What’s the point of growth?

Paul Clark, Chief Investment Officer at The Crown Estate, argues that assessing the strength of the economy on GDP alone is too narrow an approach and often doesn't reveal its true health. And in a more uncertain volatile world, businesses need to think more effectively about how they communicate the broader value they contribute to society. 


17 February 2017

Pundits, broadcasters and forecasters, when discussing the state of the economy, all seem obsessed with one number above all others – GDP growth. It features in news headlines, politicians speeches and is central to most of the presentations we receive from respected economists.

But why? In many respects it is a pretty esoteric concept detached from the realities of people’s everyday experiences. And as we saw repeatedly in 2016, economies can look in good shape from a GDP perspective without that seeping through into much of the real economy. I suspect it is because it is easy to make one figure totemic shorthand.

In reality though, there are a whole raft of different ways we could measure how we are doing as a nation and whether or not we are genuinely improving people’s lives and the long term health of the economy.

Consider these statistics: from 1980 up until 2016, the UK economy grew on average by 2.3% p.a., which is less than the 2.7% p.a from 1948 to 1980, but still makes the economy just over double the size of 37 years ago.

Meanwhile, over the same period, UK household debt is over six times higher and government debt over fourteen times. Nor have we had a consistent surplus on our balance of trade with the rest of the world since the late 1990s and our productivity growth has been anaemic.

I could go on … however, all of this tells you more about the current health of the UK economy than one isolated number taken out of context. This more fragmented picture of the economy, and many people’s corresponding frustration, is how you wash up with the events of 2016 and the consequential global political uncertainty we all now face.

For those of us in the real estate industry who have an interest in the long term success and cohesion of the UK, we need to play our part in taking a broader view of how the economy and society functions and therefore, the impact we have on it”

Paul Clark, Chief Investment Officer, The Crown Estate

People’s frustration isn’t limited to politicians. Trust in business is at an all-time low. For those of us in the real estate industry who have an interest in the long term success and cohesion of the UK, we need to play our part in taking a broader view of how the economy and society functions and therefore, the impact we have on it.

Since 2013, The Crown Estate has been working to understand how we can both better understand and communicate the broader impacts of our activities, as well as those of our customers and partners, beyond just the traditional financial indicators. We’ve called this approach ‘Total Contribution’, published this January, connects the dots between what we do and its positive and negative impact across the communities in which we operate, before tying it back to the factors which affect our performance as a business.

It’s a work in progress but we are committed to developing the approach and using it to inform more resilient financial decision making. We’re also working with businesses from across a wide range of sectors to create more robust metrics with the aim of eventually being able to benchmark our performance alongside others.

Perhaps, in time, economic forecasters will also start to take that broader view of the global economy rather than relying on narrow econometric models. Hopefully it might help them to better anticipate the sort of economic shock waves we have experienced, so far, during this century.

Download the 2017 Total Contribution Report here:

Total Contribution Report 2017 (PDF, 4.57 MB)