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The perennial debate over whether economic growth reflects a nation’s well-being was brought back to the table at the Davos Forum, where there was talk of looking beyond economic performance to measure a country’s progress Level of living or quality of life happiness of citizens as a measure of success.
Ninety years after the introduction of gross domestic product (GDP) as an indicator of national economic progress, the World Economic Forum has been considering how to measure “good growth” and whether national accounts should take into account environmental or social elements in addition to the monetary value of the goods it produces and services.
According to scientific literature, the creator of GDP himself, Russian-American economist Simon Kuznets, recognized from the very beginning that the well-being of the population cannot be derived from GDP per capita without taking into account how the income of a country He later advocated reformulating the indicator with a more qualitative approach.
Swedish Finance Minister Elisabeth Svantesson, present in Davos this week, believes that GDP is now a necessary indicator and the best way to measure growth because “things cost,” although she acknowledges that other growth indicators are needed are. Welfare.
However, Spanish Economy Minister Carlos Body defends that the elements used to measure GDP need to be updated and improved to add an environmental and social perspective.
In Davos, the minister cited as an example the increase in the minimum wage in Spain by more than 50% in the last five years, which has boosted consumption but also reduced the vulnerability of an economy in which households now find themselves better prepared to withstand rising inflation or interest rate increases.
By calculating the value of a country’s monetary transactions, we can know the evolution of household consumption, private investment, public consumption expenditure, the balance of trade (exports minus imports), the distribution of income between salaries and operating surpluses of companies, and the distribution of production by sector.
As Kuznets put it in the 1930s, GDP in government spending does not include spending on pensions, unemployment, or investment in education or health because there is no economic exchange.
Nor does it measure unpaid domestic and care work or the value of self-consumption and barter, which may be relevant to the real economy of developing countries.
On the other hand, GDP counts the consumption of alcohol and tobacco or the activity of a polluting industry in wealth creation without taking into account negative externalities on health or the environment.
Alternatives to progress assessment
During the debate in Davos this week, it was recalled that in 2008 French President Nicolas Sarkozy commissioned a group of experts led by Nobel laureate Joseph Stiglitz to identify alternative measures of economic performance and social progress.
Among its conclusions is the need for an intergenerational approach to assess well-being at any point in time, but also its sustainability over time, which depends on whether “the capital reserves that are important for our lives (natural, material, human, social) , to be passed on to future generations.
In 2011, the Organization for Economic Cooperation and Development (OECD) launched its “Better Life Index,” which analyzes eleven specific elements of well-being: housing, income, employment, community, education, environment, civic engagement, health, life satisfaction, security, and Balance between life and work.
In the debate in Davos, the Swedish minister emphasized the importance of the return on social investments for progress and personally referred to the fact that without public education in Sweden she would probably not take part in this meeting.
In this sense, another participant in the debate, CEO of the multinational technology consultancy Cognizant, Ravi Kumar, emphasized that the best measure of good growth is upward social mobility, which allows individuals to improve their economic situation.
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