Issue 4, 2018. August-September

   

THE BEST MINDS IN THE BUSINESS: FAMOUS ECONOMISTS WEIGH IN ON GEORGIA

Investor.ge is piloting a new column: questions with internationally renowned economists. We are reaching out to economists from all over the world who have written popular and well-regarded books on the issues that are important to the Georgian economy and to developing economies, and to economists working at think tanks that are at the forefront of development policy. We pose questions about the issues they are working on that apply to the challenges Georgia is facing. If you have a question, or a recommendation on whom we should talk to, please contact us at amcham@amcham.ge

For the fourth column in the series, Investor.ge spoke with Joao Hrtoko, Partner and Managing Director of Boston Consulting Group (BCG), about the firm's proprietary Sustainable Economic Development Assessment (SEDA), a diagnostic tool that "assesses the relative well-being of countries." SEDA uses 40 indicators over 10 dimensions to "flag relative positions and weaknesses, to point to the need for further analyses of causes and possible remedies," according to Hrtoko.

Georgia ranked 60 out of 152, an improvement from previous years.

Joao Hrtoko on how well-being converts to economic growth:

"BCG has produced the Sustainable Economic Development Assessment (SEDA) reports annually since 2012 - each year focusing on a new finding. In previous years, we've done deep dives on private sector opportunity to improving well-being, inequality and the effects on well-being, etc. This year, we wanted to test whether improving well-being takes a toll on the economy. Rather than our findings going against what many countries have done, we would argue that was has been missing is the awareness of the potential 'win-win.' Our analysis simply compared the growth rates of countries that perform well at converting wealth into well-being with that of other countries and found that those countries performing better on well-being also tended to grow faster over the decade we analysed."

Hrtoko on Georgia's ranking in the report:

"Georgia has improved considerably in the rankings over the last 10 years, moving from 74 to 60, a gain of 14 positions. Georgia has done quite well over several dimensions. It improved well in education, where it now ranks 39 overall. And it has shown major gains in three other dimensions: Governance, Infrastructure and Employment (albeit from a low starting point). In general, our overall findings suggests that there are strong complementary effects across dimensions, so the best way to improve radically is to make progress in all dimensions. But SEDA is also meant to serve as a diagnostic tool and those dimensions in which a country is weakest should receive special emphasis in terms of policy reform and investment - as relevant."

Hrtoko on how policy, not just economic wealth, affects citizens' well-being:

"We view well-being as a result of two things:

1. Wealth: countries with higher income levels can afford to do many more things to improve their citizen's well-being;

2. Performance in converting wealth into well-being: The coefficient that we use in SEDA to measure this provides valuable insights on whether a country is making the most of its resources, and SEDA can help identify priorities for progress (and, where needed, for remedial action).

This performance reflects the cumulative impact of policies, institutions and investment priorities, and improving it can magnify the effect of economic growth for well-being.

Furthermore, SEDA also shows that countries at similar income level can have quite different levels of well-being. It is possible to create well-being with the resources a country has at hand.

This is a direct result of policy choices that are better designed to transform/convert wealth into well-being."