France offers us all a new perspective
'International Commission on the Measurement of
Economic Performance and Social Progress'
The French have always been more civilised than the Anglo-Saxons.
Or, as David Prosser puts it:
France may have given the phrase laissez-faire to the world, but it has never subscribed to the sort of purist free-market economic theory that dominates in the US and to a lesser extent here.
No surprise then, that it was a French president who asked two Nobel prize-winning economists to think about how levels of happiness might become an important economic indicator.
Still, the ideas of Joseph Stiglitz and Armatya Sen, published by President Sarkozy yesterday, have their supporters in this country – most notably the LSE professor Richard Layard, who has argued for some time that a narrow focus on GDP is a poor target for economic policy because it neglects any consideration of human happiness. [IND]
Writers such as Zygmunt Bauman have been warning us for years that the world took a wrong turn when the economic quackery of Milton Friedman and his Chicago Boys was adopted by Margaret Thatcher and Ronald Reagan in the 1980s, and those famous phrases - "You can't buck the market" and "No such thing as society" - became the basis of economic policy.
The Third Meltdown tries to demonstrate the ethical problems arising from the unbalanced elevation on market behaviours - greed - to the denigration of social norms which, as Oliver James has argued, has lead - among other outcomes - to the growth in mental health problems:
... Apart from enabling a basic level of economic success, sufficient to pay for food, health and education, the purpose of government is to minimise the amount of mental illness by creating a benign society, like the Scandinavians have been doing for 70 years.
Blatcherism has done the opposite. If you can face it, here's a glimpse of what really happened to our social psychology in the past 10 years, starting at the beginning of life.
Foetuses depend on having calm, happy mothers. There is abundant evidence that feeling stressed in the last trimester is an independent cause of hyperactivity and behaviour problems.
The mother's high levels of cortisol - the fight-flight hormone - are passed through the placenta and continue to affect the child nine years later. Yet, since 1997, women have been more, not less, likely to work right up to the birth.
It just goes on from there, as if the New Labour control freaks are oblivious to the evidence of what makes for mental health.
Caesareans have multiplied several-fold, even though they interfere with bonding.
British babies are even less likely to be breastfed than anywhere in Europe, again reducing emotional intimacy.
Then, mental illness-inducing strict routines for babies, like insistence on four-hourly feeding or imposed sleep schedules, have become widespread.
Where is the government action, following the damning study of this method published last year?
It shows that, compared with babies raised in infant-centred regimes (for example, demand-feeding or sharing the parental bed when distressed), at three months the routine-nurtured babies spend 50 per cent more time crying or fussing: the Discontented Little Baby ...
Oliver James The Independent, 13 May 2007Mental Illness and Cartesian Dualism
If President Sarkozy's commission kicks off a return, for example, to ...
- Ordoliberalism,
- the socialisation of banking,
- a realistic minimum wage,
- and education for the good society
... then we might perhaps look forward to the world turning its back on the 'commodification of citizenship', and the ruthless corporate exploitation of all countries.
Retrieving Britain's well-being is not all about restoring our ailing economy
"... if you want jobs you have to have growth ..."
The distinction between growth and well-being has been explored by many economists and a new report on the subject, How's Life?, was launched by the Organisation for Economic Co-operation and Development last week.
Sadly, Hamish, this is something the economists and politicians don't get.
Unless you believe that supplies oil, and for the matter uranium, are infinite, the prospects for growth are going to become less and less, especially for another boom along the lines of 1945-1973 to actually occur.
The task now is to find of a way of getting full employment without growth.
The motto is: Localise Now!
Democratically, and economically.
Then, the OECD's secretary-general, Angel Gurría, said:
"We have to consider a broader picture in our policy-making, because a 'growth as usual' approach is simply not enough.
"In the current difficult political context, it is of utmost importance to define core objectives besides level of income, such as improving our citizens' well-being ...."
That must be right.
While there is a strong relationship between GDP per head and life satisfaction, there are other factors that matter even more: good health, a clean environment, a sense of community, good housing and a safe neighbourhood ...
If the next generation is to have both a higher standard of living and a better quality of life than the baby-boomers there will have to be changes in the implicit – and sometimes explicit – contract between individuals and society as a whole.
It is not just a question of later retirement. It is also one of more flexibility in the workforce and in attitudes to life in general: greater willingness to change jobs, to travel further to look for work, to take greater responsibility for one's own health and so on ...
Ind 16 Oct 2011 Plato V Illich What is to be done? LogCan happiness be measured?
How did the world get so fixated on GDP?
mounting evidence suggests that GDP growth does not register many of the things people actually care about.
It is a record of some aspects of economic life, but it fails to capture wider social needs and demands. Health, quality of life and inequality play no part in its measurement.
There is a growing consensus that rising GDP since the mid-1970s in the US and the UK has become disconnected from reported measures of wellbeing.
We know that falling GDP produces misery, as unemployment rises and incomes collapse. But the reverse does not apply.
Higher output does not necessarily mean happier people.
Even growth's blunt promise of material prosperity is failing.
GDP in the UK increased by 11% from 2003 to 2008.
Over the same period, median real incomes stagnated. The economy boomed, but few shared in its rewards.
Living standards were maintained through unsustainable debt.
As we crawl back into recession, the majority will find those rewards still harder to come by – even if a minority continue to grow fat.
And environmental damage has no impact on GDP's progress ...
Gdn 10 Aug 2011 Towards a new measure of wellbeing
A well-being world
John Stuart Mill (1806-73) went on to rescue utilitarianism from the puritanical abyss to which Bentham’s guiding principle - the greatest happiness of the greatest number - seemed to lead if pushed too far.
But the idea’s two originating flaws remained: it developed a reductionist view of the human spirit, and its pioneers (the “statists” of the 1820s-1830s) linked the measurement of happiness exclusively to that of money.
This quantifying approach has trapped official thinking in Britain ever since, never more so than during the first decade of the 21st century when utilitarianism became the beating heart of the New Labour government.
Two minor examples make the point: the government’s ambition to “make Britain the world leader in online gambling”, and its rejection of the architect Richard Rogers’s use of the word ‘beautiful’ in his report on future cities in place of the (measurable) phrase “good design” ...
openDemocracy 19 Dec 2010
Blog On the Mechanistic Modelling of Human BehaviourDavid Cameron's Happiness Index
Happiness index to gauge Britain's national mood
It's not just the economy, stupid
On the failure of methodological individualism
The importance of knowing how
Unto this last
What are the Duties of Government?
Happiness index to gauge Britain's national mood
... the Office of National Statistics will shortly be asked to produce measures to implement David Cameron's long-stated ambition of gauging "general wellbeing".
Countries such as France and Canada are looking at similar initiatives as governments around the world come under pressure to put less store on conventional economic measures of prosperity such as gross domestic product.
British officials say there is still hesitation in some parts of Whitehall over going ahead with the programme during such difficult economic times, but Cameron is said to want to place the eventual results at the heart of future government policy-making.
On 25 November, the government will ask the independent national statistician Jil Matheson to devise questions to add to the existing household survey by as early as next spring.
It will be up to Matheson to choose the questions but the government's aim is for respondents to be regularly polled on their subjective wellbeing, which includes a gauge of happiness, and also a more objective sense of how well they are achieving their "life goals".
The new data will be placed alongside existing measures to create a bundle of indications about our quality of life.
A government source said the results could be published quarterly in the same way as the British crime survey, but the exact intervals are yet to be agreed ...
Guardian 15 Nov 2010 David Cameron Nudge Third face of powerSpending makes for merry Christmas
Cheap Labour
What are the duties of government?
HPI
Government set to measure UK happiness
First goal of David Cameron's 'nudge unit' is to encourage healthy living
Discovery of 'fat gene' raises hopes for fighting obesity
McDonald's and PepsiCo to help write UK health policy
Cameron's 'nudge unit' aims to improve economic behaviour
The right type of inflation is OK, declares Bank of England
Mervyn King, Governor of the Bank of England, virtually admitted at his Inflation Report press conference this morning that the Bank now considers elevated levels of inflation to be perfectly alright provided they don’t give rise to second round effects – rising inflationary expectations and matching wage inflation.
Would policy have been any different over the past three years, he was asked, had the Bank known that inflation was going to come in much higher than the Bank was forecasting? Probably not, he conceded. His justification was that elevated levels of inflation have been largely the result of a series of “price shocks” which lie outside the Bank’s control, such as higher energy and food prices.
These shocks were masking a much more benign picture. High unemployment and abundant spare capacity in the economy would keep second round inflationary effects at bay. Since wages are for the time being significantly lagging inflation, the effect is a big squeeze on disposable incomes. This type of inflation can therefore be seen, paradoxically, as deflationary. It is one of the mechanisms by which a real reduction in disposable incomes is being brought about.
Telegraph 11 Aug 2010 'Reserve Army'
Right to Work: In search of a new slogan
In the face of cuts, trade unions are demanding the 'right to work'. Better to rethink work altogether ...
... a new campaign has been launched, backed by a host of trade unions, including the UCU, PCS, CWU, RMT, NUJ and NUT, under the name Right to Work.
What has happened to our understanding of work in the decades between James's slogan and new forms of opposition?
In the middle of a recession in which jobs are being slashed with alacrity, should we be clinging on to employment at any cost, or should we instead be reconsidering what it means to work at all? ...occurrin
29 Jul 2010, 10:53PM
Nina Power... you should read André Gorz´s Critique of Economic Reason, probably my favourite book, as it happens ...
The main points as far as this article is concerned are:
a. reduuction of working time is necessary to maintain anything like full employment, when productivity growth outstrips economic growth every year.
b. reduction of working time is the only possible meaning we can give to an industrial society. Fulfillment INSIDE work is impossible; the modern division of labour separates us inevitably from fully comprehending what we make and expressing ourselves fully in it. We should spend continuously less time inside the alienated, opaque industrial machine, in order to have a full and human life OUTSIDE of work.
c. "wages for housework" campaigns miss the point, which is that "work" is the problem not the solution. Couching women´s interests in the language of the employment contract destroys the difference between home and work that makes one´s home life worth living. Doing stuff without getting "paid" is intrinsically rewarding and human. We should do more of this, and spend less time in the office to have the chance to. With a 20 hour week men would lose the excuse to doing equal childcare and housework.
Read the book... it´s great.
suitone
29 Jul 2010, 11:56PM
petrifiedprozac posts
'First people have to reject crony capitalism and stop being slaves to consumerism'
It's very difficult to stop being a slave to consumerism. It's the behaviour you have learnt since you sat in a buggy and came through the supermarket checkout and saw the shelves of sweets at your eye-level. You shout for them, you get them.
Consumerism is what you do as a human being.
You live out what you are supposed to live out.
Perhaps it's a new definition of the human being that we need, that the kids evolve, a definition that disregards and throws out consumerism because it is such a blatant, hijacking of the imagination for no other purpose than to make someone else richer than they are already.
Guardian 29 July 2010 Alternatives to WelfareCritique of Economic Reason
Economics experts ... (Curtis Eaton and Mukesh Saranargue believe) ... that Britain's thirst for status symbols harms our well-being ...More money makes society miserable, warns report
... that, as a nation becomes wealthier, consumption shifts increasingly to buying status symbols with no intrinsic value – such as lavish jewellery, designer clothes and luxury cars …
Their work owes much to the economist Thorstein Veblen, who in 1899 coined the term "conspicuous consumption" ...
Veblen argued that people seek status through conspicuous consumption, which derives its value not from the intrinsic worth of what is consumed but from the fact that it permits people to attempt to set themselves apart from others ...
The pair believe their research helps to explain why empirical studies show that levels of happiness and feelings of community in affluent countries have stagnated, despite growth in real incomes.
There is another downside. As people yearn for more status symbols they have less time or inclination for helping others. This, the authors argue, damages "community and trust", which are vital to an economy because they ensure the smooth running of society.
They conclude: "Conspicuous consumption can have an impact not only on people's well-being but also on the growth prospects of the economy."
The theory may go some way to explaining the public backlash against the louche lifestyles of the UK's footballers, bankers and politicians ...
Observer 14 Mar 2010 Oliver James
In its latest inflation report, the Bank of England forecasts growth will reach 3.2% in the second quarter of 2011, weaker than the previous prediction of 4% ...Britain's economy faces slow recovery
WageslaveX14Guardian 10 Feb 2010
10 Feb 2010, 12:06PM
Can we please stop focussing on GDP growth as the be all and end all? GDP is a completely blunt measure, and does not take into account dangerous accumulation of debt.
Look up the McKinsey 'debt and deleveraging' study (http://www.mckinsey.com/mgi/publications/debt_and_deleveraging/index.asp) at exhibit 1 on p10. Go on, do it.
Compare Britain and Germany from 2000 to the present. During this time Germany's economy was roundly criticised due to low headline GDP growth, whilst Britain's was applauded.
Now look at how this was achieved - outstanding UK debt has gone up by 50% whilst Germany's has barely moved.
And what do we have to show for this profligacy? High speed rail? Excellent schools? Renewable energy infrastructure? No. The most expensive housing in the world? Yes.
But yes, responsible journalists, carry on focussing on GDP growth. It is clearly the only metric that matters, and which truly represents improvement in living standards.Birmingham city council to cut up to 2,000 jobs and close care homes
Obsession with GDP as a measure of how good people feel is losing its grip against concerns for welfare and sustainability ...Economists start to consider that money can't buy happiness
... should we welcome the return of the spendthrift habits that plunged us into crisis in the first place, or is it time to ask if traditional metrics of economic success – retail sales, house prices, even GDP growth – really point us in the right direction? ...
The pursuit of growth and endless rises in consumption every year have become part of the national psyche, since Harold Macmillan told the electorate they had "never had it so good". The idea that more, bigger and cheaper is better is a powerful one, and it will be hard to dislodge ...
Just as he sparked a furore last year about whether the activities of the City were good for society, Financial Services Authority chief Adair Turner last week questioned whether economic growth was a "false god".
He said that not only did growth harm the climate by increasing emissions of greenhouse gases, but "all the evidence shows that beyond the sort of standard of living which Britain has now achieved, extra growth does not automatically translate into human welfare and happiness" ...
In Britain the torch is being carried by the New Economics Foundation which, among other things, produces what it calls the "Happy Planet Index" ...
Observer 10 Jan 2010NEF: Well-being
Cleaners worth more to society than bankers, says thinktank
• Hospital cleaners create £10 for every £1 they earn
• RBS and Halifax losses erased 20 years of profits
...
The thinktank [NEF] said it had found a way to calculate how much someone should be paid in relation to the value they create through a series of measures including conventional economic returns, environmental impacts, and knock-on effects for jobs and wellbeing in society.
It said the report challenged the notion that high pay did not matter as long as poverty was eradicated. It argues that high pay is often generated by businesses that destroy other parts of the economy or fail to pay the full costs of their activities.
The report said tax accountants were the most destructive, laying waste to £47 of value for every £1 they created. Elite City bankers (earning £1m plus bonuses) destroy £7 of value for every £1 they create and advertising executives wreck £11 of value for every £1 they are paid.
On the other hand, the report judged that waste-recycling workers generated £12 for every £1 spent on their wages. Childcare workers create between £7 and £9.50 of value for every £1 of pay and hospital cleaners create more than £10 in value for every £1 they receive in pay ...
In the case of advertising executives, the NEF calculates the cost to society of over-consumption. While the industry creates jobs, it also has severe and costly negative effects. The authors quote the economist JK Galbraith who argued that advertising created socially and environmentally wasteful "wants" where needs have already been met.
"We have calculated the costs to society of obesity, anxiety-related mental health problems and indebtedness.
"Then there are the substantial environmental costs from climate change and resource depletion. It is estimated that in rich countries such as the UK, the level of consumption is three times as much as the planet's environmental resources can sustain." ...
Guardian 14 Dec 2009A Bit Rich
The Cult of GDP
Can Economies Function without Growth?
The answer, apparently, is 'no' with the proviso that energy and growth are decoupled.
Once every three months, Räth recompiles the data and comes up with a figure representing the value of all goods and services produced in Germany: the gross domestic product, or GDP.
In the second quarter of this year, German GDP amounted to €596.67 billion ($875 billion), up from the previous quarter's figure of €593.3 billion.
While the absolute totals are only of interest to the professional world, what makes headlines is the rate at which GDP changes.
According to Räth's latest figures, Germany's GDP increased in the second quarter of 2009 by 0.3 percent compared to the previous quarter. It's a figure which is of vital importance to the country.
Everything revolves around this number, and everyone is fixated on it.
Hardly any politician, whether they are from the center-right Christian Democrats or the center-left Social Democrats, much less the pro-business Free Democratic Party, would ever think to seriously question it.
Growth generates jobs, growth produces social wellbeing, and growth creates affluence for all.
This, at least, is the economic policy gospel, proclaimed and eulogized on every market square in Germany during the current election campaign.
And at this week's G-20 summit in Pittsburgh, the heads of state and government in attendance will once again be invoking the dynamics of growth.
But the good news has lost some of its luster.
There are now plenty of skeptics who seriously question the value of constantly rising economic output.
And these critics are not simply cranks who are opposed to change in general. In fact, they are respected individuals who have the courage to reflect on whether growth is always synonymous with progress -- and whether stagnation automatically implies regression.
"Our affluence has quadrupled in the last 40 years. But at what price?" asks Kurt Biedenkopf, a member of the Christian Democratic Union (CDU) and the former governor of the eastern state of Saxony.
The growth rate is "no longer a clear indicator of rising affluence," Biedenkopf told SPIEGEL in a recent interview ...Scarce Resources
A full generation has passed since the publication of the Club of Rome study. The world has not collapsed, but it has changed. Since the Chinese, Indians and Russians have entered the market economy, the number of employed people worldwide has doubled, to about 3 billion. Vast new markets and low-wage production countries have developed, with serious consequences for the consumption of energy and water.
Oil consumption has increased by more than 25 percent since 1990, while the consumption of natural gas has grown by more than 50 percent. Fossil fuel production is becoming more and more difficult and costly.
The scarcity of water is even more serious. Global water use has doubled since 1950, and even as large segments of the world population lack adequate access to clean water, more and more water is being used in food production. For example, more than 1,000 liters of water are consumed to produce one kilogram (2.2 lbs.) of bread, while producing a kilo of beef uses up almost 16,000 liters of water.
The limits to growth are exemplified by the giant desalination plants between Abu Dhabi and Dubai, built to supply the new desert metropolises with water, by Vietnam's hundreds of textile factories, where sewing machines hum day and night, and by the world's largest coalfields in northern China, where fires blaze in the seams.
We have reached the point at which the Earth's regeneration capacity is being stretched too thin.
Theoretically, humanity today already needs 1.3 planets to maintain its lifestyle. If everyone were as wasteful as the Americas, five planets would be needed.
To make matters worse, by 2050 the world's population will have increased by 2 billion -- people who will also need food, clothing and shelter.
How is this even feasible?Better Recipes
The principle is clear: Resource consumption must be decoupled from growth. The respected US economist Paul Romer employs a kitchen metaphor to illustrate the concept. "Economic growth springs from better recipes," he says, "not just from more cooking."
This is effectively what representatives of the world's governments will be discussing when they meet in Copenhagen for the United Nations Climate Change Conference in December. But the world is still a long way from this goal.
Emissions trading is still limited to Europe, and the system can only become fully effective once every country on Earth is included. The entire global economy still depends almost entirely on fossil fuels, as evidenced by the fact that seven of the world's 10 biggest corporations are involved in the oil business. More importantly, most people probably couldn't care less how their economies achieve growth, as long as the growth figures they see are in positive territory.
Der Spiegel 22 September 2009Earthscan
Prosperity without Growth?
Prosperity without Growth: Economics for a Finite Planet
Managing Without Growth
Prosperity without growth
Beyond GDP: Economists Search for New Definition of Well-Being
"GDP has increasingly become used as a measure of societal well-being and changes in the structure of the economy and our society have made it an increasingly poor one," Stiglitz told the news agency Bloomberg in a recent interview.
"So many things that are important to individuals are not included in GDP." In the model they unveiled last week in Paris, the academics recommend including other factors, such as sustainability and education.Significant Shortcomings
Even the inventor of the gross domestic product measure, the late Russian-American economist Simon Kuznets, was aware that the classic method of computing GDP had significant shortcomings.
"The welfare of a nation can scarcely be inferred from a measure of national income," he said in 1934.
This is because the growth rate says nothing about the distribution of wealth in a country, the state of health of its citizens or their life expectancy.
The number provides no information about the cleanliness of rivers or the amount of air pollution. There is also no mention in the statistic of voluntary work or of domestic work like cooking, cleaning, washing and ironing -- all things that are considered economically irrelevant.
When a nursing service attends to someone's sick mother, the cost of that service is included in GDP. But if a daughter takes care of her sick mother, her work is not reflected in the GDP calculation. And when a mother nurses her baby, it may be beneficial for the child, but it would of course be more "valuable" economically if the mother bought milk and bottles for the baby in the supermarket.
The growth rate even increases when things are destroyed -- that is, when natural disasters or wars plunge people into ruin -- because construction firms and pharmaceutical companies profit from such events. In other words, the misfortunes of some create wealth for others ...
In the past few years, many academics have sought alternative definitions of wealth and have even come up with a few catchy metaphors.
For instance, Swiss-born sustainability advocate Mathis Wackernagel devised the concept of the ecological footprint, according to which 2.1 hectares (5.2 acres) of arable ground are available for each human being.
However, the average citizen's consumption requires 2.7 hectares, while the average American needs close to 10 hectares to sustain his or her way of life ...
Very few researchers have been brave enough to attempt to synthesize the variables and compute a sort of green GDP. One of them is Heidelberg economist Hans Diefenbacher, who has developed a "national welfare index."
Diefenbacher begins with private consumption, and then adds the value of domestic work and voluntary work. Then he deducts factors he considers harmful, such as the costs of polluting air and water, as well as the costs incurred by traffic accidents or resulting from crime.
The outcome is expressed in the form of a curve, which has been declining relative to GDP since the beginning of the decade ...
Der Spiegel 22 September 2009Happiness is the new GDP
Reinventing the Firm
Earlier this year, the UK's Department for Business, Innovation and Skills commissioned David MacLeod, a management guru, to carry out a review of ‘employee engagement' as a necessary factor in Britain's future prosperity ... the case for flatter, more interactive relationships was made.
a common assumption about the status of firms in society suggests that they sit in a political vacuum, allowing their decisions and structures to be only evaluated in terms of economic efficiency.
The problem with the managerial ‘participation' rhetoric is that it only values human autonomy to the extent that it contributes to productivity and business performance.
Hence a growing feeling of irony pervades our workplaces, as described eloquently in the sociology of Richard Sennett, and conveyed brilliantly in the BBC sit-com, The Office.
We no longer mean the words we speak to each other at work. The rhetoric of equality and power appears to exert no friction on the dominant, Anglo-Saxon capitalist model, in which management power is unchallenged, so long as value is constantly returned to external shareholders ...
Co-operative structures, in which labour hires capital rather than vice versa, are one institutional form that republicans such as White and Nien-He Hsieh, have celebrated.
The original meaning of ‘profit-sharing' is also worth returning to: the notion is that, once both capital and labour have received their ‘wage', that any remaining surpluses should be split equally between the two.
Companies that were organised to uphold this principle would still be capitalist and profit-making, but they would not be profit-maximising. This represents a positive departure from the neo-liberal, shareholder value-oriented model of the firm.
Yet these are difficult arguments to mobilise in a policy culture that still seeks to diagnose all social ills using neo-classical economics and its derivations ...
Various forms of mutualism and employee ownership deliver exactly this balance between political and economic goods.
They demonstrate that a private sector organisation can be high-performing, well managed and profitable, while offering employees tangible forms of control over their working lives and environments.
Ownership, as republicans frequently argue, brings with it political freedoms as well as economic rights.
Virtuous circles are possible, in which the higher levels of deliberation and responsibility within companies spills over into higher levels of employee commitment and knowledge-sharing ...
openDemocracy 22 September 2009Reinventing the Firm
Reinventing the Firm.pdf
Mutuo
Employee Ownership Association
Towards a Better Measure of Well-being
National income statistics such as GDP and gross national product are increasingly thought of as measures of societal welfare, which they are not.
Alternative indicators are needed to capture true well-being and sustainability, writes Joseph Stiglitz.
A political leader attempting to promote the well-being of his citizens is pulled in different directions: he will be graded on economic performance but there are many other dimensions to the quality of life, including the state of the environment. While there is no single indicator that can capture something as complex as our society, the metrics commonly used, such as gross domestic product, suggest a trade-off: one can improve the environment only by sacrificing growth. But if we had a comprehensive measure of well-being, perhaps we would see this as a false choice. Such a metric might indicate an increase in wellbeing as the environment improved, even if conventionally measured output went down.
This was one of several motivations for Nicolas Sarkozy, president of France, when he established the International Commission on the Measurement of Economic Performance and Social Progress, which I chaired and for which Amartya Sen served as adviser and Professor Jean-Paul Fitoussi of the Institut d’Etudes Politiques served as co-ordinator, and whose final report is issued on Monday.
National income statistics such as GDP and gross national product were originally intended as a measure of market economic activity, including the public sector. But they have increasingly been thought of as measures of societal well-being, which they are not. Of course, good statisticians have warned against this error. Much economic activity occurs within the home – and this can contribute to individual well-being as much as, or more than, market production.
There are concerns, too, that a focus on the material aspects of GDP may be especially inappropriate as the world faces the crisis of global warming. Should we “punish” a country – in terms of our measure of performance – if it decides to take some of the fruits of the increase in productivity from the advancement of knowledge in the form of leisure, rather than just consuming more and more goods?
What we measure affects what we do. If we have the wrong metrics, we will strive for the wrong things. In the quest to increase GDP, we may end up with a society in which most citizens have become worse off. We care, moreover, not just for how well off we are today but how well off we will be in the future. If we are borrowing unsustainably from this future, we should want to know.
Flawed statistics may also lead us to make incorrect inferences. In the years preceding the crisis, many in Europe, focusing on America’s higher rates of GDP growth, were drawn to the US model. Had they focused on metrics such as median income – providing a better picture of what is happening to most Americans – or made corrections for the increased indebtedness of households and the country as a whole, their enthusiasm might have been more muted.
No good accountant would ignore the depreciation of a company’s capital, but the standard GDP measure not only does that but also takes no account of resource depletion and environmental degradation. Our increased awareness of the scarcity value of environmental resources makes this lacuna especially troubling.
Advances in research across a number of disciplines enable us now to develop broader, more encompassing measures of well-being. Such measures recognise that unemployment has an effect that goes well beyond the loss of income to which it gives rise. Health, education, security and social connectedness all are important to quality of life – but are not adequately reflected in GDP.
Though the commission was established before the recession hit, the crisis has made its work even more relevant. A good set of metrics captures the notion of economic as well as environmental sustainability. And there have been long-standing concerns about the use of market prices, especially for evaluating long-run sustainability. These proved warranted: the seemingly strong performance of some countries (as indicated by GDP) was not sustainable and was based on “bubble” prices that exaggerated profits and output.
The work of our commission has, not surprisingly, struck a global chord. Even before we convened, Bhutan was creating a measure of GNH, or gross national happiness, and Thailand was working on its own index.
GDP will, of course, continue to be used as a measure of market activity – though hopefully the reforms that we propose will make it a better measure of that. But there will be increased focus on sustainability – on what is happening, for example, to broad measures of society’s wealth, including its natural assets. When it comes to measuring societal welfare, we will have to look to other metrics. Some already exist; others will have to be constructed. Our report provides guidance on what is required.
Too often, we confuse ends with means. One of the criticisms of our economies in the years prior to the crisis is that they did exactly that – a financial sector is a means to a more productive economy, not an end in itself. Even worse is to confuse an improvement in a measurement of well-being with an improvement in well-being itself. Our economy is supposed to increase our well-being. It, too, is not an end in itself. Hopefully, the work of our commission will have increased the impetus to align the metrics of well-being with what really contributes to quality of life – and, in so doing, help us direct our efforts at those things that really matter.
STWR 14th September 2009Commission on the Measurement of Economic Performance and Social Progress
Report.pdfSarkozy's happiness index is worth taking seriously
France offers us all a new perspective
Sarkozy proposes the joie de vivre index