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Focus on GDP Fuelling Inequality and Short-Termism

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Photo by Benny Jackson on Unsplash

Decades of prioritizing economic growth over social equity has led to historically high levels of wealth and income inequality and caused governments to miss out on a virtuous circle in which growth is strengthened by being shared more widely and generated without unduly straining the environment or burdening future generations. These are the findings from the World Economic Forum’s Inclusive Development Index 2018, which is released today.

Excessive reliance by economists and policy-makers on gross domestic product as the primary metric of national economic performance is part of the problem, since GDP measures current production of goods and services rather than the extent to which it contributes to broad socio-economic progress as manifested in median household income, employment opportunity, economic security and quality of life.

The Inclusive Development Index is an annual assessment that measures how 103 countries perform on 11 dimensions of economic progress in addition to GDP. It has three pillars: growth and development; inclusion; and intergenerational equity – sustainable stewardship of natural and financial resources.

According to this year’s index, over the past five years, the 29 advanced economies included in the study have on average flatlined in terms of inclusion, which is measured by median household income, poverty, and wealth and income inequality, despite boosting their Growth and Development score by over 3%. The four indicators that make up the index’s Growth and Development pillar are: GDP per capita; labour productivity; employment; and healthy life expectancy.

Over the same period, only 12 of the 29 advanced economies were successful in reducing poverty and only eight saw a decrease in income inequality.

More worrying still: rich and poor countries alike are struggling to protect future generations. The index’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.

Top performing countries

According to the index, the most inclusive advanced economy in the world in 2018 is Norway. The Nordic nation ranks second overall for intergenerational equity and third for the two other pillars of the index: Growth and Development, and Inclusion. Small European economies dominate the top of the index, with Australia (9) the only non-European economy in the top 10.

Of the G7 economies, Germany (12) ranks the highest. It is followed by Canada (17), France (18), the United Kingdom (21), the United States (23), Japan (24) and Italy (27). In many countries, there is a stark difference between individual pillars. For example, the US ranks 10 out of 29 for Growth and Development; however, it ranks 28 on Inclusion and 26 on Intergenerational Equity. France, on the other hand, fares less well on Growth and Development (21 out of 29); however, it ranks 12 for Inclusion. Its low ranking on Intergenerational Equity (24) suggests it may be storing up problems for the future.

Six emerging European economies are located in the top 10 spots in the emerging economies’ ranking: Lithuania (1), Hungary (2), Latvia (4), Poland (5), Croatia (7) and Romania (10). These countries perform well on Growth and Development, benefiting from EU membership, as well as on inclusion indicators, as median living standards rose and wealth inequality declined significantly. Latin America also performs well, with three countries featured in the top 10: Panama (6), Uruguay (8) and Chile (9).

Performance is mixed among BRICS economies, with the Russian Federation ranking 19th, followed by China (26), Brazil (37), India (62) and South Africa (69). Although China ranks first among emerging economies in GDP per capita growth (6.8%) and labour productivity growth (6.7%) since 2012, its overall score is brought down by lacklustre performance on Inclusion. Other emerging countries such as Mexico (24), Indonesia (36), Turkey (16) and the Philippines (38) show more potential on Intergenerational Equity and Sustainability but lack progress on Inclusion indicators such as income and wealth inequality.

Key findings and policy implications

IDI data suggest that relatively strong GDP growth cannot be relied upon by itself to generate inclusive socio-economic progress and rising median living standards. All but three advanced countries have experienced GDP growth over the last five years, but only 10 of 29 have registered clear progress in the IDI’s Inclusion pillar. A majority, 16 of 29, have seen Inclusion deteriorate, and the remaining three have remained stable. A majority of those countries with the best GDP growth performance failed to improve on Inclusion. This pattern is repeated in the relationship between GDP growth and performance on Intergenerational Equity and Sustainability with 11 of 29 showing clear progress and 18 of 29 deteriorating.

Emerging -country data show a similar disconnect between GDP growth and Inclusion. Of the 30 emerging economies with the highest GDP per capita growth over the past five years, only six have scored similarly well on a majority of the Inclusion indicators, while 13 have been no better than mediocre and 11 have registered outright poor performance. With respect to Intergenerational Equity, only eight have scored similarly well on a majority of the Intergenerational Equity and Sustainability indicators, while 12 have been no better than mediocre and 10 have registered outright poor performance.

This evidence suggests that GDP growth is a necessary but not sufficient condition for achievement of the broad-based progress in living standards by which most people judge countries’ economic success. This message is particularly relevant at a time when global economic growth is returning to a more robust level and policy-makers could do more to future-proof their economies and make them more equitable. Political and business leaders should not expect higher growth to be a panacea for the social frustrations, including those of younger generations who have shaken the politics of many countries in recent years.

“Economic growth as measured by GDP is best understood as a top-line measure of national economic performance. Broad, sustainable progress in living standards is the bottom-line result societies expect. Policy-makers need a new dashboard focused more specifically on this purpose. It could help them to pay greater attention to structural and institutional aspects of economic policy that are important for diffusing prosperity and opportunity and making sure these are preserved for younger and future generations,” said Richard Samans, Managing Director and Head of Global Agenda at the World Economic Forum.

About the Inclusive Development Index

The IDI is a project of the World Economic Forum’s System Initiative on Shaping the Future of Economic Progress, which aims to inform and enable sustained and inclusive economic progress through deepened public-private cooperation, thought leadership and analysis, strategic dialogue and concrete cooperation, including by accelerating social impact through corporate action.

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Mexico officially joins IEA: First member in Latin America

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Mexico officially became the International Energy Agency’s 30th member country on 17 February 2018, and its first member in Latin America. The membership came after the signed IEA treaty (the IEP Agreement) was deposited with the government of Belgium, which serves as the depository state, following ratification by the Mexican Senate.

Mexico’s accession is a cornerstone of the IEA’s on-going modernization strategy, including “opening the doors” of the IEA to engage more deeply with emerging economies and the key energy players of Latin America, Asia and Africa, towards a secure, sustainable and affordable energy future.

The IEA Family of 30 Member countries and seven Association countries now accounts for more than 70% of global energy consumption, up from less than 40% in 2015.

“With this final step, Mexico enters the most important energy forum in the world,” said Joaquín Coldwell, Mexico’s Secretary of Energy. “We will take our part in setting the world’s energy policies, receive experienced advisory in best international practices, and participate in emergency response exercises.”

“It is a historic day because we welcome our first Latin American member country, with more than 120 million inhabitants, an important oil producer, and a weighty voice in global energy,” said Dr Fatih Birol, the IEA’s Executive Director. “The ambitious and successful energy reforms of recent years have put Mexico firmly on the global energy policy map.”

At the last IEA Ministerial Meeting, held in Paris in November 2017, ministers representing the IEA’s member countries unanimously endorsed the rapid steps Mexico was taking to become the next member of the IEA, providing a major boost for global energy governance.

They recognized that Mexico had taken all necessary steps in record time to meet international membership requirements since its initial expression of interest in November 2015. In December, the Mexican Senate ratified the IEP Agreement paving the way for the deposit of the accession instrument and for membership to take effect.

Mexico is the world’s 15th-largest economy and 12th-largest oil producer, and has some of the world’s best renewable energy resources. The IEA family will benefit greatly from Mexico’s contribution on discussion about the world’s energy challenges. The IEA is delighted to continue supporting implementation of Mexico’s energy reform with technical expertise, and further intensifying the fruitful bilateral dialogue of energy policy best practice exchange.

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Guterres: Korean nuclear crisis, Middle East quagmire eroding global security

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“Conflicts are becoming more and more interrelated and more and more related to a set of a new global terrorism threat  to all of us,” Mr. Guterres said in his keynote address at the opening ceremony on Friday of the Munich Security Conference.

For the first time since the end of the Cold War, the world is facing the threat of nuclear weapons and long-range missiles posed by the Democratic People’s Republic of Korea (DPRK), which he called “a development made in total contradiction to the will of the international community and in clear violation of several resolutions of the Security Council.”

He said that it was essential to maintain “meaningful pressure over North Korea” to create an opportunity for diplomatic engagement on the peaceful denuclearization of the Korean peninsula within a regional framework.

“The two key stakeholders in relation to this crisis, the United States and [DPRK]” must be able to “come together and have a meaningful discussion on these issues,” he said, adding that it is “important not to miss the opportunity of a peaceful resolution through diplomatic engagement as a military solution would be a disaster with catastrophic consequences that we cannot even be able to imagine.”

The situation in the broader Middle East, which the UN chief said had become a “Gordian knot,” was also eroding global security, with that are crises that are “crossing each other and interconnected.”

Pointing to the Palestinian-Israeli conflict, and wars in Syria, Yemen and Libya, among others, Mr. Guterres said the entire Middle East has “became a mess,” with varied and intersecting fault lines.

He warned of the absence of a common vision in the region and said that even if interests are contradictory, the threats these conflicts represent would justify some efforts to come together.

Turning to cyber-security, Mr. Guterres called for a serious discussion about the international legal framework in which cyberwars take place.

“I can guarantee that the United Nations would be ready to be a platform in which different actors could come together and discuss the way forward, to find the adequate approaches to make sure that we are able to deal with the problem of cybersecurity,” he said, noting that artificial intelligence provides “enormous potential for economic development, social development and for the well-being for all of us.”

The Secretary-General said that Governments and others have been unable to manage human mobility. He warned that this had created mistrust and doubts about globalism and multilateralism.

“This is a reason why,” he said, “we need to be able to unite, we need to be able to affirm that global problems can only be addressed with global solutions and that multilateralism is today more necessary than ever.”

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Supporting tourism development in Africa through better measurement

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In an effort to better measure tourism growth and development in Africa, UNWTO signed a Cooperation Agreement with the Nigeria Tourism Development Corporation for the Strengthening of the National Tourism Statistical System of Nigeria and the Development of a Tourism Satellite Account.

UNWTO is committed to developing tourism measurement for furthering knowledge of the sector, monitoring progress, evaluating impact, promoting results-focused management, and highlighting strategic issues for policy objectives.

On the occasion of the meeting between UNWTO Secretary-General, Zurab Pololikashvili, and the Minister of Information and Culture of Nigeria, Mr. Lai Mohammed, the agreement to host the Sixty-First meeting of the UNWTO Commission for Africa and the Seminar on ‘Tourism Statistics: A Catalyst for Development’ in Nigerian capital, Abuja, from 4 to 6 June 2018, was signed.

The meetings will be open to the participation of UNWTO Member States and Affiliate Members, as well as invited delegations and representatives of the tourism and related sectors. Officials of immigration departments, national statistics bureaus, central banks and other relevant stakeholders will be invited to join.

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