So what drives economic prosperity? Is there a simple explanation for how a country can attempt to increase the quality of life of its population through economic growth?
Perhaps one of the best placed people to give us some insight into the question is Professor Stéphane Garelli, heads the World Competitiveness Centre at IMD, Lausanne and a world authority on competitiveness who has pioneered research in this field for 25 years. He has worked in private industry and is also the author of numerous publications on competitiveness and global business including “Top Class Competitors – How Nations, Firms and Individuals Succeed in the New World of Competitiveness”.
Professor Garelii recently spoke at the Deloitte Best Managed Companies event of which IMI are a sponsor. So we took the opportunity to ask him for a definition of what determined economic competitiveness… in just six words.
IMI Six Word Wisdom
IMI:What is your message to business in six words?:
SG:
Economic Prosperity is Growth plus Direction
IMI: What does this mean?
SG: Put simply, prosperity comes not just from growth alone, which is not sufficient, it comes from deciding what type of growth it is that a country needs, what it hopes to achieve by that growth and steering it in a particular direction. So prosperity is indeed about growth but it is about growth plus something else.
There are 3 main things that I think it is important for people to understand when they are looking to understand (and to promote) economic growth.
1. Zero growth is not an option for any country. There is sometimes a misconception that growth is always at the expense of other countries but it’s not the case that one country can only build wealth at the expense of another. Quality of life depends on economic growth.
2. Growth requires direction. Growth alone is not sufficient – it is a necessary condition. We need something else… and that is a direction for that growth. What this means is that ever every country (and indeed every business) needs a blueprint and a strategy for what they need that growth to bring – and it depends on your context. In many developing countries – for example in Africa – it is economic growth plus food – in more developed countries it is economic growth plus quality of life, in a country like Switzerland or perhaps Ireland it moves from being about developing quality of life to looking at how the country can continue to grow wealth sustainably.
3. We need to intervene appropriately when that growth goes off track. In other words, we need to monitor where growth is coming from and try to make sure it is appropriate and sustainable. We need to look out for economies growing based on wants rather than on needs – such as is happening in many developed countries such as the US, Switzerland and Ireland. This type of growth is volatile as people tend to get saturated with something (property, consumer electronics) and move to something else. So, growth can go in the wrong direction, become volatile and may require some not too invasive intervention on the part of the government. I am very impressed when i look at countries – like Dubai, Singapore and Hong Kong – they have a consensus on where they are trying to get to and don’t use too much intervention to get there …
I have spent a lot of time recently looking at answering the questions I hear most frequently… in simple terms… for example what do we mean when we talk about the prosperity of a nation? The fact that so few people really understand economic concepts is a failure of economics in many ways…There is a lot of work to be done in understanding how wealth is created. People, and indeed often governments, simply don’t understand where they money comes from. I think this is because all too often economists speak only to each other! We need to develop simplicity of language that allows us to explain economic concepts in ways that everyone understands.
IMI: Where should we go to learn more?:
SG: For businesses there are resources an links to further work on my website http://garelli.ch/ To see where Ireland comes in the latest global rankings see the World Competitiveness Council Rankings 2013.
So, while we tend to view economists and their work as being about predictions (which often end up wrong) instead of about its more important role in giving us an understanding of what determines our quality of life. Economics has a huge impact on our daily lives – so it merits our attention for that reason alone.
But as we can see there are also many parallels between the approach which a country needs to adopt to achieve growth and the strategy that an organisation needs to consider for growth. An an understanding of economic context is critical for any businesses seeking to determine how they themselves can grow competitively.
In conversation with Eva Maguire, IMI
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See more posts on strategy or read the whole Six Word Wisdom series to date.
