We need to talk about gross domestic product. The measure is a useful indicator of the value of goods and services produced in a country but total productivity does not tell the whole story about a society’s well-being. Higher output does not necessarily make for better quality of life and the financial worth of goods and services is not enough to truly assess a nation’s success.
GDP does not account for the non-monetary factors that determine the well-being of the economy, especially in the longer term. Activities and circumstances that may undermine competitiveness, such as loss of arable land or overfishing, early school dropouts or systematic ageism, gender inequality or social exclusion, all fly below the radar of GDP indicators. The usefulness of GDP is that it tracks all that comes with a price tag attached. The drawback is that it does not measure other indicators that make up the quality of life.
The GDP formula provides a clear snapshot of the market. But consumption, investment, exports and public spending are not the only contributors to economic performance. The current model neglects layers of social and environmental significance that make economic growth possible in the first place. The voluntary sector, for example, or unpaid family workers do not fit into a GDP chart and, yet, their functions have an immense economic impact.
In the same manner, GDP does not consider the risks to growth associated with social phenomena like pay disparity or levels of material poverty. And it overlooks the input of natural resources to economic performance – or the cost of their depletion.
One possible solution could be to expand the perimeter of GDP to include all these factors but, then, this would mean translating their value into cash. Malta’s national heritage, for example, is a major contributor to the country’s tourism and culture sectors but, for GDP to account for it, we would need to calculate the fiscal worth of our traditions, language and history. Besides being an almost impossible task, monetising our national legacy would be a reduction of our identity. The same applies for all other unquantifiable areas, from natural capital to volunteer services.
The time has come to embrace a wider horizon beyond the purely financial metrics and include well-being in the picture. Iceland, a country with a population comparable to Malta’s, has one of the highest GDP per capita rates in the world. Nevertheless, it set out an ambitious economic model encompassing some 30 criteria for well-being, ranging from mental health to sustainability to social inclusivity.
The need to take the economy outside of the limitations of GDP is a growing global priority. Financial gain has little worth if it comes at the cost of human or ecological progress and a next-generation economy is expected to reflect the balance between growth and well-being. We must be brave in pursuing new ways of driving the economy and accounting for it.
Financial gain has little worth if it comes at the cost of human or ecological progress- Joe Farrugia
Employers, in particular, have a major role to play in this transformation. Ultimately, a failure to address the issues related to well-being may result in a loss in productivity. The pandemic has been a great teacher in this respect: if we postpone the big decisions, we are only narrowing our alternatives down the road.
The discussion about a well-being framework needs to begin right away. No one has a foolproof answer to the question but unless we start thinking about this national challenge we will never develop the right model that suits Malta’s unique conditions and ambitions.
Indeed, policymakers and political decision-makers have a responsibility in laying out a vision that opens a future beyond the here-and-now. Instead of electoral promises based on the short-term demands of different segments and lobby groups, political parties should provide a longer-term programme that gives entrepreneurs and investors the clarity they need to develop solutions that support a sustainable economy of well-being.
The transformation itself is a mine of opportunity and calls for an entrepreneurial approach. Businesses operate increasingly in a macroeconomic environment and big changes may translate into big success.
To achieve that, we must recalibrate the country’s aspirations and focus on value added. Malta’s growth strategy has to be more selective to ensure that one sector does not cripple another and that socioecological development and profit interests do not stifle each other.
Importantly, our economy has to move away from an obsession with more output from more employees. Instead, we must develop smarter ways that encourage greater participation in the workforce and that maximises output per employee.
We have the technologies, the capacity and the opportunity to expand our notion of the economy from the GDP-centric prototype to a sustainable well-being model. What is needed next is the willingness.
Joe Farrugia, director general, Malta Employers’ Association
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