Since the 1930s when gross domestic product (GDP) was conceptualised, economists and scholars have argued over its suitability as a measure of the wealth and success of a nation.
Arguments have been drawn across the divide that, while GDP only considers the monetary value of all the finished goods and services produced within a country's borders, it does not take into account other indicators such as the wellbeing of citizens.
The latest argument was advance by Enrique Rueda-Sabater, a former director at the World Bank currently working with the Boston Consulting Group.
In his argument presented in a 59-page report titled, “Why Well-Being Should Drive Growth Strategies,” Sabater argued that GDP as a yardstick for growth is narrow and does not capture the full measure of well being of the citizens or improvement in quality of life.
His report further argued that economic growth in terms of GDP is a limited measure of a country’s development success, as it ignores other important factors such as well-being and is, therefore, not reliable enough to inform social economic strategies.
He cited cases of countries that had ranked highly in GDP performance but not as well in terms of improvement of citizen wellbeing.
Sabater proposes the use of a tool that takes into account multiple aspects of the well-being of citizens, including, economics, critical investments as well as social and environmental factors.
The new methodology proposed by the scholar, Sustainable Economic Development Assessment (SEDA), aims at providing a comprehensive insight to establish citizen wellbeing.
“SEDA’s design reflects the need of governments to pursue a balanced approach to raising the overall well-being of their citizens—one that is focused on economics, critical investments, and the social and environmental factors that ensure sustainability of progress over time,” the report read in part.
How nations fared under new index
Under the new methodology, among the countries that rank high in the proposed methodology from Africa are Rwanda and Ethiopia.
The two countries, according to the methodology, exhibit improvement in citizen wellbeing across sectors such as governance, health and economic stability stemming from investments by the government.
“Four of the top ten countries in terms of recent progress are in Africa, with Rwanda attaining the highest overall score. The nation posted recent-progress scores in line with the median—or above the median—in every dimension and it was among the top ten countries in governance, health, and economic stability,” the report says.
Indeed, over the past several years, Rwanda has taken positive steps—which have been widely regarded as successful—toward reforming macroeconomic policies and commercial laws, according to the report.
Commenting on the issue, Prof. Thomas Kigabo, the chief economist at the National Bank of Rwanda (BNR), said the assessment of economic performance of a country has to go beyond the level of production realised by the country to how the production has been inclusive and its role in improving the well-being of the population.
“For a responsible government, economic growth is a factor of increasing the wellbeing of the population. So the assessment of economic performance of a country has to go beyond the level of production realised by the country (measured by GDP) and assess how the production has been inclusive and how it has improved the well-being of the population,” Kigabo told The New Times.
Kigabo who is also an academic specialising in economics explained that inclusive growth requires leadership with objectives of improving the well-being of the population.
“This is indicated by how policies are formulated and implemented and the extent to which designed strategies are inclusive. This means focusing on solving real problems of entire population. This requires also efficient institutions and the ownership of their socio-economic development by the population. These are among key characteristics of good leadership,” he said.
Citing Rwanda’s example in measuring, he said the country had formulated policies that were pro-inclusiveness and citizen wellbeing-centred such as Vision 2020 and the second Economic Development and Poverty Reduction Strategy (EDPRS II).
This, he said, went beyond targeting high GDP performance to inclusive development.
“Another important element when we talk about effective policies in a country, it is the capacity of the country to review policies after a certain period to assess how implementation and formulation could be improved,” Kigabo explained.
To ensure that policies are implemented as planned, Kigabo said Rwanda had established robust institutions and that the leadership of the country succeeded to create people consensus creating ownership about the development of their country as well as accountability.
“That is why, high economic growth (measured by GDP) was translated into well-being of Rwandans evident through poverty reduction, access to health facilities, to education, to electricity, road, financial services, communication facilities,” the economist said.