A report released this month by the World Economic Forum questions one of the fundamental assumptions of the last 100 years: that a healthy economy helps improve the lives and well-being of the people who are part of it.
The new findings, in the WEF’s 2012 Global Competitiveness Report, suggest that even the most robust economies are increasingly leaving many of their participants behind. In fact, the positive effects of development – cleaner water, more sources of energy, housing, and education – are now harder to come by in many parts of the world despite their expanding economies.
The WEF report, which compares the competitiveness of 144 economies, points to trends like the Arab Spring, the rise of chronic unemployment across Western Europe, and the widening income gap between segments of the population in the Asian economies as proof that it’s getting more difficult to sustain standards of living that were taken for granted even 10 or 15 years ago.
For the better part of the past century, a growing economy was the surest sign that a region’s population would reap the benefits in the form of increasing prosperity and improved living conditions. They’d have more access to goods and services, better health care, and more opportunities to start businesses themselves.
But now, economists are trying to measure progress more broadly. A 2008 study led by economists Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi attempted to gauge an economy by going “beyond measures of market activity to measure well-being,” as the WEF report puts it. Another tool is triple bottom line accounting, which tries to pull environmental and social performance into the mix in gauging economic and financial performance.
However they do it, it’s clear that the economists who inspire the people organizing the annual Davos summit are suggesting that access to a clean environment and sustained economic well-being are what give a country a long-term competitive edge.
In fact, the WEF has coined a term, sustainable competitiveness, and an index to measure what it calls the key to economic prosperity over the long term: the need to make a society productive in ways that will ensure the stability of the society and environment. According to the report: “The central idea of sustainable competitiveness reflects the search for a development model that would balance economic prosperity, environmental stewardship, and social sustainability.”
The leadership of the World Economic Forum, of course, is a group of European academics who have always been keen on the importance of state-funded safety nets in creating a robust, well-rounded economy. That’s why in its latest rankings in the Global Competiveness Report, the perennial winners – countries like Switzerland, Finland, and Sweden – continue to score well. But when the WEF adjusted the overall global competiveness rankings with social sustainability and environmental sustainability indicators, many of those Western European countries perform even better.
The United States, however, does worse when the WEF’s social and environmental sustainability adjustments are factored in. It fell to 7th place from 5th last year in the overall global competiveness index. Despite strong marks for innovation and an economy that remains the largest in the world, the report noted that “political brinkmanship” and “gridlock on fiscal tightening” could dim the outlook for growth. “A lack of macroeconomic stability continues to be the country’s greatest area of weakness,” the WEF report reads. “Inefficient government bureaucracy” is cited as the most problematic factor for business, with tax rates and regulations next on the list.
Also hurting U.S. competitiveness, according to the report: “The country’s social sustainability score is affected by increasing inequality and youth unemployment.” But it’s the environmental portion of the index that really dings the overall U.S. ranking. “For example,” the report explains, “the United States is among the countries that have ratified the fewest environmental treaties in the sample.”
World Economic Forum’s 2012 Global Competitiveness Index rankings
7. United States
8. United Kingdom
9. Hong Kong SAR