Ask five persons what it would mean for them to be rich and you would probably get five very different answers.
They would probably agree that being rich means having more money than they really need, but it is more than likely that they would have very different ideas on how to utilise that money.
The amiable Topol in the evergreen musical Fiddler on the Roof gives us some idea of what being rich means to him: “I’d fill my yard with chicks and turkeys and geese and ducks for the town to see and hear, as if to say ‘here lives a wealthy man’.”
Economists have different ideas on how to measure wealth. According to the latest Eurostat figures, Malta ranks 15th in Europe’s rich list. The way they reached this conclusion was by measuring GDP per capita, or more simply ‘measuring total official output of a country by taking the GDP and divide it by the number of people in the country’.
This measure is generally accepted as a useful but incomplete measure of a country’s standard of living.
The significance of this measure is important for determining whether as a country we are closing the gap with the more affluent EU states. This was undoubtedly one of the main reasons why the majority of the Maltese opted to join the European Union in 2004.
While Malta’s position is approximately midway in the rich list of EU states, it still lags significantly behind other states, including small ones like Luxembourg that has a GDP per capita of 263 per cent of the EU average.
One interesting comment made by economic observers who visit Malta is that the quality of life of the Maltese, as well as their standard of living, seems to be superior to what one would expect when considering only the country’s GDP per capita. This is unlikely to be an illusion as there are some well-known factors that enable the Maltese to have a good standard of living.
One of these factors is the size of the underground economy. Recent studies confirm that Malta has one of the biggest black economies in Europe which at over 25 per cent of GDP is even higher than that of Greece.
Productive work that is done in the underground economy is not captured by official statistics. So, if the size of our underground economy is as large as some studies indicate, our GDP per capita is grossly understated.
Our official GDP figures only measure the output produced in legal markets. It also does not include productive activity that does not have a market transaction. For instance, grandparents who care for their grandchildren and housewives who work in their own homes but do not earn a salary are creating wealth that is not measured in monetary terms.
It is easy to find holes in the way that economists measure the wealth created by a country on a yearly basis. Virtually all economic data has limitations.
Even though GDP per capita data are not perfect measures of the quality of life in a country, they are still useful in measuring the standard of living.
Perhaps even more important, they provide political and business leaders as well as economists with a fairly consistent yardstick that helps to determine whether particular economic policies are having a positive effect on stimulating economic growth which often, but not always, equates with a better quality of life for most people.