The Hidden Factors of Growth

By Kristina Manalo, ERC Blogger

“The numbers don’t add up,” he declared.

Stewart, the accountant sat next to me, had been patiently itching to raise his point throughout the Q&A following Andrew Smith’s lecture to the Economic Research Council on the Economic Outlook for 2011. Finally, after some assistance in making his presence known, Stewart's voice was heard.

“Where does the growth come from?” He continued, “With falling wages, government spending and bank lending, together with rising inflation and the uncertainty in interest rates, where will the GDP growth in the UK come from? Surely the growth in manufacturing output alone cannot overcome the cumulative downside effect of the other factors?”

I did a double-take. Captivated by Stewart's clarity and certainty of thought, it occurred to me, why didn’t I become an accountant? More to the point, if the economists’ surveys are positive going into 2011, surely there must be numbers that Andrew is not telling us about?

And then I remembered the other kinds of capital, the non-financial capital which are far more difficult to measure than anything that can be quantified by units of monetary currency. I remembered the other kinds of investments that people make, investments in social and human capital, for which there are no quantifiable figures.

Hidden Social Capital

I remembered the emphatic words of my former classmate Peter in response to my first blog, strongly contesting the notion of a contraction in social enterprise; he estimated that his own investment in social capital grew by several orders of magnitude since the recession...

Indeed there is growth; there is progress.

From our limited and humble view we may be unable to detect or quantify it. And as I have done throughout all of the previous transformations in both personal and professional aspects of my life, I draw strength and inspiration from likening my progress to that of an egg in gestation. From the outside, we see nothing of the spectacular developments occurring within the shell. There is no observable progress...

And then the egg hatches. And, just as it is with individuals, it is with economies; only after the egg has hatched can we hope to quantify the financial value of the investments in social and human capital which had been incubating the growth all along. Perhaps if we could measure these precious investments and returns in non-financial capital, the numbers would add up after all.