High GDP does not mean that everything is fine in this country.

Economic growth is not an indicator of success

2024 was a year of economic growth for Kazakhstan by 4.8%, the country's prime minister recently said. We hear such statements like a mantra every year. Economic growth remains the main indicator of success for the authorities, but the citizens of the country de facto do not feel this growth. And they feel a drop in income, an increase in the cost of living and, in general, a deterioration in the quality of life.

It seems that the Left Bank of Astana lives in its own reality, while the population lives in another one, where food prices are rising almost every week, and salaries are not keeping up with this growth.

If you look at the state as a business, it has beneficiaries (shareholders) - the population. They should be the ultimate beneficiaries of their chosen authorities. Accordingly, the goal of government management should not be to increase the economy as such (in business, it is to increase turnover). You can lend to the economy as much as you want and boost turnover in numbers, but it doesn't do anything for shareholders.

Shareholders need profits, benefits, improved conditions, safe funds and good governance, and their ultimate goal is to improve living standards. That is, the target documents should not prescribe economic growth, but, for example, an increase in purchasing power parity, the average income level of the population, etc.

So why do we have what we have, and how can we change the status quo? We will find out the opinion of experts.

Playing on two fields

Sergey Domnin, head of Kursiv Research, believes that at the level of goals declared in state strategic documents, the goal-setting of the authorities of the Republic of Kazakhstan is excellent.

"If we look at the National Development Plan until 2029, we will see targets for 39 goals, including not only macroeconomic, fiscal and demographic indicators (which cannot be dispensed with when calculating econometric models), but also indicators reflecting the standard of living of the population and the quality of services they receive," the analyst emphasizes.

These are the share of household spending on food, the share of the population with incomes below the subsistence level, life expectancy, the quality of secondary education, the level of satisfaction with the environment, and many others.

"Of course, it is possible to expand the list of targeted indicators related to the life of the Kazakhstani citizen, but the current ones are enough to track how changes at the macro level translate into an increase in the quality of life.

It is naive to believe that as soon as GDP growth and investment in fixed assets are excluded from the list of national development goals, and indicators such as real income growth are included, an unstoppable increase in living standards will begin. Firstly, there is a risk that statistics will start to be upgraded for targeted indicators.

Secondly, these plans, if they are adjusted without taking into account the real situation, can be "shifted to the right" in the same way as those operating on GDP: remember what happened with the president's order to ensure six percent economic growth," says the channel's interlocutor.

An increase in living standards ensures an increase in labor productivity and an effective distribution of national income, he continues.

"The first is the responsibility of key economic agents, which can be coordinated by the government. For the second– only the government.

The game is played on two fields. I am sure that we will make great progress even if we focus on the second field: we will learn how to better plan and effectively administer tax revenues, optimize regulation, and then the number of civil servants, and determine a set of investment projects that are really necessary for everyone (not just the national companies that initiate them) and which cannot be implemented. implemented by private investors for less money," believes Sergey Domnin.

Sergey Domnin, Head of Kursiv Research

In the case of such a developing industrial economy as Kazakhstan, the quality of the game on the first field can only be improved by a consistent and balanced industrial policy, the analyst emphasizes.

"With a mandatory public assessment of the quality of the applied measures and adjustments to the set of tools used. But this is a topic for a separate conversation," the expert clarifies.

The reasons change, the goals change too

Kuanysh Zhaikov, head of the DESHT analytical center, is sure
that it is absolutely impossible to look at the state as a business.

"This is not only incorrect, but also dangerous. A business is a hierarchical structure where everyone has their own place, which is determined by higher-level managers. And there is competition between businesses, so at least you can move from one to the other. For example, as a consumer or as an employee.

The State does not compete with anyone within the country's territory. The State has a monopoly on violence. The only alternative is to emigrate to another country," says the economist.

By imposing a hierarchical business structure on states, you will get a dictatorship. The goals will always be noble - from "catching up and surpassing America" to "raising the average income level."

"But eventually, directly or indirectly, your basic civil rights will be taken away from you. Or, for example, a part of the property, in the form of taxes," the interlocutor of TAJ.report describes a possible scenario.

There are two views on the state, he states. The first is a "stationary bandit" who takes your money and does what he wants. Because he can afford it.

"The second is the "social contract", when, as a result of elections, representatives of a certain group of the population win with a clear plan for the short term. That's what goal setting is - it's not invented behind the scenes, it's chosen. And it changes periodically, like a swing.

If you are worried about stagnation in incomes and high prices, then you need to remove the state as much as possible so that private business can breathe and boost the economy," the analyst notes.

Kuanysh Zhaikov - Head of the analytical center "Desht"

If you are concerned about poverty and inequality, then you should tax the rich as much as possible and simply distribute it to the lower strata. Like Robin Hood.

"If you are concerned about the quality of life - poor air, medicine, etc. - then you need to tax the middle class and tighten regulation. But prices will rise, and we'll have to accept that.

If you are worried about a possible war with a neighboring country and crime inside, then all rights and money are given to a "strong hand" to restore order.

Then the reason for concern changes and a different goal setting appears. Everything else is the fantasy of people who have never dealt with state Planning issues. Everything in them is based on social conflicts - by doing good for some, you infringe on others," Kuanysh Zhaikov notes.

Citizens pay for the reforms

General Director of LLP "Applied Economics Research Center" (AERC) Zhanybek Aigazin emphasized in the conversation: we are discussing clear and obvious things, but we are not able to cope with them.

"Economic growth increases the welfare of the people. One can argue with this, but the issue is the correct distribution of national income or GDP. In Kazakhstan, the problem is not a very fair distribution of the generated national income.

It is obvious that welfare growth is based on economic growth - first you need to achieve it in order to get a product that should then be distributed fairly," the economist notes.

He recalls that GDP is calculated using three methods. Our main method is production, or the gross value added method; the second is the expenditure method through aggregate demand; the third is the income method of the main institutional agents (government - taxes, population – salaries, business - gross mixed income or profit).

"In 2005-2006, the oil boom and windfall profits from the export of raw materials led to a sharp increase in real incomes of the population. But from 2000 to today, the share of salaries - what an employer pays its employees - has decreased significantly, while the share of taxes has increased, and the share of businesses has remained the same. That is, more than 20 years of tax innovations have been paid for by employees' salaries. De facto, the citizens paid for the reforms," the expert says.

The share of wages in the GDP structure was 36%, now it is 30%. The share of taxes has hardly changed. The share of profits and investments increased from 54% to 61%.

"From which we conclude that the tax burden has been shifted to the population, while businesses have increased their profits. Marx's thesis of the increasing exploitation of labor by capital is confirmed in our country.

And for a fair distribution of national income, there is precisely a fiscal policy in place to prevent excessive income inequality between citizens through taxes and government spending: people who earn below the minimum wage receive targeted social assistance, preferential loans, subsidies for various expenses, etc.," the channel's interlocutor continues.

There are two main ideologies - laissez faire or non-interference of the state in the economy and, on the contrary, its active and direct participation, he develops the comment further.

"The first one assumes the principle of "let everyone pay the same," but in absolute terms, the rich pay more. Then, through the so-called trickle-down effect, the money will reach the poor. But this raises the question of the effective work of institutions that should promote a fair distribution of income, including through tax legislation. Unfortunately, this model does not work for us.

Once again, as an economist, fiscal policy should equalize the position of all segments of society (including through progressive taxation). The rich should pay more," emphasizes Zhanybek Aigazin.

The opposite of this model is active government intervention. Here we see how the authorities are moving towards tax differentiation, including VAT.

Zhanybek Aigazin, CEO of Applied Economics Research Center (AERC) LLP

"For myself, I understand two types of differentiation: vertical and horizontal. The second is being implemented between industries, and those that are a priority for the state are given relief or a lower tax burden. The tax burden is shifted to industries where there are irreplaceable resources. We have oil, gas, metals.

It turns out that the manufacturing industry and agriculture need tax incentives – lower fiscal rates. Especially considering that we want to get away from the curse of raw materials. And there should be an increased rate for extractive industries," the AERC head believes.

We need to change our approaches

Askar Kysykov, Director of the TALAP Center for Applied Research, is confident that the government's approaches to assessing development success need to be changed.

"Now the main indicator of the success of the economy is GDP and indirect indicators are GDP growth, GDP per capita. Although there are already a lot of studies and reports by the WEF and the OECD that this indicator is imperfect and, most importantly, does not reflect the well-being and quality of life of the population.

The OECD has introduced an alternative to this approach by launching the Better Life Index. The indicator is calculated in 11 areas: housing conditions, income, work; quality of life (social ties, education, environmental quality, civil rights, health status, life satisfaction, personal safety, work and leisure balance). The data is generated on the basis of opinion polls," says the economist.

In 2017, the first president of Kazakhstan proposed to change the methodology for assessing the country's welfare parameters and apply the specified OECD methodology, he recalls.

"Despite the criticism of the approach, GDP remains the dominant indicator in the republic - it is convenient to count and compare it. The government also targets GDP growth as a key indicator of economic development, with the goal of doubling the country's GDP.

It should be understood that GDP is the volume of the economy, the goods and services produced in the country, and in relation to us, a significant part of the economy is oil revenues. Part of these revenues under the production sharing agreement goes to foreign investors, in fact, it does not even get to Kazakhstan.

Accordingly, the country produces a large amount of GDP, but a smaller amount is distributed within the country," Askar Kysykov emphasizes.

Indicators such as gross national product and gross national income are not used now, and the per capita GDP indicator does not mean that every citizen of a country receives an income of $10,000.

And again about the unfair distribution of income

Like Aigazin's colleague, the economist noted the unequal distribution of income: about 60% of GDP is the profit of entrepreneurs, while wages are only 30%.

"In developed countries, on the contrary, 60% of GDP goes into wages, and 30% is the profit of entrepreneurs. The structure of GDP by the income method used in our country is imperfect. There is a primary income inequality, then the redistributive mechanism is activated. In theory, there is a more even distribution of income, but in fact it is unfair in our country. In our economy, the redistributive role of the state is much lower than in developed countries. As a result, the main drawback of the system of measuring well-being by GDP is revealed, which does not reflect the level of income of the population," says Askar Kysykov.

At the same time, he believes that the GDP indicator will remain - many countries will use it to measure their success, and international comparison is important for us.

"But there is a purchasing power parity indicator of GDP, which more adequately assesses the level of GDP produced, taking into account prices within the country.

In general, I think it is necessary to use composite indexes that have been tested in developed countries. In addition to GDP, the welfare and quality of life of the population should be targeted, and one of the components of these indices should be opinion polls in various fields: healthcare, education, employment, etc.," says the CEO of the analytical center.

Askar Kysykov - Director of the TALAP Center for Applied Research

He again cites the example of the OECD and its Better life index, where the medicine component asks if you feel healthy.

"Depending on the answers, conclusions are drawn about how healthy the citizens of the country are. Unfortunately, we do not have such indicators, although they should be implemented and guided by them. Because it's wrong to focus only on statistics - it has a lot of distortions, it has a lot of calculations.

So, according to the income of the population, 20 thousand households are surveyed, and conclusions about income are drawn on this basis. And this is in modern times, when with a high level of digitalization, it is possible to collect data from alternative sources – banks, UAPF and extra-budgetary funds, and determine more accurate indicators," says the economist.

The same applies to GDP, which is collected from the bottom up.

"There are large and medium-sized enterprises that report, but there are also small businesses - about 2 million entities, where there is also a sample study and a lot of calculations. There is a shadow economy.

The GDP indicator itself is estimated and inaccurate, so it is not worth focusing on it completely in the implementation of economic policy. It is necessary to make composite indexes, including interviewing the population on the main components of the quality of life and making judgments about the mood of citizens.

There are different indexes - human development, happiness. The income level may be average, but the population will be very happy, or in a rich country people may be unhappy. High GDP does not mean that everything is fine in this country," the director of TALAP emphasizes.

Instead of an afterword

At the end of the material, we tell the readers of the channel about the various indices used in the world to assess well-being, and the leading countries of the corresponding ratings.

The world's largest database on the cost and quality of life of people, Numbeo, presents the quality of life index. It evaluates the quality of life in countries and cities based on purchasing power, pollution levels, housing affordability, cost of living, safety, quality of medical care, travel time, and climate.

The rating is based on data and surveys from users of the Numbeo website, who share their experiences and perceptions of life in different countries. Luxembourg, the Netherlands and Denmark are the leaders of the ranking. Kazakhstan was ranked 73rd out of 88. Belarus is on the 54th line, Russia – on the 67th, Ukraine – on the 68th.

According to the Human Development Index, an indicator developed by the United Nations (including life expectancy, education level, and per capita income), Switzerland, Norway, and Iceland are the champions.

The Legatum Prosperity Index, developed by the Legatum Institute analytical center in the UK, evaluates the level of prosperity of countries based on a wide range of social and economic criteria: security, social support, individual freedom and business opportunities. Denmark, Sweden and Norway are the first here.

The countries with the highest happiness index from the UN are Finland, Denmark, Iceland. Kazakhstan was ranked 49th out of 143 last year, we overtook Japan and South Korea.

And Luxembourg, the USA and Sweden demonstrate the highest Better Life Index, or the OECD better life Index for such a parameter as income level. This year, Kazakhstan intends to apply for membership in the OECD, I wonder where we will be in terms of measurements.…