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Tuesday, April 13, 2021

Why GDP is no longer the most effective measure of economic success

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Momodou Camara (Acca)

The World Bank has also created a more robust measure of economic growth: comprehensive wealth. Comprehensive wealth, it argues, takes into account both income and associated costs in a number of areas, providing a fuller picture of economic wellbeing and a more sustainable pathway for growth. “Used alone, GDP may provide misleading signals about the health of an economy,” the World Bank’s The Changing Wealth of Nations 2018 report read.

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“It does not reflect depreciation and depletion of assets, whether investment and accumulation of wealth are keeping pace with population growth, or whether the mix of assets is consistent with a country’s development goals.” For GDP, which does not distinguish between good and bad production, bigger is always better.

“GDP includes activities that are detrimental to our economy and society in the long term, such as deforestation, strip mining, overfishing and so on,” Arnold said. Wars and natural disasters, too, can be a boon to GDP as a result of the associated increase in spending.

Comprehensive wealth, on the other hand, accounts for all of a country’s assets, including: produced capital, such as factories and machinery; natural capital, like forests and fossil fuels; human capital, including the value of future earnings for the labour force; and net foreign assets. GDP’s neglect of natural capital in particular has received more attention in recent years. Natural assets, such as forests, fisheries and the atmosphere, are often regarded as self-sustaining, fixed assets.

In actual fact, all of these resources can be – and are being – depleted by humans. Since the 1990s, economists have looked into the possibility of putting a price tag on natural resources to ensure their value is taken seriously. Ecological economist Robert Costanza published a paper entitled ‘The Value of the Worlds Esosystem Services and Natural Capital in Nature in 1997 that valued the whole of the natural world at $33trn. While Costanza’s research was highly controversial, the idea of accounting for natural depletion within the landscape of economic growth is becoming more common. As Pilling wrote: “If you don’t put a monetary value on something, people tend not to value it at all.”

The price of happiness
Experts are working to pin down a number of intangible qualities that contribute to the health of an economy, such as happiness and knowledge. Several indicators have been developed to provide a means for countries to monitor their progress in these areas. One such example is the UN’s Human Development Index (HDI), which evaluates a nation’s citizens in terms of their health, knowledge and standard of living. To do this, it tracks achievements in areas such as life expectancy at birth, years of schooling and gross national income per capita.

The UN admitted its index only provides a window into human development and fails to account for aspects such as inequality, poverty, human security or empowerment. But since its development in 1990, the UN has also introduced other composite indices, including the Inequality-adjusted HDI, the Gender Inequality Index and the Gender Development Index. Other surveys and indices, meanwhile, aim to measure the even more subjective quality of happiness: Lord Richard Layard, a professor at the London School of Economics, has been a pioneer in this area, and believes the government should prioritise policies that boost happiness over growth.

His research has gone on to influence international efforts to track happiness, such as the UN’s World Happiness Report, which provides an annual snapshot of how happy people around the world perceive themselves to be. New Zealand’s wellbeing budget is not perfect, but it is a clear step away from a purely growth-driven view of success. Arthur Grimes, a professor of wellbeing and public policy at Victoria University of Wellington and a former chair of the Reserve Bank of New Zealand, pointed out that these lists still show some correlation between GDP and happiness: “It’s very rare to find a country that, overall, has higher wellbeing that isn’t rich.”

According to the 2019 World Happiness Report, the top five happiest countries in the world are Finland, Denmark, Norway, Iceland and the Netherlands. South Sudan, the Central African Republic, Afghanistan, Tanzania and Rwanda, meanwhile, sit at the bottom of the list. Grimes told World Finance that the top-ranking countries on happiness lists tend to be wealthy nations with a welfare state, adding: “Unfortunately, we’re all in that situation where you do have to keep up on things like GDP. But you shouldn’t focus on that solely.”

While GDP does have a part to play, other aspects that contribute to the World Happiness Report’s ranking include social support, healthy life expectancy, the freedom to make life choices, perceptions of corruption, and generosity. These traits provide pockets of insight often missed by other metrics, helping to explain why the US and the UK, which rank among the top five richest countries by GDP, sit 15th and 19th on the list in terms of happiness, or why Costa Rica, which ranks somewhere in the 70s in terms of GDP, wound up in 12th place. “There are some rich countries that aren’t quite as happy as the others,” Grimes said. “They’re still in the top 20 in the world, [but] that measure is a really useful one because it does say, in countries like the US and the UK, there is something going a bit wrong there they should be happier than they are.”

*** These are indicative figures as per the 6th. October, 2019.
*** Market prices are as at 6th. October, 2019

Top 5 ways to boost employee engagement
4 –Act on what they say
A frequent observation from employees is that organisations are not ‘walking the talk’. Despite their feedback, especially in a company’s annual survey, nothing seems to change. If you’re listening to your people, you must then follow it up with actions.
Technology provides the platform for ideas to be shared, but a centralised team (or local group) that drives action can make all the difference. Otherwise, engagement will not be sustained, as employees realise steps are not being taken to implement the actions they’ve suggested. We’ve seen great examples of organisations implementing changes within a matter of weeks. It’s incredibly powerful for employees because they see the business taking action to improve their day-to-day experience.

5 –Take a different approach to measurement
The ‘tried and tested’ approach typically involves organisations issuing an annual survey with a multitude of questions that are more focused on capturing trend and benchmark data than uncovering how to enhance the employee experience. Employees spend their time filling in the survey, with their answers likely depending on how they are feeling on that particular day. It’s backward-looking, ineffective and often counter-productive, precisely because people don’t see any real change. An increasing number of companies are using a more focused approach, seeking to understand the measures that are important. From a business perspective, what do we need to focus on and how do we create the right environment for our people to deliver? Get it right and you’re ultimately transforming the experience for your people – from the communications they receive to their active involvement in solving business challenges. In our experience, engagement becomes a successful outcome of that.

1. Too many people spend money they earned..to buy things they don’t want..to impress people that they don’t like. By–Will Rogers
2. A wise person should have money in their head, but not in their heart. By–Jonathan Swift
3. Wealth consists not in having great possessions, but in having few wants. By–Epictetus
4. Money often costs too much. By–Ralph Waldo Emerson
5. Everyday is a bank account, and time is our currency. No one is rich, no one is poor, we’ve got 24 hours each. By–Christopher Rice
6. It’s how you deal with failure that determines how you achieve success. By–David Feherty
7. Frugality includes all the other virtues. By–Cicero
8. I love money. I love everything about it. I bought some pretty good stuff. Got me a $300 pair of socks. Got a fur sink. An electric dog polisher. A gasoline powered turtleneck sweater. And, of course, I bought some dumb stuff, too. By–Steve Martin
9. An investment in knowledge pays the best interest. By–Benjamin Franklin
10. I will tell you the secret to getting rich on Wall Street. You try to be greedy when others are fearful. And you try to be fearful when others are greedy. By–Warren Buffett

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