ECONOMIC COMPARISONS -SIGNIFICANCE AND SHORTCOMINGS by Solomon Fabricant Economic growth here and abroad is a matter of first-rate importance; not only with respect to opulence, to use the words of a famous economist, but also with respect to defense. I am very glad therefore to be able to appear before the subcommittee and appreciate this opportunity to participate in the discussion. I am sorry I don't have a prepared statement, and trust you will bear with me while I speak extemporaneously.
Economic growth poses a problem that involves many elusive facts, the interpretation of these facts and judgments on difficult questions of high policy. On all these things many things may and need to be said. I can emphasize only a few points of special importance. Particularly I wish to comment first on the difficulties of measuring economic growth in a single country and on the further difficulties of making international comparisons of economic growth.
We should recognize that the indexes of economic growth are crude and we ought not to worry unnecessarily about differences which may lie well within the margins of error of these estimates. If one were to tabulate the rates of growth in the score of countries for which some sort of national income per capita estimate is available over the past half century the United States might appear to be ranked in the upper half, but not in the upper quarter. But among the omissions are to be counted most of the underdeveloped countries, all presumably with very low rates of increase in national income per capita. And to judge from what is known of the methods by which the available indexes were calculated for the countries included, one could not be confident that the ranking indicates any more than that over the past half century a few other countries may have enjoyed rates of increase in per capita income approximately equal to our own.
Measures of growth are lacking or, if available, are rough, because information on the simple facts of output, population, and other basic economic quantities are not adequate.
While we have a fair idea of current levels of these quantities in the United States and other Western countries, our factual basis diminishes in scope and validity the further back we go in time.
The same may be said, also, of contemporary levels as we extend our view toward the less well-developed areas of the world and, of course, to the countries separated from us by the Iron Curtain. There is a related difficulty.
National income per capita is not the only measure of growth. . . . There are also per capita gross national product figures and per capita gross national product exclusive of governmental goods and services, not to mention also the aggregates before conversion to a per capita basis. Even for national income per capita several varying estimates are in existence. Unlike the rest of us, for example, the Russians like to omit services from their estimates of national income, and Western students of Russia have plenty of trouble putting services into the Russian figures. All too frequently measures based on diverse concepts are gathered together in the same table, despite the differences among them, because no standard sets of figures are available for all countries, or even for the same country, over any length of time. This heterogeneity of concept and measure would cause trouble in using the sort of table to which I referred a moment ago.
Even when the figures are apparently standardized, comparisons may be biased. To illustrate, most of our series on national product— whether gross or net—are based largely on market transactions. Nonmarket transactions, such as those involving production in the household, are very inadequately covered by statistics, yet it is one of the characteristics of economic growth and development that brings a decline in the relative importance of the nonmarket sphere in productive activity as a whole.
This particular deficiency tends to introduce an upward bias in all measures of economic growth. Furthermore, the bias is probably more serious during the earlier stages of transition from an agricultural to an industrialized economy than in the later stages, and, therefore, comparison of the economic growth of countries at different stages in the process of industrialization may be distorted.