In every society, some people are better off than others. Discerning the differences is simple. When someone has more money than most other people, we call him wealthy. But an important distinction must be drawn between this kind of relative wealth and the societal wealth that we term “prosperity.” What it takes to make a society prosperous is far more complex than what it takes to make one individual better off than another.
Most of us intuitively believe that the more money people have in a society, the more prosperous that society must be. America’s average household disposable income in 2010 was $38,001 versus $28,194 for Canada; therefore America is more prosperous than Canada.
But the idea that prosperity is simply “having money” can be easily disproved with a simple thought experiment. (This thought experiment and other elements of this section are adapted from Eric Beinhocker’s The Origin of Wealth, Harvard Business School Press, 2006.) Imagine you had the $38,001 income of a typical American but lived in a village among the Yanomami people, an isolated hunter-gatherer tribe deep in the Brazilian rainforest. You’d easily be the richest Yanomamian (they don’t use money but anthropologists estimate their standard of living at the equivalent of about $90 per year). But you’d still feel a lot poorer than the average American. Even after you’d fixed up your mud hut, bought the best clay pots in the village, and eaten the finest Yanomami cuisine, all of your riches still wouldn’t get you antibiotics, air conditioning, or a comfy bed. And yet, even the poorest American typically has access to these crucial elements of well-being.
And therein lies the difference between a poor society and a prosperous one. It isn’t the amount of money that a society has in circulation, whether dollars, euros, beads, or wampum. Rather, it is the availability of the things that create well-being—like antibiotics, air conditioning, safe food, the ability to travel, and even frivolous things like video games. It is the availability of these “solutions” to human problems—things that make life better on a relative basis—that makes us prosperous.
This is why prosperity in human societies can’t be properly understood by just looking at monetary measures of income or wealth. Prosperity in a societyis the accumulation of solutions to human problems.
These solutions run from the prosaic, like a crunchier potato chip, to the profound, like cures for deadly diseases. Ultimately, the measure of a society’s wealth is the range of human problems that it has found a way to solve and how available it has made those solutions to its citizens. Every item in the huge retail stores that Americans shop in can be thought of as a solution to a different kind of problem—how to eat, clothe ourselves, make our homes more comfortable, get around, entertain ourselves, and so on. The more and better solutions available to us, the more prosperity we have.
The long arc of human progress can be thought of as an accumulation of such solutions, embodied in the products and services of the economy. The Yanomami economy, typical of our hunter-gatherer ancestors 15,000 years ago, has a variety of products and services measured in the hundreds or thousands at most. The variety of modern America’s economy can be measured in the tens or even hundreds of billions. Measured in dollars, Americans are more than 500 times richer than the Yanomami. Measured in access to products and services that provide solutions to human problems, we are hundreds of millions of times more prosperous.
Growth as the Rate of Solution Creation
If the true measure of the prosperity of a society is the availability of solutions to human problems, then growth cannot simply be measured by changes in GDP. Rather, growth must be a measure of the rate at which new solutions to human problems become available. Additionally, since problems differ in importance, a new view of growth also must take this into account; finding a universal flu vaccine is more important than creating a crunchier potato chip. But in general, economic growth is the actual experience of having one’s life improved. Going from fearing death from a sinus infection one day to having access to life-saving antibiotics the next is growth. Going from sweltering in the heat one day to living with air conditioning the next is growth. Going from walking long distances to driving isgrowth. Going from needing to go to a library to look up basic information to having all the information in the world instantly available to you on your phone is growth. (Obviously, some solutions, like air conditioning, may create other problems, like global warming. How to make the trade-offs between solutions and problems is one of the central challenges of any society—an issue we will return to later in this essay.)
This all implies that we must find new ways to measure progress. In the same way that no good doctor would measure the health of a person by just one factor—her temperature, say—the economy shouldn’t be measured with just GDP. No single metric such as GDP can capture the way in which economic activity is actually improving the lives of most citizens and the overall health of the economy.
It is not immediately obvious how therate at which a society solves people’s problems might be directly measured. However, there might be ways to do it indirectly. For example, we measure inflation by tracking the price of a basket of goods. What about measuring access to a “basket of solutions” to human problems? How many people have access to good nutrition, health care, education, housing, transportation, a clean environment, information, communications, and other things that make a tangible impact on the quality of life? We could also ask how the basket itself is changing over time as innovation yields new solutions—for example, solving the problem of getting information has dramatically improved with the development of the Web and smartphones. Growth and prosperity could then be measured as a combination of access to existing solutions and the addition of new solutions through innovations.
The UN’s Millennium Development Goals, which include a number of measures such as gender equality, child mortality, and environmental sustainability, are an example of an attempt to gauge economic health and societal prosperity in a more multidimensional way. Such an approach could be expanded to include the idea of access to a basket of solutions. Likewise, the Organization for Economic Cooperation and Development (OECD) and the World Bank have been working on multidimensional approaches to determining the health of developed economies and already collect much of the data that would be needed to assess access to and innovation in a basket of solutions. Such measures will inevitably not be as neat and simple as GDP, but finding ways to measure both the rate at which we solve new problems and the degree to which we make those solutions broadly accessible is a more complete way to measure the health of our economy.
(src: Capitalism Redefined, Nick Hanauer & Eric Beinhocker)