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Finance & Innovation

Why New Zealand Measures Success by Human Well-Being Instead of GDP Growth

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When countries want to measure the success of their economies, they should assess human well-being instead of gross domestic product (GDP), New Zealand's finance minister, Grant Robertson, said at the World Bank’s Spring Meetings in Washington, DC Wednesday.

Robertson said that the only way to ensure a country's long-term economic growth is through investments in essential services and basic necessities like education, health care, skills training, and overall levels of happiness. And these investments are only becoming more vital as the world undergoes rapid technological change, he stressed.

“We don’t know what jobs will be there in 20 years time,” he said. “But the knowledge and learning happening now will drive success then.”

“Those core things of being able to be collaborate, to be empathetic, to understand people, to be creative, and to solve complex problems ... [We need to] orient education systems around that,” he added.

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Robertson said that New Zealand's general public was the driving force behind this change in perspective.

Although the country has had strong levels of GDP growth for years, everyday people regularly point to its high levels of homelessness, childhood poverty, and polluted rivers as signs that New Zealand is failing to live up to its potential.

This public sentiment led to a shift in the government's perspective and government agencies are now expected to take human welfare into consideration when developing budgets.

“We have an economic and social case for investing in human capital,” he said, during a panel called "The Economic and Social Case for Human Capital Investments," which focused on the World Bank’s new Human Capital Project.

“If you want to build a sustainable economy, you have to take into account all of the dimensions of that," he added. “If we’re not investing in education, intergenerational skills, well-being — it will undermine your economy.”

As part of its new project, the World Bank created the Human Capital Index to measure whether or not children are reaching their full potential in countries around the world. The index takes into account a range of factors including how likely a child is to make it to age 5, how many years of schooling they complete, the efficacy of their learning environments, and rates of childhood stunting.

Read More: Invest in Children's Health and Education to Spur Economic Growth, World Bank Says

The country with the highest score is Singapore, which invests heavily in both education and health care, while the country with the lowest score is Chad, where 87% of the rural population lives in poverty.

Kristalina Georgieva, the former interim president of the World Bank, said the index provides countries with a new framework for viewing development, but emphasized that politicians have to focus on more than short-term election cycles for it to be successful. Investments in human capital can take decades to be realized, she said. But, ultimately, they can create trillions of dollars in economic value across the world.

For example, the world is currently losing out on $164 trillion of economic activity and value because of gender inequality, she said.

Read More: Not Educating Girls Could Cost World Trillions, World Bank Says

“When we have a food shortage, who is the most negatively impacted? The girls, not the boys,” she said. “So then they’re stunted — what happens next? They usually don’t finish school, they marry early, and because of what they’ve gone through, their children are also likely to be unwell and stunted, and we have this cycle of poverty.”

“It’s not feminist chit chat,” she added. “It’s really the well-being of families and countries that we’re talking about.”

As wealthy countries like New Zealand focus on re-training people and lifting happiness levels, other countries like Nigeria are focusing on addressing extreme poverty, said Zouera Youssoufou, CEO of the Dangote Foundation, the largest private foundation in sub-Saharan Africa, which invests in areas like education and access to health care.

“So many people don’t have access to any education. Some people just aren’t in that system at all,” she said on the panel. “The problem isn’t [whether people] have the right skills, the problem is [whether they] have basic literacy and numeracy to be able to participate at a basic level in the economy.”

“So many children are growing up stunted and therefore are not able to ever fulfill their potential,” she added.

Nigeria has the most people living in extreme poverty, having recently surpassed India. Throughout the country, more than 123 million people do not have access to a safe and clean toilet, and 59,500 children under the age of 5 die each year because of poor sanitation and lack of clean water.

Read More: The Crucial Reason WaterAid Stopped Building Toilets in Nigeria

Georgieva said that the World Bank’s new project will help countries better link access to food, water, and education to the broader question of economic development.

For example, one additional year of schooling in some parts of Africa, she said, has the potential to increase personal income levels by 12%.

“If we disconnect the discussion we have today of human capital from conversations that you ought to have on electricity, connectivity, the ability to move around, how food systems function, we will actually be in our own expanded silo,” she said.