From Production to Prosperity
It began, anthropologists tell us, with the pig. From the beginning of human history, humans hunted meat and gathered grains, berries and the other staples of their survival, vulnerable to the whims of predators and the environment. However, about 13,000 years ago in Mesopotamia, hunters began capturing rather than killing wild boar. In time, the smaller and more docile among these creatures proved easier to manage in captivity, and evolved into the domesticated pig. Domestication of cattle would follow, about 2,000 years later, along with the first cultivation of grains, fruits and vegetables. The first building block of civilization was thus laid, and along with it, the primacy of economic production.
For most of the intervening years, whether the commodity in question was Sumerian pork bellies, East Indian spices, Dutch tulips, Virginia tobacco, or rare earths from China, expanding production has been equated in the human consciousness with increasing prosperity. Arguably, the equivalence makes sense as long as increasing production continues to alleviate the scourge of hunger and poverty and provides the average person with basic provisions. Since production has not reached a level to satisfy the basic materials needs of society – except very recently in the richest countries – it is not surprising that humanity has been obsessed with increasing production as its primary means to achieve prosperity.
The Great Depression demanded a new rigor in economic statistics, and in 1934, the economist Simon Kuznets devised Gross National Product (GNP) as a way to measure the speed of US economic growth, and as the basis of a National accounting method. Its initial success in the 1930s led to the use of GNP as a foundation for US production planning during World War II. Although Kuznets himself warned that “the welfare of a nation can scarcely be inferred from a measure of national income”, GNP (revised in the 1970s to GDP – Gross Domestic Product), was adopted as the national, and eventually the global, standard for measuring production. As with any standard, once ingrained into our ways of working as a simple, actionable and widely understood construct, GDP became the primary yard-stick by which nations not only measured, but also steered, their economies. It also became the accepted proxy for prosperity.
For many decades, particularly from the perspective of the US, Western Europe and the other industrializing powers that dominated the post-war global economy, GDP and its per capita offspring told a happy story. The long-term trend line for the US economy since 1943, when war production pushed it toward full employment, has been aggressively positive. The same was true for other industrializing countries. By the end of the 1970s, however, the rosy picture of a seemingly perpetual growth of production (and prosperity), painted by long-term GDP figures began to ring hollow. Statistical lag time, academic dogma, plus a deep reluctance to admit to fundamental problems of capitalism in the ideologically charged environment of the Cold War, meant that broad acceptance that something had changed was slow in materializing. Indeed, not until 2007, when the US-mortgage market’s meltdown destroyed years of wealth from American households, did the true story hit home. Income growth for most American households, and indeed most households in the economies of the OECD, had been stagnating since the early 1980s, obscured by massive government borrowing and a private sector credit bubble that substituted consumption for gains in wealth. And increasingly, production growth came at the expense of a grave toll on the environment and the fabric of society.
From as early as the 1980s, equating “the welfare of a nation … with growth in national income,” as Kuznets put it, was not only flawed but unsustainable. A modern and cross-disciplinary approach to measure and manage prosperity was required. Much has been written on the topic in the recent times, but most attempts have resulted in the creation of indices that audit hundreds of factors with a purported link to prosperity. While a single metric such as GDP clearly falls short, mega-indices are arguably too unwieldy to guide focused policies or engage an electorate. The answer surely lies somewhere in-between. Indeed, my research – as well as my work with socially-responsible corporations, governments, and development investors – suggests that nations or regions that enjoy sustained progress, embrace 7 Principles of Prosperity. I will outline these principles below and return to the topic of metrics in a future paper.
Not all democracies are equal. In more inclusive systems of governance, such as the Nordics, the ruling party (or coalition) must win the support of over 40% of the electorate to gain power. This figure is only 25% in the UK – half the vote in half the constituencies – and even lower in the US where smaller States control a disproportionate share of the Electoral College. In more inclusive systems, the ruling party is obliged to enact policies that benefit a broader swath of society such as progressive taxation, investment in high-quality public services and infrastructure, freedom of speech, inclusive labor laws and stronger anti-trust actions. The result is society with less inequality and greater economic mobility.
Universal Basic Provision
Governments that provide a high-quality basket of basic services at a competitive per capita cost, reap a very high long-term return. Universal access to lifelong education, healthcare, childcare, affordable housing, and smart, clean infrastructure provides a broader segment of society the opportunity to qualify for and participate in productive work. Combined with lean administrative operations from ‘smart government’ strategies, superior services can be provided at an affordable cost. The ensuing virtuous circle of economic mobility, lower societal costs from crime and pollution, and the ability to deliver more impact from a limited public budget enables further improvements in public provision.
Value Creation Throughout the Socio-economy
Smart governments promote value creation in all segments of the socio-economy. A thriving private sector which creates and distributes value between owners and the workforce without relying on ballooning public and private debt, is certainly an important part of the recipe. However, nations such as Sweden and Singapore have shown that they can nurture the value of public assets such as land, real estate, infrastructure, and state-owned companies through professionalized asset management and/or privatization. ‘Rents’ from these assets can make a significant contribution to government revenues and reduce the burden of taxation on individuals and corporates. However, the story does not end with the public and private sectors. Increasingly, the digital economy which allows the free sharing of information and know-how in the ‘creative commons’ sector enables entrepreneurs and corporates to innovate on the foundation of free platforms such as open source software and public genomic databases. Finally, enabling the ‘civic’ sector by creating forums for political participation, offering incentives and infrastructure for community action groups, and supporting the ‘caring’ economy can return powerful benefits.
Humans Amplifying Technology
Over the coming decades, exponential price-performance improvements in industrial and business processes enabled by technologies such as AI, robotics, and blockchain have the potential to automate broad areas of human work and/or allow it to be performed in remote locations. Similarly, exponential improvements in the cost of energy (e.g., solar or nuclear) or materials (e.g., nanomaterials) could dislocate and re-locate industries according to the shifting sands of competitiveness. It will be tempting – and necessary – to invest in such technologies to capture a slice of future value chains. However, prosperous nations will accompany the deployment of technology with bold investments in human capital that empower their workforce to focus on activities that only humans can perform. We have seem such enlightened policies in the past. As agricultural automation swept across the US in the early 1900s, the government invested in universal high-school education to prepare workers for industrial jobs, instead of facing mass rural redundancy. In the modern context, our challenge is to invest in lifelong education that equips workers to use amplify the impact of technology with human creativity. For example, the internet and mobile telephony are powerful tools that were destined to increase productivity across the economy. However, it took human creativity to configure them into the smart phone which has become the ubiquitous platform to communicate, listen to music, play games, shop, navigate and perform countless other functions. Entire new industries have formed around this single platform, creating a wide array of high-value employment opportunities.
Innovation, Connectivity, Entrepreneurship (ICE)
The ICE triumvirate is the cornerstone of productivity growth. At its core is a vibrant ecosystem in which innovation is pervasive across government labs, universities, and garages alike. Creative entrepreneurs are able to protect their discoveries through fair IP laws and develop useful products and services through seamless connections to global pools of capital, talent and customers. As innovation clusters become crucibles for new business creation, they not only attract talent and capital, they also large corporates that must absorb the innovations to remain competitive. The resulting job creation and diffusion of productivity gains is a critical regenerative force in the socio-economy.
Operating within Sustainable Limits
Inexorable production growth has taken a heavy environmental toll. Whether it is climate change from the excessive emission on greenhouse gases, receding water tables, deforestation, or polluted oceans, we are operating well beyond the planet’s limits. We are in a race against time to deploy solutions for producing energy, re-using materials, and eliminating waste that reduce our environmental footprint by an order of magnitude. Technology will be an essential part of the equation. But, since we cannot rely on weak supra-national institutions for coordinated global action, sustainability must become a movement that permeates popular consciousness at a local and individual level.
Stability and Security
Without sustained stability and security, most initiatives to advance prosperity will not have the time or conditions to reach fruition. At a local level, macroeconomic and financial stability, low risk of social and political upheaval, and strong security and emergency readiness provisions make for havens of long-termism where top talent, investors and corporates can confidently put down roots. At a global-level, stronger supra-national forums are required to foster collaboration among nations and hold destabilizing actors in check.
I believe that the 7 Principles of Prosperity offer a blueprint for nations to look beyond the myopic metric of GDP and build a stronger foundation for long-term success. The priorities and challenges will vary widely between countries. Through a vibrant dialog between policy-makers, business leaders, scientists, economists and innovative thinkers from all disciplines, I am confident that we can find the solutions.