We Irish are constantly being told that we are rich because we have a high “GDP per capita”. For example, we read into today’s paper that Ireland’s “income far exceeds European norms”. Really? A close examination of the article reveals that the writer is talking about GDP per capita.
Fifteen years ago there used to be something called Gross National Product (GNP). Then it mysteriously disappeared and was replaced by something called Gross Domestic Product (GDP). Gross Domestic Product includes money that just happens to be passing through a country (e.g. repatriated multinational profits and things of that sort). Gross National Product, on the other hand, measures the amount of money that citizens of the country actually make.
Ireland’s Gross Domestic Product is very high. But its Gross National Product is considerably lower (at least 12% lower).
Even with this, Ireland's GNP per capita is quite high (assuming it is being measured correctly), so there can be little doubt that some people in Ireland are wealthy. For example, when employers and politicians campaign against income tax increases for the wealthy, they point out that 50% of income tax is paid for by 6.5% of the population. This burden on a small group of people is, according to the employers and some politicans, a scandal. And they are right – it is a scandal, because it means that our society is scandalously unequal. The reason this 6.5% pays 50% of the income tax is because they earn hundreds of thousands of euro a year.
It’s surprisingly hard to find reliable figures about average wages in Ireland. Figures I have heard range between 32K and 35K as the average wage for a worker in Ireland. That is the average salary – that average figure is driven up by those 6.5% who earn hundreds of thousands of euro a year. The median salary is substantially lower than 35k a year. In other words, a large majority of people in Ireland who work, earn less than 35k a year. This is substantiated by government figures which show that only 21.58% of income earners in 2008 paid taxes at the highest rate (on income of over 35.4k a year) http://www.budget.gov.ie/2008/downloads/DistributionOfIncome.pdf .
Given the cost of living in Ireland (Dublin is the 5th most expensive city in the European Union) it is hardly surprising that most people in Ireland do not really feel very wealthy, despite the fact that they are constantly being told how wealthy they are. The only way most people in Ireland have been able to survive is by borrowing large amounts of money – but now they are all borrowed out.
Just to illustrate the point further: Ireland’s GDP per capita is higher than Switzerland’s. So the Irish are richer than the Swiss! Not really. Median household income in Switzerland is $55,000 dollars a year. Ireland’s median household income is $35,000 a year. A typical Irish person is NOT richer than a typical Swiss person.
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GNP still exists. A country's GNP (Gross National Product) is the measurement of all income produced by that Country's citizens anywhere in the world.
ReplyDeleteGDP (Gross Domestic Product) measures the total income generated within the country's borders - in our case the 26 counties.
GNP was thought to be a more accurate measurement of wealth because most income generated is repatriated to the country of origin. For example, Intel would repatriate large amounts of profit back to the US.
However, GDP included multi-national profits generated within the borders.
In Ireland's case it was felt by some experts that GDP was a more accurate measurement for Ireland's wealth because:
1) We have such a large dependence on foreign direct investment
2) Not all profits are repatriated.
In reality our true wealth is probably somewhere in between GNP and GDP.
GNP still exists, but you don't hear as much about it anymore. Why? I think it’s because multinational corporations encourage the use of GDP instead.
ReplyDeleteSome “experts” think that GDP was a more accurate measurement for Ireland's wealth because “not all profits are repatriated”. If those non-repatriated profits are going to national citizens then they appear in GNP.
Median income is a much better measure of real wealth of a country. Since 1980, GDP in the US has increased by 67%, whereas median income has increased by 15%. That's why the typical American does not feel much richer, despite the large increases in GDP per capita - most of which have gone to the wealthiest 10%.
Consider this article by Nobel Prize winning economist Joesph Stiglitz on the limits of GDP as a measure of an economy: http://pseudonymity.wordpress.com/2008/01/10/joseph-stiglitz-says-gdp-may-be-poor-indicator-of-economy/
Thanks for the link Brian. Regards,Eamon
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