Hacking the GDP

By definition, primary goal for emerging market economies is to progress toward becoming advanced. This subtly implies that emerging market economies have a prosperity problem: these countries are somewhat prosperous, but not sufficiently.

How is prosperity measured and improved? GDP per capita is a commonly used metric. Emerging economies strive to equalize their GDP per capita levels with that of developed economies.

Thus, economists in emerging economies have one constant struggle: finding ways for rapid and sustainable GDP growth. This is a reasonable endeavor, but I don’t think we have the luxury to rely on this for prosperity because:

  • It’s likely that we’ll never find such growth and our GDP per capita levels will never get to the level of prosperous countries [1]
  • It may take forever even if it does finally happen. (and we may not even be there to see it)

Are there any other ways?

Trying to equalize the GDP per capita levels may not be the only route to prosperity. In fact, I can even argue that GDP per capita may not be a good measure of prosperity at all. [2] Prosperity, after all, is about wealth and GDP per capita is only a means to an end here. [3] We have seen instances of transformative technology increasing and democratizing wealth. For example, in the past, only the rich were able to talk with their friends and family living in other countries on a daily basis because only they could afford satellite phones. WhatsApp enabled middle class people to do that now. [4] This is an example of transformative technology democratizing wealth. [5]

When I look at this idea from a macroeconomic lens, I suspect relying on GDP growth for wealth could be made redundant, if we can find a way to systematically hack our GDP rather than waiting for our economists to figure out a conventional solution to our prosperity problem.

What does hacking the GDP mean?

It means for entrepreneurs to look at problems and unmatching life standards that are specific to our economy and use transformative technology and business models to solve them.

In other words, living under a $10.000 per capita economy, entrepreneurs should look at problems we have but $40.000 per capita economies don’t, pick one and try to build a startup to solve it.

Aren’t we already doing this?

With few exceptions, no we aren’t. I suspect the reason is because our startup ecosystem is evolved based on a faulty narrative, that it is a Silicon Valley miniature. After all, we’ve got entrepreneurs, but with a superficial understanding of the startup philosophy; mentors, but with fewer success stories; investors, but with thinner checkbooks, so it must be a miniature, right?

This narrative is not very explicit. But once I realized this, the fact that it has been mainly useful for creating local copies while leaving few transformative businesses underfunded started to make more sense.

Where do we begin?

We need to get our ecosystem to re-adjust its focus. We have to understand that our ecosystem can’t be seen as a Silicon Valley miniature.

Sophisticated entrepreneurs, investors and mentors all alike, should focus on problems that matter. Our primary problems are not design, eating a healthy diet or finding better advertising platforms. [6] We’ve got crucial issues like women’s safety and the refugee crisis.

And because these are our problems, we need to accept that neither we can rely on Silicon Valley to solve them for us nor we can afford to wait until our GDP per capita increases so that they disappear organically.

Our ecosystem should turn into an environment of clear vision; it should become a problem solving machine that delivers prosperity.

Why do we have to?

I implicitly tried to explain this so far but if you’ve not been convinced yet:

  1. Bigger opportunities: I suspect size of the problem is at least linearly proportional (if not exponentially) to size of the opportunity. Y-Combinator is arguably the best technology investor and is betting on bigger problems right now; funding startups people would have never considered to fund 5 years ago. Boom and Gingko Bioworks are some examples. Cruise has been acquired for more than $1B, biggest YC exit so far and YC’s past exists were around $50–200M. This shows that focusing on big problems seems to be working for Silicon Valley and I can argue that it will work even better for developing countries.
  2. Because it’ll help us live better: It is inconsistent to complain about serious problems like traffic, safety, freedom of speech and terrorism on a daily basis and yet build/fund, say, yet another advertising startup.

A Happy side effect

Focusing on right problems will not only bring prosperity but it also will contribute to our GDP growth, organically, because it will make our economy more dynamic.

I also think that most of the startups built here will not remain local. The fact that they will be solving our main problems doesn’t mean that others won’t benefit from the solutions. We will be early adopters; but the real game will be played in the global arena.

Notes

  1. Only 13 of ~170 developing countries have graduated and became developed in the last 20 years. (Wikipedia)
  2. As an example, compare USA in 1980, which had about $18.000 per capita and Turkey today, which has $11.000 per capita. Despite the difference in these figures, Turkey today is more prosperous than 1980’s USA in many ways; nobody had the luxury of sending their selfies to beloved ones in real time in 1980’s USA despite their relatively high per capita. Thus, per capita is not a good metric for measuring prosperity.
  3. PG’s How To Make Wealth is a great read for understanding the difference between being rich and being wealthy. I also should admit, it’s the essay that inspired me to think about the main theme of this essay.
  4. Interestingly, the rich also ditched their satellite phones; they use WhatsApp for the same purpose today because it’s more convenient and advanced.
  5. The wealth here is talking with your friends that are abroad.
  6. There is nothing wrong with building startups to solve non-critical problems; in fact, I have been doing that at Vizera. But, main focus should not be here.