The Free Market Foundation (FMF), a Johannesburg think tank, has warned that GDP growth is an inadequate gauge of economic advancement, given that many economists conflate GDP growth with genuine economic progress when these should be read as distinct.

According to an article on the Foundation’s website, “GDP includes government spending as one of its components, meaning a government can, in theory, ‘grow’ the economy simply by writing itself larger cheques”.

The Foundation argues that “this is economic theatre, not economic science, and South Africa is one of the latest stages on which this play is performed”.

It warns that “the intellectual root of this fallacy lies in John Maynard Keynes and his emphasis on aggregate demand, the total spending in the economy, as the driver of growth. In Keynesian theory, if demand weakens, the government must step in and spend more to ‘stimulate’ the economy. On paper, this appears neat. In practice, it is absurd. Government spending can only come from three sources: taxation, borrowing, or monetary expansion… none of these methods magically create wealth. At best, they reallocate existing wealth. At worst, they destroy capital, distort prices, and encourage unproductive consumption”.

An economy grows, the Foundation says, “when a business produces goods or services the money it [then] receives is simply a claim on the value it has created... that exchange represents real production, a net increase in society’s wealth”.