GDP and IDI

The Pak Banker - - FRONT PAGE -

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.

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