In Depth: Are prosperity, people and planet compatible?
Sustained economic growth has been the main policy priority under the prevailing liberal international economic order that gained ascendancy in the early twentieth century.16 But too narrow a focus on growth has blinded many governments to adverse distribution effects and negative externalities as technological change and globalization have gathered force. Slow progress in living standards and widening inequality, exacerbated by the Great Recession that began in 2007, have contributed to political polarization and erosion of social cohesion in many advanced and emerging economies.
There is now a worldwide consensus on the need for a more holistic model of economic progress—a model that acknowledges growth as necessary but recognizes the need for additional measures to achieve higher living standards for all, while ensuring environmental sustainability and the interests of future generations.17
There are, inevitably, some tensions and trade-offs among the various dimensions of economic progress. But there is also potential for virtuous cycles. For example, as growth raises the income of individuals, it increases their ability to pay for services and goods that improve their health, education and welfare. This opens up new opportunities to improve their economic prospects, while increasing their overall well-being. Similarly, growth broadens a country’s tax base, generating resources that the government can spend on public services, such as security, infrastructure, health, education and income redistribution—expenditures that can, over time, improve economic prospects.18
Performance results on the GCI 4.0 add to ample empirical evidence that more competitive economies on average do in fact perform better on various measures of economic progress—including poverty, inequality and well-being; however, the evidence is more mixed in the case of environmental sustainability.
Competitiveness and poverty
The incidence of extreme poverty is an important measure of broad-based economic progress, and low productivity is its proximate cause: the poor produce too little to earn a wage to subsist let alone to invest in healthcare and education.19 That’s why higher competitiveness scores are typically associated with lower poverty (Figure 11). In fact, only two countries in the top half of the GCI rankings—South Africa and India—demonstrate what is considered an extreme poverty incidence, in which the poverty rate exceeds 10% of the total population.
Median household income is perhaps the most visible signifier of the breadth of progress in living standards.20 Here, too, there is a close relationship with competitiveness. Figure 12 suggests the relationship between median household income and competitiveness is non-linear: a unit increase in the GCI 4.0 score is associated with an exponential increase in median income. Moreover, the relationship is remarkably close: performance on the GCI 4.0 explains 82% of the variation in median income across countries.21 Yet the correlation between the two is not exact. For example, although Malaysia and Belgium have a similar GCI score, Belgium’s median income is three times higher than Malaysia’s.
Competitiveness and inequality
Income Gini coefficient is the standard measure of inequality used by most institutions and organizations around the world. Values range from 0 (‘perfect equality’, in which every individual receives the same income) to 100 (‘perfect inequality’, when one individual receives all the income). As shown in Figure 13, there appears to be a relationship between the income Gini coefficient and competitiveness. Yet it’s an extremely weak one. In fact, the most equal and unequal countries, Azerbaijan and South Africa, respectively, earned a similar overall GCI score (60.0 and 60.8), whereas the most and least competitive countries, United States and Chad, have a similar Gini coefficient (42 and 43). Thus, it would be inaccurate to conclude that more competitive countries are reliably more inclusive.
Results of the GCI 4.0 are consistent with the general consensus emerging from empirical studies that there is no consistent relationship between equality and growth.22 This also implies that, contrary to widespread belief, inequality is not caused by growth. There is no inherent trade-off between equality and growth: it is possible to be pro-growth and pro-equity. The Netherlands, Sweden and Denmark feature in the top 10 of the GCI and are among the world’s most equal countries. Governments need to rebalance policy priorities to respond to both stagnating growth and rising inequality, which, together, fuel frustrations and erode trust in institutions, technological progress and globalization.
Competitiveness and well-being
An individual’s overall well-being is arguably the ultimate measure of human welfare. Figure 14 shows that GCI 4.0 scores explain over two-thirds of differences in so-called ‘life satisfaction’, as measured on Cantril’s Ladder of Life Scale, which ranges from 0 (‘the worst possible life’) to 10 (‘the best possible life’), for the 135 countries for which data exists. This is remarkable, considering the many cultural, historical and political idiosyncrasies that can influence answers to the question: ‘How satisfied are you with your life as a whole these days?’
Leisure time is another determinant of well-being.23 Contrary to popular belief, higher competitiveness is typically associated with less working time and therefore more leisure time: workers in the GCI 4.0’s 10 most competitive economies work, on average, 361 fewer hours per year—or eight fewer hours per week—than in the 10 lowest-ranked economies for which working time data exists.24 When excluding the United States and Singapore, the weekly average decreases by two additional hours. In Germany, the third-most competitive economy, workers average just 1,371 hours per year or 29 hours per week—10 fewer than the average across the 66 countries for which working time exists. This suggests productivity is increased not through more working hours, but by using working hours more efficiently.
Competitiveness and environmental sustainability
The relationship between competitiveness and the environment is multi-faceted and complex. In the long term, economic activity must respect planetary boundaries. Environmental damage in the form of pollution, climate change, resource scarcity, ecosystem destruction and biodiversity loss may undermine future growth, and, ultimately, put humanity at risk. For example, the Global Footprint Network’s estimates that humanity uses the equivalent of 1.7 Earths to provide the resources we use and absorb our waste.25 Figure 15 shows that there is a clear tension between economic progress and environmental sustainability: more competitive countries have a much bigger ecological footprint. If everyone lived like the average resident of the United States, the world’s most competitive economy, it would take 4.9 planets to support humanity’s footprint. The world’s heaviest footprint is Qatar, an economy in the top 30 of the GCT and where 9.3 Earths is required.
Yet the tension can be eased: ‘green growth’—facilitating economic growth while taking into account environmental concerns—is possible, particularly with new technologies.26 Policies that create incentives for greater efficiency in the use of natural resources, reducing waste and energy consumption, unlocking opportunities for innovation and value creation, and allocating resources to the highest-value use can simultaneously reduce environmental impact and increase productivity and growth. With greater wealth, more competitive economies tend to have the resources and the measures in place to use natural resources more efficiently.27 As a result, even though they have the largest ecological footprint per capita, the most competitive economies have the smallest ecological footprint per unit of output (Figure 16). Further, data suggests that between 2004 and 2014, this ratio has actually decreased globally.28 In addition, other studies show that most countries have reached peak carbon intensity, and are expecting downward trends in carbon usage.29
These are positive developments, but overall efforts to maintain efficient use of natural resources remain insufficient. The hope of seeing (modest) international commitments and targets designed to curb greenhouse gas emissions is fading, and with it the probability—now estimated at less than 5%—to keep global warming within 2ºC by 2100.30 In keeping with the long-term thinking espoused by the GCI 4.0, it is critical that countries commit to green growth, which indicates a promising avenue for leveraging new technologies to foster both sustainability and a strong growth and jobs agenda.