Measuring Success In A Global Economy

Here is an important issue for economists, business planners, and economic developers alike: How do we measure success in the global economy?

Many experts hint that we have been fumbling our way around in this arena with no clear measures that deal with all the "new stuff" associated with globalization and rapid technology change. It feels just that way to me.

Here is a clip from a recent Industry Week article that lays out the problem, although no solution is offered, other than we need to work on it:

"We've never in history been so sophisticated in our use of benchmark metrics, economic statistics and trending indices as we are now. But we desperately need to learn how the twin game-changers of the 21st century -- globalization and information technology -- and new management practices, such as lean, have changed how we should interpret these numbers -- or whether we're collecting and analyzing the right ones. The data may not look different on the surface, but once-familiar and easily interpreted trend lines increasingly result in unexpected outcomes. Rising productivity is supposed to lift personal income and create jobs, but it hasn't. Raising short-term interest rates is supposed to lead to higher long-term interest rates, but they haven't."

"Most business and public policy leaders agree that the manufacturing sector is undergoing (or has undergone) structural change. But we continue to rely on old methods and metrics to measure progress and success -- and to set national policy and management strategy and to provide insight into future trends. The quicker we're able to adjust how we collect and interpret the data about the new economic reality, the sooner we'll be able to capitalize on it. Let's get started."

Here is my suggestion. There are three core components to the "new economy": 1) innovation; 2) productivity; and 3) prosperity. Of the three, prosperity is the one we need to worry the most about. We're doing ok on productivity and innovation, and yes more of each is needed, but the real problem in our new economy model is declining prosperity. We are not becoming more prosperous as a result of our economic policies and economic development strategies. We're losing ground. Hopefully Wal-Mart will realize that sometime soon. By the way, Wal-Mart has been soaking up as many economic development incentive dollars as General Motors.

I think we need to find a way to index prosperity to both innovation and productivity, and create incentives to increase prosperity (per capita personal income, median household income, and individual wealth creation) as a result of productivity and innovation gains. Right now, prosperity, except for the "rich minority," is declining at the expense of business productivity and innovation. There is a price for killing off all those jobs and exporting the rest overseas.

So, that is the nugget of the idea. More to come once the spirit moves me again on this topic.