So Joseph Stiglitz and other economist are dissatisfied with GDP (which by the way is the value of all final goods and services produced in a country within a given period) as a measure of an economy’s performance as it is incomplete…it is similar to judging a company based on the revenues alone. The reason we like GDP is because it aggregates the economy since we cannot think in terms of every individual (even though that is exactly what we need to do- look at the minimum labor productivity and standard of living). So besides the fact that labor productivity and per capita GDP are better litmus test for an economy we need to consider what contributes to the long term growth of the economy (growth in potential GDP)
Now, my CFA teachers (in fact all my economics teachers just that I have only started listening well) explain that potential GDP of an economy depend on the ‘quantity’ and the ‘quality of work’ of labor. Quantity is a function of population and labor force participation rate while quality has to do with the capital investment in the country and the technology and processes. My company calls it “upgrading your people, process and system.”
Now the most powerful of this factors is Technology, actually called Total Factor Productivity (TFP), which in the Cobb-Douglas equation is the hardest to predict or control. It can only be encouraged.
So how do our value system in Nigeria, Africa and the World affect our TFP?
It is because of the structural implications of values…new technology, innovation and improvement needs incentives to happen. Copyright, patents, protection of intellectual materials have to be in place to encourage people to innovate. A transparent, productive, efficient and equitable political and legal system must be instituted to protect rights. And it is through values like honesty, integrity, discipline, respect, accountability etc. that we go beyond the letter of the law to create the environment that better supports business and innovation.
Now I am an economist. People are self-interested according to consumer utility theory and Nash Equilibrium shows that people will make decisions that optimise their own position irrespective of collusions. So what is my argument for instituting these needed values?
Firstly, by focusing on short term goals and sacrificing long term productivity we may be able to eat lavishly (like we did in the last four years) but we will be hungry when there is a change in the exogenous situation like the dollar crisis Nigeria experienced. But that is not all, we are so proud our rebased economy was $510bn but can you imagine what our economy would be if we were using all our resources efficiently. That is what happens when the nation has a value system.
But as the bible says, “the spirit is willing but the flesh is weak;” so we may want to be better but even I know that I tell the occasional lie, do less than my best on a task, fail to meet my budgeting goals etc. So we must work as a community to make ourselves accountable. That is the basis for laws and their enforcement. The judiciary system of any common law country is the powerhouse of the economy and should be free of reproach.
So I have been asking people this question…”how do you teach or learn values?” My father who I respect deeply says there are moral and social doctrines but the most effective way is emulating the examples of people we admire. And given the fact that people tend to admire popular, rich and powerful people- our celebrities, business leaders, Generals and politicians- they have an onus to lead by example if we want this country to keep moving forward.
Finally, I have far from made it and know I still have a lot to learn and do but I also know people look up to me. So I embrace my responsibility to live my faith and my values; do you?
– God Bless