How to Measure a New Economy | DAVOS 2020

TL;DR

The way we measure and manage the global economy, particularly GDP, is becoming increasingly important, but outdated. There is a need for a more comprehensive and accurate system to reflect the complexities of the modern world.

Transcript

as Mike Bloomberg often says if you can't measure something you can't manage it and that applies to companies and it applies to countries and right now the question of how we're managing the global economy is critically important if something we write about a lot of the financial times with our partners in nikkei and if something which is becoming ... Read More

Key Insights

• ❓ GDP, while a crucial measure, is outdated and fails to capture the complexities of the modern economy.
• 😨 Intangible assets, care work, and the digital economy are not adequately accounted for in GDP calculations.
• 🖐️ Government spending has played a vital role in technological advancements and innovation.
• 🧑‍🏭 There is a need for a more comprehensive and accurate measurement system that incorporates well-being, environmental impact, and societal factors.
• 🌐 The ownership and governance of data are crucial issues in the measurement and management of the global economy.
• ❓ A dashboard approach that combines various indicators is necessary to provide a holistic understanding of economic activity.
• 🎨 GDP should not be solely relied upon as a welfare or well-being measure, as it was not designed for that purpose.

Questions & Answers

Q: Why is GDP not sufficient in measuring the modern economy?

GDP was created to measure manufacturing and industrial processes, but it fails to capture the impact of digital advancements, environmental concerns, and intangible assets, which are increasingly important in the current economic landscape.

Q: What aspects of the economy are not accounted for in GDP?

GDP does not take into account the value of care work, informal and cash-based activities, and the digital economy. These omissions lead to an inaccurate representation of economic activity.

Q: How can we improve the measurement and management of the global economy?

One approach is to adopt a dashboard approach, which incorporates various indicators such as well-being, environmental impact, social factors, and competitiveness. Additionally, there is a need for more frequent and accurate data collection, including the use of alternative data sources and new measurement techniques.

Q: What is the role of government spending in technological advancements?

Government spending has been critical in financing and commercializing many technologies. Public institutions have played a significant role in the development of technologies such as the internet, GPS, and touchscreens, which are now ubiquitous in our lives.

Summary & Key Takeaways

• GDP, a 20th-century construct, is insufficient in measuring the complexities of the modern economy, including digital advancements and environmental issues.

• GDP misses out on measuring intangible assets, such as knowledge creation and software development, which are increasingly vital in the digital age.

• Care work, done mostly for free in households, is undervalued and not accounted for in GDP, resulting in an inaccurate representation of the economy.

• Government spending has been crucial in financing and commercializing many technologies, contradicting the narrative that the public sector is a hindrance to innovation.

• There is a need for a more holistic and accurate measure of economic activity that incorporates well-being, environmental impact, and societal factors.