- Written by DICKSON IGWE
- Published: 30 August 2017
This economics layman has learned rather late in his life that Gross Domestic Product is not the alpha and omega of a country’s prosperity. It is better to view social development measures such as quality of life and social welfare as benchmarks of national prosperity. The preceding measures are better than putting blind belief in purely economic numbers, such as income per capita and GDP.
Okay. GDP is an important economic measure, agreed. It tallies the goods and services produced by a country each year. Gross Domestic Income is a similar metric that tallies wages, profits and incomes in a jurisdiction over 12 months. Income per capita further divides the total income a country earns by the number of residents. It is more complex than the preceding, of course, but this narrative is for laypersons, such as this writer.
In the VI
Ultimately, a country’s increasing GDP or GDI — total income — does not necessarily translate into making life better for the average citizen. The Virgin Islands, for example, is a very unequal society. It is in fact quite unusual. There are a tiny number of millionaires and billionaires resident on the archipelago. Then the income per capita has been stated at $40,000 per annum. This is higher than most developed countries and equivalent to the United Kingdom’s income per capita.
But this is deceptive. Why? Because the territory’s income per capita includes the annual earnings of the four or five multimillionaires and billionaires, and a number of expatriates who manage the financial services sector and who earn in excess of $250,000 per annum. These wealthy and high earning individuals have been juxtaposed with the rest of the population.
In fact, it would be valid to state that most residents of the VI earn less than $25,000 per annum.
The physical and social infrastructure of countries with a similar income per capita as the VI’s, such as France and the United Kingdom, are superior to what we have on these islands. That is a fact. The VI has work to do to catch up with northern Europe in terms of both social and physical development.
Nevertheless, GDP and income per capita remain the standard and conventional method of measuring the territory’s success. But GDP is misleading as a measure of national prosperity. The richest one percent may get richer in a society and this will show up in an increase in the GDP through trickledown. But that does not necessarily transfer to a rise in the standard of living for the vast majority.
GDP may increase, and the rich, who own the majority of the businesses in a country, get richer, and the people remain poor. The increased wealth simply enters the pockets of the owners of specific businesses, and those with power and connections.
And that is why the better way to measure national prosperity is to measure social economic factors such as public access to food, water, shelter, transportation, safety, basic education, information, quality health care, and a sustainable environment.
There are also the political- and governance-type measures, such as the enjoyment of human rights, freedom of choice, and freedom from discrimination.
Best place to live
Now, Norway is considered the best place on earth to live, followed by other countries such as Sweden, Switzerland, Iceland and New Zealand. These countries are all democracies, with varying degrees of tolerance for their minority populations. Agreed, Norway has a high GDP owing to its abundance of natural resources. However, its excellent access to pure water, great sanitation, exceptional education services, and first class physical infrastructure — as well as its achievement of very high levels of personal freedom — show the country’s well-ordered priorities in investing heavily in its social and human capital.
On the other hand, there are similar resource-rich countries — such as Nigeria, Kuwait and Angola — where there has not been the investment in social and human capital that would have improved significantly the quality of life of residents in those countries.
Interestingly, countries achieve similar levels of social progress at vastly differing levels of GDP per capita. Countries can also possess vastly differing levels of social progress with similar levels of GDP per capita.
Ghana has a lower GDP per capita than Nigeria, but Ghana’s investments in human and social capital mean that Ghana beats Nigeria in most social measures such as access to water and sanitation; information, science and communications; and education and health care.
Costa Rica is another example of a country with a low GDP per capita but with strong education, health and welfare systems, and a strong and free democratic tradition.
Countries like Costa Rica that invest in their human and social capital over and above purely physical infrastructure — and countries where the GDP is not swallowed up in corrupt governance like in Nigeria — enjoy higher life expectancy levels and higher literacy rates.
GDP can fluctuate year after year depending on global conditions, and this impacts physical development.
However, investment in social development offers the country quality human capital when the going gets rough. This translates into greater and better development than investment in purely physical infrastructure — a lesson for leaders and politicians everywhere.
Human capital takes a country through trying times that investments in physical infrastructure will not.
A country’s social indicators — such as levels of literacy, rate of life expectancy, access to sanitation and water, and good education and quality health care — are the result of that country’s legacy of investment in human and social capital, and the basic services government provides to its population.
There is a caveat. A country’s investment in social capital may not necessarily benefit the poor. The United States, for example, has great health care for those who possess insurance. However, for the poor in the US there is a lack of access to health care, education, information, water, sanitation and safety relative to similar rich countries.
GDP increases must transfer to better social outcomes; that must be the objective of good governance. The measure of a country’s prosperity must be viewed in terms of better nutrition, access to water and sanitation; access to basic health care; education; information; technology; and telecommunications.
A further caveat: Development experts have discovered that health and wellness, and ecosystem sustainability, do not improve with rising wealth. Development, in fact, leads to a diminished environment. Suicide rates, rates of obesity, and death from air pollution do not decrease with increases in GDP.
The answer to improved quality of life, which comes from investment in human capital, requires focus, good policy and great governance. It requires a vision of a better society. But most of all it requires an understanding that the individual is the beginning and ending of all matters of society and economics — and that the best economic investment is the investment made directly into the lives of residents by ensuring the widest access to social products such as great health care, great education, public safety, national security, and a sustainable environment.
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