Salt Ideas Essay #1: Growth Beyond GDP

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We’re proud to bring you the first of the Salt Ideas Essays: 15 pieces of expert thought leadership on the innovations and ideas that will change the world for the better. How do countries convert wealth into wellbeing and how can private enterprise create sustainable improvements in people’s lives? This is the question explored by Enrique J. Rueda-Sabater, former head of strategy, World Bank. 

When we refer to ‘personal growth’, we are often talking about enlightenment and wisdom and other intangibles, but when we refer to the growth of nations, it all comes down to GDP. Even the term is pedestrian: gross domestic product—hardly inspiring.

National development has long been equated with growth because the central challenge was seen (with good reason) as a remedial one: closing the huge gaps in per capita income levels across countries that had emerged during the second half of the twentieth century. In the first 15 years of the new millennium, the global economic landscape has changed dramatically. For many countries the income gap remains a major challenge. But in some countries – including some with very large populations – where economic growth has managed to bring up average per capita GDP levels very significantly, citizens often don’t feel that their wellbeing has improved in tandem with their countries’ GDP statistics.

But is it possible to measure wellbeing, or is it all perceptions and impressions? Economists, including A. Sen, M. Spence, and J. Stigliz, argue that in order to provide a strong incentive, we need concepts that go beyond economics as well as measures to track progress. Inspired by these arguments, we at The Boston Consulting Group have proposed a new means to measure wellbeing.

We do not propose this as an alternative to GDP, since it is not possible to find a yardstick or currency with which to aggregate the different dimensions of wellbeing. Our measure is a relative one – allowing us to both compare countries and track progress over time.

Using that measure of wellbeing, we can then explore how countries convert wealth into wellbeing and how they convert economic growth into improvements in wellbeing. It turns out that there are large differences – even at similar per capita income levels – often because of intangibles like governance, equality, and civil cohesion. The resulting benchmarking then serves as a diagnostic basis for identifying policy priorities and good-practice references from relevant countries.

We call our measure of wellbeing SEDA (Sustainable Economic Development Assessment). It is primarily an objective measure because we aim as well to help guide policy agendas. We are often asked if our measure aligns with more subjective ones. The answer is yes, it aligns in a broad sense, while also highlighting some cultural factors affecting perceptions (for example, the commonly held assumption that Latin Americans are happier than Eastern Europeans).

Keeping objective and subjective measures of wellbeing as separate and complementary perspectives is a better approach than mixing them together, but there is one bridge between objective and subjective analyses that can easily get diluted by details and surveys. This bridge is opportunity. People who perceive future opportunities are happier. Countries can improve wellbeing through inclusive growth if they create opportunity. Therefore, placing more emphasis on wellbeing than on GDP does not imply more interventionist governments and expanding public sectors, it implies government policies and national strategies that pave the way for entrepreneurship, for putting talent to work and creating a context that rewards sound governance of businesses and corporations.

Another challenge is the need for longer-term thinking than what comes naturally to either politicians or CEOs. The emphasis on wellbeing will be incomplete if it does not embrace a broad notion of sustainability (or inter-generational responsibility). The most intriguing insight to come out of our exploration of how countries convert wealth into wellbeing is that the two components of sustainability – environmental protection and social inclusion – have much in common because they share strong institutional roots shaped by governance factors and civil cohesion. What is the message for businesses and corporations? It is not primarily about the type of corporate social responsibility that consists of programmes bolted on the side of core activity. It is about courageous corporate governance – including transparency – and about recognising that far-sighted strategy and sustainable success (important for shareholder return) require embracing diversity and generating opportunity for employees, suppliers, and other stakeholders.

A critical global challenge is that of inclusive growth – prosperity that is widespread within and across countries. Private enterprise must not only be a source of economic growth, but also of hope and opportunity to ensure that economic growth generates sustained improvements in wellbeing.

GROWING UP

  • Politicians need to think longer term.
  • GDP is not the only way to measure progress.
  • Inclusive growth is one of the world`s most pressing issues.

 

ABOUT ENRIQUE RUEDA-SABATER

Enrique J. Rueda-Sabater is a senior advisor to The Boston Consulting Group (BCG) and a former head of strategy for the World Bank. He is the coauthor of the report Why Well- Being Should Drive Growth Strategies: The 2015 Sustainable Economic Development Assessment.

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