The Mercator Projection
In 1569, the Flemish cartographer, Gerardus Mercator, created the standard map we use today.
We have used this map for over 500 years. This is how almost everyone knows the world to be. But there is a problem.
The map is wrong.
Over the centuries cartographers have pleaded with educational boards and state bodies to change the map being used in schools because it misrepresents how the world actually is. In the Mercator map, Greenland is shown to be roughly the same size as Africa, for example. But if you use the actual measurements of those two territories it turns out that Africa is actually 14 times the size of Greenland.
The above image shows the Gall-Peters map juxtaposed with the Mercator map. Territories have been designed closer to their real-world measurements on the Gall-Peters. The world looks very different from what most people know.
Maps are only abstractions of the real-world but they are powerful tools in helping us think about and visualize the real-world in an effort to find our way in it.
Economics is like cartography. Economists build models to structure and measure the world. They do this to plan, organize, and manage the economy for the purpose of making everyone better off (maximizing individual well-being). The economy is the territory and the model is the map.
Alan Greenspan, the former Chairman of the Federal Reserve, appeals to this way of thinking by titling his autobiography The Map and The Territory.
If the economist or social investor is interested in social progress (the territory), what happens when an economic model (the map)is wholly inadequate in giving you a precise view of your territory? What is the development economics equivalent of the Mercator projection?
Gross domestic product
If your goal is to promote the well-being (welfare) of the society then it is necessary to collect measurements of well-being to properly construct a map to reach the intended destination. Simply taking the total GDP of a country and dividing by the number of people in that country (the so-called GDP per-capita) is not an effective measure of the social well-being and progress of that country.
One of the early creators of GDP, Simon Kuznets, stated in the 1930s, that “the welfare of a nation can scarcely be inferred from a measurement of national income.” He did not create the GDP metric to map social progress. It was intended to analyse the impact of the economic depression on production levels in the USA.
When the Second World War erupted, the government in the USA and UK, were only concerned with one thing: how much war equipment can their countries produce. There was no longer a concern with well-being and social progress. GDP became the statistical tool of war production.
After the War, GDP — originally a signal of potential war strength — became a signal of social progress. Essentially, war strength and social progress were politically conflated. And from that point, GDP became the Mercator map of development economics. Just because your nation has a large production ‘territory’ does not mean it has a large social progress ‘territory’. And if you only have the GDP map you can never see beyond GDP.
The Human Development Index
Since the start of peacetime, economists became increasingly dissatisfied with GDP as a measure of social progress. In 1990, the Pakistani economist, Mahbub ul Haq, working with the UN, developed the Human Development Index (HDI). Haq did this for the explicit purpose of shifting the “focus of development economics from national income accounting to people-centered policies.”
While the HDI is a better model of social progress than GDP, it still has extensively problematic methodological issues. Because of the equal weight it puts on its three categories (life expectancy, education, GDP per-capita), it “effectively means”, as the American economist Bryan Caplan points out, “that a country of immortals with infinite per-capita GDP would get a score of .666 (lower than South Africa and Tajikistan) if its population were illiterate and never went to school.”
Caplan uses an imaginative example to emphasize the weakness of the HDI. And he is right. Yet, the influence of HDI persists although it is not a well-calibrated map of social progress.
Is there another option?
Social Progress Index
Yes. The Social Progress Index (SPI) designed and launched by a team of economists led by the eminent business strategist, Harvard Professor Michael Porter. It is an aggregate index of social and environmental indicators that capture three dimensions of social progress: Basic Human Needs, Foundations of Well-being, and Opportunity.
The creators of the SPI made it explicit that the index is absent of purely economic indicators. This is not because they believe that ‘economic progress’ is irrelevant to ‘social progress’. Rather, they argue that the data demonstrates that there is a strong correlation between the two but the direction of causality can go from social to economic and not only economic to social. In their words: “economic development alone is an incomplete development strategy.”
The HDI was not able to assess this bi-directional causality because it had economic indicators within its model. In other words, the HDI is a fuzzy map of social progress. And the pure GDP per-capita could never meaningfully assess this bi-directionality because it has zero social factors: a map of another territory entirely.
The SPI is a map calibrated precisely to navigate the territory of social progress. SPI defines social progress as:
‘the capacity of a society to meet the basic human needs of its citizens, establish the building blocks that allow citizens and communities to enhance and sustain the quality of their lives, and create the conditions for all individuals to reach their full potential.’
To do the mapping it has 12 component categories and 53 indicators. It is highly calibrated. A tongue-in-cheek comparison is this: HDI is like a tourist map you buy from a gas station and the SPI is Google Earth on a high-speed internet connection.
These metrics are assessed individually for each country in the index. The data from each indicator is taken from independent computed empirical investigations. Using this map, the world looks very different. In terms of GDP the USA is at the top of the world but in the SPI the USA does not even break the top 10 best performing countries. Below is the index of the USA, which ranked 19th.
You will notice the many red dots in the USA profile. This indicates the relative weakness of those categories compared to countries with similar economic standing. This means that the USA is failing and falling behind in terms of social progress.
Compare the USA profile to Canada which ranked 2nd on the SPI:
Much fewer red dots. Canada is doing well with its social progress especially regarding Basic and Advance Education.
What about Barbados? Unfortunately, Barbados is not listed on the SPI. This is primarily because of the lack of data availability. This is a problems that should be corrected.
But Jamaica is listed. It ranked 44th.
The SPI compares countries with similar economic standing. So in Jamaica case, countries with similar GDP per capita are: Albania; Armenia; Bosnia and Herzegovina; Egypt; El Salvador; Georgia; Guatemala; Indonesia; Mongolia; Morocco; Namibia; Paraguay; Sri Lanka; Swaziland; Ukraine. So relative to these countries, Jamaica demonstrates many strengths (as indicated by the green dots).
The SPI measures directly what you need to know about social progress. Social investors, like any good business professional, should use the most accurate metrics to direct their capital and understand if there is a significant ‘social return’. And this is intuitive: if you are a philanthropist in healthcare you are not going to check GDP per-capita to validate your investment. You are going to look at a more narrow metrics (or at least you should.)
A better map for social investors
When making social development strategies — from public policy to philanthropy — the SPI is a better map of social progress than any other map developed by economists in the past. Changing a map that is so ingrained in our psyche is a radical act. But if you are policymaker, business leader or philanthropist trying to make a meaningful impact on the social world: it is best to know what the world actually looks like.