Switzerland Outperforms GDP Data
GDP shows clear inefficiencies as a proxy of economic performance particularly in Switzerland, notably due to the global nature of some of the key Swiss business sectors.
Switzerland is considered to be one of the wealthiest nations in the world and frequently ranks close to the top in terms of living standards. Yet, measured in terms of gross domestic product (GDP), its long-term growth rate lags behind that of other countries. The report "The Future of GDP," published by the Credit Suisse Research Institute, discusses the main concerns around measuring progress based on GDP figures as well as alternatives worth pursuing. One chapter of the study is fully dedicated to Switzerland.
The Swiss Paradox
According to the Organisation for Economic Co-operation and Development, the Swiss domestic economy has on average had the lowest price-adjusted GDP growth of all the industrial countries over the past 50 years. The paradox of comparatively low GDP growth and high living standards has triggered discussions about the usefulness of GDP data. Apart from the fact that GDP does not seem to measure wealth precisely, there are further shortcomings, for instance omitting the so-called "terms of trade", representing the ratio of export prices to import prices, from the GDP calculations.
Due to the global nature of some of the key Swiss business sectors, GDP shows clear inefficiencies as an indicator of economic performance. While having limited access to commodities, Switzerland does substantial business in commodities trading, amounting to around 4% of GDP. This significant contribution also stands in contrast to the small number of people employed in the segment (estimated at 36,000) and the fact that it is not included in the conventional statistics. The price-sensitive commodities sector is thus highly relevant for Swiss GDP, although the product never crosses Swiss borders.
According to the OECD, the Swiss domestic economy has on average had the lowest price-adjusted GDP growth of all the industrial countries over the past 50 years.
The Impact of Sport on Swiss GDP
World's leading sports associations, including the Fédération Internationale de Football Association (FIFA), the Union of European Football Associations (UEFA), and the International Olympic Committee (IOC), are headquartered in Switzerland, therefore the license income from major sports events is an important part of Swiss GDP. In fact, according to SECO, if a world sports gala does not take place one year, the immediate impact on Swiss GDP amounts to up to 0.3 percentage point. However, the study's authors believe that the figures derived from these activities and flowing into Swiss GDP have an extremely limited impact on the Swiss real economy.
GDP Is Not Enough
"The Future of GDP" outlines some of the key failures of GDP metrics to capture key developments, and discusses alternative tools already available to public and private decision-makers. On the investor side, the demand for environmental, social, and governance data is rising steeply. On the public side, organizations such as the World Bank already consider metrics other than GDP to assess quality of life, including life expectancy at birth or access to education. At the same time, the debate around gross national income (GNI) has been gaining importance. Though it shares fundamental elements with GDP, GNI is more relevant to the globalized age, because it adjusts for income generated by foreign-owned corporations and foreign residents.
Further, the authors note that it is becoming increasingly difficult to collect reliable data with regard to certain activities (financial services, research and development) and technologies (e.g. digitalization, sharing economy) that play an increasingly important role in the global economy.
The Way Forward
Looking ahead, the authors of "The Future of GDP" suggest that decision-makers focus on the following points:
- First, the weaknesses of GDP metrics should continue to be discussed by leading experts. The relevant stakeholders need to closely follow those debates and take corresponding measures.
- Second, public and private decision-makers have a multitude of instruments at hand which need to be used to complement GDP figures, as they enable superior assessment of actions and their impact on societies and the environment.
- Third, it is important not to let the great become the enemy of the good. All challenges are not yet solved, but there has been a lot of progress in reducing many of the distortions of current metrics.