The Malta Business Weekly spoke to Malta Employers Association Director-General Joseph Farrugia about the limitations of GDP ahead of the MEA National Conference discussing the theme
Why is the MEA turning its attention to GDP right now?
Gross Domestic Product is not enough to measure economic sustainability as it leaves out essential considerations of wellbeing. The MEA has been talking about the need to broaden our economic views for a long time now, but the pandemic has put the topic in a completely new perspective and made the discussion urgent.
What is the problem with GDP?
GDP takes a picture of market factors that cover consumption, investment, exports, and public spending. But these are not the only contributors to economic performance. The voluntary sector, for example, or unpaid family workers do not fit into a GDP chart, and yet their functions have an immense economic impact. A GDP-only model neglects social and environmental significance layers that make economic growth possible in the first place.
So, should we stop measuring GDP?
GDP is an absolutely important metric. It is a useful indicator of the value of goods and services that our economy produces, and accurate markers help us to sustain growth. But even economists argue that GDP is not the only dimension of economic performance. It tells us nothing about the quality of life, the final purpose of economic development.
It is vital to track GDP, but that yardstick alone does not properly account for the non-monetary factors that determine the wellbeing of the economy. Activities and circumstances that may undermine competitiveness, such as loss of arable land, early school dropouts, gender inequality or social exclusion, are not captured by the GDP statistics.
But can these activities be quantified?
Wellbeing and sustainability in the wider sense cannot be reduced to their monetary value, even though they may be a driver behind GDP. Malta’s national heritage, for example, is a major contributor to the country’s tourism and culture sectors, but for GDP to account for it, we would need to calculate the fiscal worth of our traditions, language, and history. Besides being an almost impossible task, monetising our national legacy would diminish our identity. The same applies to all other unquantifiable areas, from natural capital to good governance.
What is the MEA proposing?
We need to embrace a broader vision beyond purely financial metrics and include wellbeing in our considerations. Financial gain has little worth if it comes at the cost of human or ecological progress, and a next-generation economy is expected to reflect the balance between growth and fulfilment. We must start the conversation to find new ways of driving Malta’s economy and accounting for it more comprehensively.
Do you think the country is ready for such a shift?
We need to be. This transformation is already occurring around the world, and some economies have already taken bold steps forward. Iceland, a country with a population comparable to Malta’s, has one of the world’s highest GDP per capita rates. Nevertheless, it set out an ambitious economic model encompassing some 30 criteria for wellbeing ranging from mental health to sustainability to social inclusivity.
The point of the conference is to start a national discussion and explore new paths for our economy. No one has a fool-proof answer to the question, but unless we start thinking about this national challenge, we will never develop the right model that suits Malta’s unique conditions and ambitions.
Are employers prepared to discuss wellbeing in these terms?
Employers have a major role to play in this transformation. Ultimately, a failure to address the issues related to wellbeing may result in a loss in productivity. The pandemic has been a great teacher in this respect: if we postpone the big decisions, we are only narrowing our alternatives down the road.
But this is a collective, national priority that involves all stakeholders in the private, social, and public sectors.
And what is the role of policy in this?
Policy-makers and political decision-makers have a responsibility in laying out a vision that opens a future beyond the here-and-now. Instead of electoral promises based on the short-term demands of different segments and lobby groups, political parties should provide a longer-term programme that gives entrepreneurs and investors the clarity they need to develop solutions that support a sustainable economy of wellbeing.
What would a post-GDP economy mean for investment?
The transformation itself is a mine of opportunity and calls for an entrepreneurial approach. Businesses operate increasingly in a macroeconomic environment, and significant changes in performance measurement translate into a big success.
To achieve that, we must recalibrate the country’s aspirations and focus on value-added. Malta’s growth strategy has to be more selective to ensure that one sector does not cripple another, and that socio-ecological development and profit interests do not stifle each other.