Anyone looking for good news on the economy should probably avoid George Osborne’s Autumn Statement, recently delivered in the House of Commons. The message was stark: in the absence of economic growth, austerity is here to stay.
Economic growth is the global metric against which all nations are indexed in order to measure national success and progress. Born in the dark days of the Great Depression as the post-war world struggled to find its feet, GDP became the tool for measuring economic progress of nations. For decades thereafter, GDP became the statistic to trump all statistics. Today, there is a growing consensus that GDP alone is too narrow to capture a country’s overall success.
In recent years this school of thought – that advocates for the use of alternative measures to capture national development – has become known as “Beyond GDP”. This expression can be misleading, as it suggests that wealth creation is unimportant or less important than additional factors. A preferable description would be “GDP and beyond”, to recognise the necessity of economic growth alongside other factors.
This theory is applied in the annual Legatum Prosperity Index, which takes not just wealth, but also wellbeing into account. The Index benchmarks 142 countries around the world in a number of categories, helping to give a clear picture of prosperity. These categories range from the economy to entrepreneurial opportunity, effective government, safety, education and health.
Despite the depressing economic environment in the UK (now ranking 26th globally in the economy category), the UK has climbed to 13th place in the worldwide 2012 rankings. This is one place behind the US. One of the primary reasons for this improvement is the UK’s thriving entrepreneurial climate.
The UK is the sixth highest-ranking country in the world in the Entrepreneurship and Opportunity category; sitting six places above the US and ahead of traditionally strong export economies, such as Hong Kong, Japan and Taiwan (15th, 23rd and 24th respectively).
One of the biggest contributing factors to this culture of entrepreneurialism is low start-up costs for new businesses. In the UK, these stand at 0.7 per cent of Gross National Income. This is half as much as in the US (1.4 per cent) and considerably below the global average of 20 per cent. Despite the fact that a slightly higher proportion of people in the US think that their country is a good place to start a business
Other vital contributing factors to the UK’s high score in the Entrepreneurship & Opportunity sub-index are the perception of equal access to opportunities for British citizens and the belief that hard work pays off. Fairness and meritocracy are essential ingredients for building a long-term entrepreneurial climate, which more individuals will be drawn towards.
Promoting entrepreneurial freedom and opportunity for all who wish to start a business is not only good for national wellbeing, it will also generate the much needed, yet elusive, economic growth the UK is looking for. History has shown entrepreneurship to be the primary engine of growth in the global economy.
As Barack Obama stated at the 2010 Summit on Entrepreneurship, “…throughout history, the market has been the most powerful force the world has ever known for creating opportunity and lifting people out of poverty.”
There is more to success than GDP; but GDP is important. As the UK looks to return to growth, it should focus on continuing to provide an environment that supports and rewards the important and often-overlooked class of wealth creators that are entrepreneurs. Keeping start-up costs low and reducing other barriers to business creation such as high tax rates and lengthy bureaucratic processes, are examples of policies that will stoke the entrepreneurial fires.
Nathan Gamester is the programme director for the Legatum Prosperity Index™.
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