye for interpreting economic indices and responding appropriately. In 1990, our government misread economic indices that actually showed signs of recovery and prescribed a market stimulation package. The blunder overheated the economy. Recently, the Ministry of Finance and Economy announced that the economy hit bottom in the third quarter and has entered a recovery phase. The news coincided with complaints that the current market condition is the worst ever, and many economists do not seem to agree with the ministry’s analysis. The announcement might have been wishful thinking from an agency that desperately wants to spread hope of a better economy. Time will tell whether the ministry had the eye to interpret economy indices correctly.
Critics still worry that the structural problems have not been addressed and the Korean economy still has not found out how to support itself in the future.
by Lee Se-jung
The writer is a deputy business news editor of the JoongAng Ilbo.