Beyond GDP

How our fixation with growth blinds us to broader measures of a society's health -- or lack thereof.

Would you rather have the economy grow at 12 percent or 5 percent?

That's not a trick question. An interesting new report by the Boston Consulting Group tries to measure not just the rate of economic growth around the globe, but the relative quality of that growth and how effectively governments are able to translate expanding economies into improvements in their societies' overall well-being.

While politicians and economists focus on per capita income and annual growth rates with an almost religious fervor, these numbers can mean very little to people in the real world. The study suggests that the answers to questions asked around the average dinner table -- Can I afford to send my kids to school? Is the water safe to drink? Do I have access to health care? -- tell us just as much about a society's living standards. So, in addition to traditional macroeconomic indicators, the study examined 10 other dimensions of social and economic development that it argues are good indicators of a nation's well-being, including health, education, employment levels, environmental protection, and civil society activity.

For example, looking at income inequality was a key factor in relative well-being in the study because it provided an important barometer of how widely economic progress was spread across a population, and how likely economic gains were to translate into better living standards for large numbers of people. Issues like education were included not only because education remains a core value in most societies, but because education has such a significant impact on income, health, and overall quality of life. Each of these 10 dimensions of well-being were undergirded by multiple data sets, ranging from mortality rates to levels of gender equality, with a heavy emphasis on information routinely collected by the World Bank and International Monetary Fund.

Since BCG has a good number of governments as clients, it avoided rank-ordering the results in a neat, tidy list for fear that it might embarrass some of the 150 countries it analyzed. But it isn't hard to peel back the data. For example, although the United States is comfortably among the top 10 countries by GDP per capita, its overall ratings on well-being lag behind some 20 others. Why? Because of the yawning gap in America's income equality, which has now reached its worst levels since the Great Depression, and its relatively poor health for a country with such high income levels. (Obesity and the incidence of HIV were a particular drag on U.S. health scores, and the IMF recently cautioned that growing income inequality in the United States may threaten the fundamental stability of its overall economic growth.)  

Norway sits atop the rankings with both very high levels of income and very high well-being scores. Indeed, Norway's current function in the international community largely seems to be to make everyone else feel bad about how they are managing their own societies. Despite sitting on vast oil reserves, Norway actually produces 99 percent of its energy from hydropower. In the BCG study, it ranked near the top in terms of governance, income equality, civil society, and education. In short, you probably don't want to sit next to Norway unless you want to walk away with a self-esteem problem.

Like Norway, Brazil has demonstrated that improving the well-being of a population requires more than trickle-down economics and pro-growth policy. Over the last decade, Brazil adopted a decidedly pro-poor approach to growth, and the results are impressive. While Brazil's GDP growth averaged 5.1 percent over the last five years, the country saw an improvement in the basket of 10 measurements for living standards that one would have expected from a country growing at about 13 percent a year, according to the study. Similarly, Poland and New Zealand saw improvements in living standards that far outpaced their GDP growth.

In general, Eastern European states, including Romania and Albania, were over-achievers when it came to improving well-being more rapidly than GDP, while the Arab Gulf states were particularly poor at translating their considerable natural-resource wealth into better lives for their citizens. The data from Eastern Europe, a region with lively civil societies and strong social safety nets that date back to well before communism, may in essence be rapidly making up for the years lost under Moscow's thumb. In contrast, the Gulf states, as relatively nouveaux riches, still suffer from deep social stratification, longstanding patterns of discrimination, sharp income inequality, and not very impressive levels of educational attainment. Indeed, with a few exceptions (including Norway, of course), natural-resource wealth often translates poorly into improved well-being for the countries surveyed -- in no small part because many of these countries still suffer from bad governance and high levels of corruption. There is a good reason the "resource curse" remains firmly ensconced in the development lexicon.

The report should be of interest to more than development experts, as it has some serious foreign-policy implications. Take China, for example. For years, China has been held up as a shining example of rapid economic growth, and its GDP has boomed. Yet, like the Gulf states, China has dramatically under-performed relative to its GDP when it comes to delivering improved well-being to its own citizens. Over the last five years, China's GDP growth averaged a phenomenal 12 percent, yet the report finds that its improvements in living standards are consistent with a country averaging just over 5 percent growth annually.

That's a big difference, and it underscores several important points. Widespread corruption continues to bleed China and is helping fuel deep gaps in income inequality. The failure to effectively address corruption also means that China's economic miracle isn't reaching the Chinese population the way it could, and should. That in turn suggests that the Chinese government is going to struggle to meet the rising public demand -- not only for ever more consumer goods -- but for greater freedom of association and more transparent government. With China's annual economic growth already cooling toward the 7-8 percent range, its government may find itself in an extended high-wire routine as it tries to hold power tight while delivering real results to its citizens.

This also suggests that U.S. policymakers need to do a better job of looking past GDP when assessing the relative stability of a country like China, or India for that matter. Traditional foreign policy calculations have hewn tightly to a country's economic and military might, rather than "softer" issues like rights, institutions, governance, and public health. Yet as this study makes clear, well-being may have a lot more to do with realpolitik than most people think. The Soviet Union may well have been an economic and military juggernaut, but Moscow's failure to improve the lives of its citizens ensured that it was an empire built on sand. That is a lesson the United States needs to heed both at home and abroad. 



Was It a Good Year in Afghanistan?

Looking back at a troubling 2012 filled with progress and peril, it's hard to determine whether the United States is winning this war.

As 2012 draws to a close, we should all cast a thought to the roughly 68,000 American living in dusty military outposts in places such as Kabul and Kandahar who are celebrating the holiday season far from their loved ones. It has been a busy year in Afghanistan -- U.S. forces have downsized by one-third, Afghans have assumed much more responsibility for the security of their country, NATO supply lines through Pakistan were reopened, and the U.S.-Afghan Strategic Partnership Agreement was signed. But the question remains: Are we really winning this war?

When assessing the facts and figures, it's hard to separate spin from substance. Reaching any hard conclusions about where Afghanistan is heading is no easy task. For those who want to believe the mission is going badly or who believe the war is a distraction from more pressing American national priorities, it is easy to find dismal trends to make their case. For those still hopeful, it is comparably easy to identify signature successes that put the United States on track to achieving President Barack Obama's stated goal of ending the current mission by 2014.

Take the recent debate, spurred by the Pentagon's December 2012 semi-annual "1230" report to Congress, on the evolution of Afghan security forces' capabilities. That report identified only one Afghan army brigade that is in the top tier of readiness and no longer requires any outside help for its operations. Some critics have concluded that this illustrates the failure of U.S. efforts to develop strong Afghan security partners.

Admittedly, the Afghan National Security Forces (ANSF), the country's military and police forces, is a work in progress at best. But at a time when the ANSF lacks ample airpower or logistics support, this is in fact inevitable. These deficits are almost by design, as such capabilities were viewed by NATO and Afghan officials as secondary priorities -- to be emphasized once the core infantry force structure was built.

Beneath the surface, meanwhile, there have been significant improvements within the Afghan military. It is now near its full, intended size of roughly 350,000 soldiers. There are now 92 kandaks -- formations of battalion size, or a few hundred soldiers -- scoring in the top two tiers of readiness. That's triple the number of late 2010, and 30 more than at this time last year.

A better indicator of ANSF preparedness is the percentage of missions Afghan forces are now leading -- or even conducting entirely independently of foreign assistance. This metric not only speaks to technical readiness, but morale, leadership, and the commitment of the armed forces to the nation.

Encouragingly, these numbers are improving fast. A year ago, Afghan forces led less than 40 percent of all missions -- today, according to the "1230" report, the figure is closer to 85 percent. Admittedly, this information does not tell us if the Afghan forces are now leading the most challenging operations or how well they are doing, but it does tell us something about their willingness to put their lives on the line for their country. The Afghan special forces represent a particular bright spot: They are not only leading a large fraction of all special operations missions -- they are undertaking responsibilities that are in fact quite difficult.

Other metrics are also on their way up. For example, about half of all Afghan security forces now have at least first-grade levels of literacy. The bad news, of course, is that this is a very low standard. The good news is that the figure was under 10 percent just two years ago, so progress has been rapid.

The casualty rate for Afghan forces is telling, too. Afghan army and police suffered around 1,000 fatalities a year from 2007 to 2009, then the figure grew to about 1,500 in 2010, 2,000 in 2011, and more than 3,000 this year.

This may sound as if the Afghan army is suffering more defeats with each passing year, but the story is more complicated than that. These high loss rates for Afghan forces suggest they are committed to and fighting for their country. Of course, such figures also indicate that the enemy is still resilient and dangerous, so the message is mixed. U.S. losses have declined as the ANSF has stepped up: Despite dozens of insider attacks this year -- which thankfully began to slow toward year's end -- American fatalities declined from some 500 in 2010 and more than 400 in 2011 to around 300 in 2012.

For Afghans, of course, the big question is whether their nation is getting less violent. Here too, the statistics are mixed: A broad gauge of violence, as measured by enemy-initiated attacks, is down only a few percent this year relative to last year, which was itself a modest improvement relative to 2010. The net reduction of violence over the past two years is about 10 percent.

The good news is that the numbers are going down, even as NATO starts to downsize. Fully 100,000 American "boots on the ground" worked to ensure peace and stability in 2011 -- since the surge ended, that figure has declined by more than 30,000 soldiers. Many of the cities have seen notable improvements: Kabul remains quite safe, accounting for fewer than 1 percent of all nationwide attacks -- with NATO troops providing very little of the security. Kandahar City and the northern hub of Mazar-e-Sharif are much improved, with attacks down 60 percent or more in each city this year. The western city of Herat is somewhat safer too, and the nation's ring road, which essentially follows the nation's perimeter, appears substantially more usable than a couple years ago.

The bad news, however, is that the 10 percent decline in violence nationwide is within the likely error margins, since not all violence is observed or documented by NATO or Afghan troops. As a result, it is hard to claim too much major improvement. And by other metrics -- like the number of civilians killed by the Taliban -- there is no progress at all.

Again, reaching a bottom line on what's happening in Afghanistan is hard. There is grist for both hope and anxiety in such figures.

Afghanistan's economy presents a similarly mixed picture. The good news is that it has consistently grown at a 6 to 8 percent clip in recent years. The bad news is that much of this growth is due to the twin stimulants of the huge foreign presence in Afghanistan and revenues generated from the opium economy. Even worse, widespread corruption means that wealth doesn't always trickle down to those most in need.

Other indicators of how life is improving for Afghans are less ambiguous. Some 90 percent of the population has access to basic health care within an hour's walk of their homes -- and as a result, life expectancy appears to have increased by more than a decade over the course of a few short years. Nearly 10 million children are in school, and more than 38,000 are enrolled in vocational schools, an increase of one-third over the last 12 months, preparing students for the types of jobs that Afghanistan's economy actually generates. Electricity production is up fourfold since the mid-2000s.

But even amid such statistics, there are troubling indicators. For example, access to electricity in rural areas as well as urban slums is still quite limited, and the increased availability of power has mostly benefited the privileged urban elites.

President Hamid Karzai's government is itself a mixed bag. He is personally popular and continues to poll well, with 70 percent of Afghans or more regularly saying they hold a favorable opinion of him. And more Afghans than not say their country is moving in the right direction: The latest figures from the Asia Foundation show a 52-31 favorable-unfavorable split when asked about the basic trajectory of their country. That's better than in most recent years -- or for that matter, most other countries in the world. But there are still enough disaffected Afghans to produce ample recruits for the insurgency, and uncertainty about the 2014 elections has led to fears about a possible return to civil war should the campaign exacerbate sectarian tensions. 

Afghanistan also can't be at peace unless its neighbors stop using it as a battleground from which to pursue their interests. Pakistan's role in the conflict has improved somewhat, with greater tactical cooperation near the border and a reopening of supply lines in 2012. But it continues to allow the operation of fertilizer plants within its territory that provide the raw materials for roadside bombs, rather than insisting on the production of more benign forms of fertilizer. Islamabad also continues to allow the Haqqani network to operate in North Waziristan, among its other ties with insurgent groups.

As we prepare to ring in 2013, determining what lies ahead for Afghanistan remains a murky venture. It's a close call as to whether the good news slightly outweighs the bad, but there are certainly glimmers of hope. Anyone who claims to be able to predict the future there has a clearer crystal ball than we possess.

Daniel Berehulak/Getty Images