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What are we getting out of our brand?

  • Published at 12:24 am October 28th, 2018
Efficiency is everythingBigstock
Efficiency is everything Bigstock

Getting more from less is the point of economic development

The brand value of Bangladesh has risen in the rankings. This is nice, and it’s especially gratifying that we’ve gone up from 44 to 39 in the international rankings while Pakistan has fallen from 50 to 51. However, we do need to consider two little caveats about such listings.

The first is that it’s created by a brand consultancy for the purposes of shining the brand of the brand consultancy. This is purely advertising for them - if global CEOs see stories about country brand rankings, then the company that produces such will be in the minds of global CEOs when they consider their own brands. That being where all the paying work is.

The creation of these sorts of rankings is, very often, just that - a bit of advertising, press relations, for the people who create the listings. This extends further too. Bond ratings agencies work the same way. Companies pay them to gain a ranking when a company wants to borrow money. As part of their efforts to make themselves better known, relevant, those same ratings agencies produce sovereign, country, ratings. 

No one pays them for this, it’s purely advertising that S&P, or Moody’s, Fitch, produce credit ratings for Germany, the UK, or the US.

As long as we understand this we can accord these rankings, these listings, the attention they deserve. A bit of fun, perhaps a tad more than that. But not rigorous investigations of true economic circumstances.

The second caveat, oddly, starts to take such listings seriously but in a very different manner. Things like listings of who invests the most, or who has the most human capital, educates best and so on, these are the very lifeblood of comparative economics. We can look at these cross-country listings, and then hope to see who is doing best. However, the trick here is to read them the other way around.

Say, as we do, that education aids in driving development. A simple and true statement. Thus, we can look at who is educating and have a guess at who is going to develop - something we do in fact do. As a guide to future actions, this isn’t a bad way of doing it. This extends to such things as human capital, physical investment, and yes, even brand values.

However, when we look at how well people are doing today we should read them the other way around. For what such listings about investment and capital values are is not a valuation of how well a place is doing. They’re a measure of investment, obviously enough, and therefore a measure of how much effort is being put in. 

A measure of the inputs into the system, that is. Which isn’t what we’re interested in at all - we want to know what the outputs are.

Assume that two cars are of the same value. Go on, assume, just for a moment. The first one uses a ton of steel in its construction, the second 500kg. Which do we think is the better car? If we measure by more inputs being better, then it is the one that uses more steel. But that’s to look at it the wrong way around, isn’t it? The one requiring 500kg is better, for out of one ton of steel, we can gain two cars, double the value.

So it is with any other input into the economy. Gaining more output from the same inputs is better, gaining the same output from fewer inputs is better.

At which point we can start to think more clearly about these various listings of investments. A higher GDP - recall, GDP is the measure of all value added in an economy - is better. So, a higher GP with the same level of capital or any other inputs is better. Thus, it isn’t true that having, say, the highest level of education is necessarily better. 

It might be, as above, a reasonable guide to how things are going to turn out in the future. But having a highly educated workforce which produces a small output today is evidence that we’re being inefficient. We’re using lots of inputs to gain not much output. We’re using 1 ton of steel when others are only using 500kg.

The importance of this correct way around of looking at things is that it gives us a good measure of the only important thing about any economy - its efficiency. Efficiency here is the same as productivity, the only important thing which will determine current and future living standards. Paul Krugman has pointed out that productivity isn’t everything, but in the long run it’s pretty much everything.

So it is with something like the brand value of Bangladesh. It’s nice to know what it is, certainly, good to see that it’s rising, and take that, Urdu speakers. But what’s important is how much are we getting out of this brand, not the capital value of it. So it is with education, physical investment, and all the rest. 

Measuring what we put in is important only in the sense that we can then correlate that with what we’re getting out of the other end of the system. An exercise which then tells us how well we’re using those resources going in.

Getting more from less is the very point of economic development. Thus we want to concern ourselves with what we get out of our capital stock, in whatever form, not how much investment or capital we’ve got. 



Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.