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Rival GDP Measure Puts Emphasis on Social Progress

Rival GDP Measure Puts Emphasis on Social Progressi
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April 11, 2013
There is a new way to measure a nation's success, called the Social Progress Index. The economists and other experts behind the SPI say it measures things that directly affect ordinary people, like access to food, opportunity and medical care. That is a different approach than the traditional Gross Domestic Product, or GDP, which just adds up the output of goods and services -- ignoring things like air quality. As Henry Ridgwell reports for VOA, the SPI's creators hope it will offer lessons to policymakers in fast growing African and Latin American economies.
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Henry Ridgwell
— There is a new way to measure a nation's success, called the Social Progress Index. The economists and other experts behind the SPI say it measures things that directly affect ordinary people, like access to food, opportunity and medical care. That is a different approach than the traditional Gross Domestic Product, or GDP, which just adds up the output of goods and services - ignoring things like air quality.

The SPI's creators hope it will offer lessons to policymakers in fast-growing African and Latin American economies.

Since the early 20th century, the United States has topped the global table of Gross Domestic Product.

According to the new Social Progress Index, though, the best country in the world is Sweden. The United States ranks sixth.

The index was designed by academics from Harvard and the Massachusetts Institute of Technology, together with business professionals from across the globe.

"We're not measuring economic proxies for well-being; we're measuring the things that matter to real people," said Michael Green, executive director of the Social Progress Imperative, the body behind the project. "Do I have enough food? Do I have shelter? Do I have access to health care? Do I have opportunity in my life?"

Those questions are answered by measuring 12 diverse components, including nutrition, ecosystem sustainability and personal rights; even measuring access to the Internet.

Britain comes second in the index - a result that surprised Green.

"What Sweden and Britain do well is that they combine the European model of a good social welfare system and a focus on environmental sustainability, with the American model of opportunity and freedom, rights, that kind of thing," he said.

Costa Rica is 12th on the index, the highest-ranked emerging economy in the world. It scores highly on components related to education and environment, and on opportunity.

That's thanks to its history, says Costa Rican national Roberto Artavia, director of Copa Holdings and vice chairman of the Social Progress Imperative.

"124 years of continuous democracy. It has had a social inclusion institution since 1971. It has had full social security since 1941. This seems to have actually created the framework for development - social development - to take place."

The creators of the Social Progress Index insist that it's not politically-motivated.
Alvaro Rodriquez, one of the co-founders of the index, is chairman of the board of Compartamos, the largest microfinance institution in Mexico and Latin America.

"It's not about inputs; it's about outcomes. We were very careful in doing that because otherwise there would be in some way an incentive for big governments and more spending. That's not the case," said Rodriquez.

At 41st, Ghana ranks eight places higher than Nigeria, despite having a similar GDP.

"Nigeria is bottom of the pile on security. So you've got to try to tackle those kinds of issues. We also found challenges for Ghana. Ghana's got to push a bit harder educationally; it's being left behind by other countries in the region," said Green.

Green said the message for policymakers is that you can get high levels of social progress at relatively low levels of GDP.

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by: Anders Corr, Ph.D. from: New York, NY
April 18, 2013 7:35 PM
Of course Sweden, Britain, and Switzerland have the best Social Progress Index (SPI) scores, because these countries have some of the highest GDPs per capita of the fifty countries in the index. It is no coincidence that the three lowest SPI scores – Ethiopia, Nigeria, and Uganda, have very low GDPs per capita. The best way to understand the Social Progress Index is therefore to control for GDP per capita. Corr Analytics did simple regression analysis on the Social Progress Index data to show that approximately 84% of the index is explained by gross domestic product (GDP) per capita. Predictably, countries with large economies relative to their populations will have more wealth that can be channeled to basic necessities measured by the Social Progress Index.

Therefore the simpler standard used by economists for decades — GDP per capita — works quite acceptably for well-being. Interestingly for development economists, when comparing the index to GDP per capita using loglinear regression, it shows that for countries below the mean GDP per capita ($16,030 in 50 countries sampled by the Social Progress Index), the positive effect of GDP per capita growth on social progress is very high. The effect after mean GDP per capita is still positive, but of a much lesser magnitude. Development funding, therefore, yields the highest social progress gains in relatively poorer countries.
Adding the degree of democracy to the regression brings the explained variance of SPI to 87%. Democratic nations are better able to leverage GDP for basic necessities, because of effective voting coalitions of the economically disadvantaged.

The theoretical range of the Social Progress Index is zero to 100, with 100 indicating the greatest possible provision of well-being. The actual range of the data is 32 (Ethiopia) to 65 (Sweden). Given the 33-point actual range, the effect of changes in GDP per capita and democracy are substantial. An increase of $10,000 in GDP per capita for the poorest country in the dataset yields an expected increase of 17.5 points on the Social Progress Index. That same $10,000 increase for the richest country yields only a 0.6 expected increase on the Social Progress Index. A change from pure dictatorship (autocracy) to full democracy yields an expected 7.5-point increase on the Social Progress Index.

The regression also elucidates countries that are social performers and laggards given GDP per capita. Vietnam, Costa Rica, the Philippines, Britain, Bulgaria, and Argentina are the six highest performers given GDP per capita. With the exception of Vietnam, these countries are democratic. The UAE, Nigeria, Russia, South Africa, Kazakhstan, and Botswana are the six lowest performers on the Social Progress Index given GDP per capita. Most of the laggards are dictatorial or have pseudo-democratic forms of government.

Graphs, tables, and data further illustrating the observations on SPI above are available at www.canalyt.com.

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