GDP and IDI
The World Economic Forum (WEF) has come out with a new measure of national economic performance called the Inclusive Development Index (IDI) which focuses on living standards of people in an economic unit. The IDI measures the economic performance of103 countries in 11 categories of economic progress in addition to GDP and focuses on three main factors: growth and development, inclusion, and inter-generational equity or the sustainable stewardship of natural and financial resources. The Index has been developed because in the opinion of WEF , there is an excessive reliance by policymakers on GDP as the main metric of national economic performance. But this fails to capture a country's broad socio-economic progress in areas such as quality of life, employment opportunity and economic security.
Although, GDP remains a necessary condition for achieving economic progress in living standards, experts agree that more needs to be done by policymakers in this period of global growth to "futureproof" their economies "without unduly straining the environment". The need is to adopt a more human-centric approach, where people and living standards are put at the centre of government policy. According to the WEF index, 29 advanced economies had on average stagnated over the past five years in terms of social inclusion, while just 12 managed to reduce poverty and only eight saw a decrease in income inequality. It also found rich and poor countries alike are struggling to protect future generations.
The WEF report's Intergenerational Equity and Sustainability pillar - which takes into account public debt, carbon intensity of GDP, dependency ratio and adjusted net savings (which measures savings in an economy after investments in human capital, depletion of natural resources and the cost of pollution) actually deteriorated in upper-, middle- and low-income economies since 2012 and improved only marginally (0.6%) in advanced economies. Significantly, small European countries scored highest in the chart overall, with Australia being the only non-European country in the top 10. Of the advanced economies, the most socially inclusive was Norway, coming second overall for 'inter-generational equity' and third for 'social inclusion' and 'growth and development'. Germany topped the G7 economies in 12th place overall, closely followed by Canada (17), France (18), the UK (21), the US (23), Japan (24) and finally Italy, which was 27th.
In total, 64% of the 103 economies measured have seen their scores improved over the last three years, which was due to recent efforts by policymakers to focus on socio-economic issues.
This has also been due to gains among upper-middle-income economies, while low-income economies have fallen further behind. The UK, which finished 21st overall, fell behind its peers on a number of dimensions of inclusive growth such as labour productivity, healthy life expectancy and wealth inequality, although the report said these had improved over the past five years.
Interestingly, the above mentioned 11 categories of economic progress in addition to GDP, focusing on three factors: growth and development, inclusion, and inter-generational equity or the sustainable stewardship of natural and financial resources are in direct conflict with the principles of the so-called Washington Consensus, a term that summarizes commonly shared themes among policy advice by Washington-based institutions, such as the International Monetary Fund, the World Bank, and the US Treasury Department. Clearly, the new IDI metric is based on the concept of democratic socialism as opposed to ruthless capitalism. It remains to be seen how many countries will adopt IDI along with GDP to measure and evaluate their economic performance.