Prosperity, Opportunity and Growth

RealBusinessLogo Here’s an article from a few weeks ago that I wrote for Real Business Magazine (original article here)… 

Anyone looking for good news on the economy should probably avoid George Osborne’s Autumn Statement, delivered in the House of Commons last week. The message was stark: in the absence of economic growth, austerity is here to stay.

Economic growth – measured in GDP terms – is the global metric against which all nations are indexed in order to measure national success and progress. Born in the dark days of the Great Depression as the post-war world struggled to find its feet, GDP fast became the tool for measuring economic progress of nations. For decades thereafter, GDP became the statistic to trump all statistics[1]. But today there is a growing consensus that GDP alone is too narrow to capture a country’s overall success.

In recent years this school of thought – that advocates for the use of alternative measures to capture national development – has become known as “Beyond GDP”. This expression, however, can be misleading as it suggests that wealth creation is unimportant or less important than additional factors. A preferable description would instead be “GDP and Beyond”, because this recognises the necessity of economic growth alongside other factors[2].

This theory is applied in the annual Legatum Prosperity Index™, which takes into account not just wealth, but also wellbeing. The Index benchmarks 142 countries around the world in a number of categories that help to give a clear picture of prosperity. These categories range from the economy to entrepreneurial opportunity, effective government, safety, education and health.

Despite the depressing economic environment in the UK (the country has fallen to 26th, globally in the Economy category), overall the UK has climbed one place – to 13th – in the worldwide 2012 rankings. This is just one place behind the US.

One of the primary reasons for this improvement is the UK’s thriving entrepreneurial climate.

The UK is the sixth highest-ranking country in the world in the Entrepreneurship & Opportunity category; sitting six places above the US and ahead of traditionally strong export economies, such as Hong Kong, Japan and Taiwan (15th, 23rd and 24th respectively).

One of the biggest contributing factors to this culture of entrepreneurialism is low start-up costs for new businesses. In the UK, these stand at 0.7% of Gross National Income, half as much as in the US (1.4%) and considerably below the global average of 20%. And this is despite the fact that a slightly higher proportion of people in the US think that their country is a good place to start a business (69% compared to 67% in the UK).

Other vital contributing factors to the UK’s high score in the Entrepreneurship & Opportunity sub-index are the perception of equal access to opportunities for British citizens and the belief that hard work pays off. Fairness and meritocracy are essential ingredients for building a long-term entrepreneurial climate, which more and more individuals will be drawn towards.

The performance of the US in factors related to entrepreneurship is one reason why the country has dropped out of the overall top 10 most prosperous nations for the first time this year, falling to 12th position. What is more, if the UK continues to thrive in these areas it is expected to overtake its transatlantic ally by 2014.

Promoting entrepreneurial freedom and opportunity for all who wish to start a business is not only good for national wellbeing, it will also generate the much needed, yet elusive, economic growth that the UK is looking for. History has shown entrepreneurship to be the primary engine of growth in the global economy.

As Barack Obama stated at the 2010 Summit on Entrepreneurship, “…throughout history, the market has been the most powerful force the world has ever known for creating opportunity and lifting people out of poverty.

There is more to success than GDP; but GDP is important. As the UK looks to return to growth, it should focus on continuing to provide an environment that supports and rewards the important and oft-overlooked class of wealth creators that are entrepreneurs. Keeping start-up costs low and reducing other barriers to business creation such as high tax rates and lengthy bureaucratic processes, are examples of policies that will stoke the entrepreneurial fires.


[1] Elizabeth Dickenson, GDP: A Brief History, Foreign Policy Magazine, Jan/Feb 2011

[2] “GDP and Beyond” is a phrase coined by Paul Allin of the UK Office for National Statistics in the article, “Is There More to Life than GDP and Happiness, February, 2012

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