Introduction
Economists argue that Singapore should not be unduly concerned about being overtaken in real GDP per capita, since this measure alone is no longer sufficient to assess living standards. Gross Domestic Product (GDP) measures the total value of final output produced within a country's geographical boundaries over a given period, usually one year. In real terms, the figures are adjusted for inflation, and real GDP per capita divides real GDP by the population to give an average measure of economic wellbeing. While useful for gauging material living standards, it is an incomplete indicator because it fails to account for income inequality, cost of living and non-material wellbeing.
What real GDP per capita captures
Real GDP per capita is a useful indicator of material prosperity. A higher figure suggests a greater ability to purchase goods and services, signalling an improved material standard of living. It often correlates with greater government tax revenue, which can fund public services such as healthcare, education and infrastructure. Such spending on merit goods enhances non-material wellbeing and quality of life.
Why real GDP per capita is no longer adequate
First, it does not indicate income inequality. Real GDP per capita is an average, and in economies with high inequality it may be skewed by high-income earners. A high figure does not guarantee an equitable distribution of wealth, so substantial portions of the population may experience lower living standards despite high overall output. Comparing countries on real GDP per capita alone can therefore mislead, since differences in income distribution are not captured.
Second, it does not reflect differences in the cost of living across countries. Even with similar real GDP per capita, purchasing power may differ depending on the cost of goods and services. Switzerland, for instance, has a high real GDP per capita but also one of the highest costs of living in the world, so its citizens may not enjoy a much better standard of living than other developed economies with lower costs. Without adjusting for cost-of-living differences, direct comparisons can be inaccurate.
Third, it does not capture non-material wellbeing, such as work-life balance, environmental quality and overall satisfaction. A high real GDP per capita may come with long working hours that reduce leisure and harm wellbeing. Countries such as Japan, South Korea, Hong Kong and Singapore have relatively high real GDP per capita but are also known for demanding work cultures and long hours. This trade-off highlights the limitations of the measure, so indicators such as life expectancy, working hours, literacy rates and happiness indices are needed for a fuller picture.
Conclusion
While real GDP per capita is a useful indicator of material prosperity, it is insufficient to fully evaluate Singapore's living standards. Its inability to account for income inequality, cost of living and non-material wellbeing means additional indicators are required for a holistic assessment. Economists therefore emphasise looking beyond real GDP per capita when analysing the overall standard of living.