Tag Archives: Gross Domestic Product

Social progress: a better way to measure a good society

For too long, Gross Domestic Product (GDP) has been the king of the indicators for public policy. Money makes the world go round. And GDP measures it. GDP emerged in the 1930s as a metric to measure the size of national accounts and inform policy makers’ decisions. Since, it has developed into a tool to benchmark countries’ performance: GDP growth is equated to progress.

GDP and beyond

Within the beyond GDP movement, many people have challenged this dominance, arguing that a good society is a lot more than economic performance. Social and environmental externalities are discounted in GDP. For instance, economists calculated that the Gulf of Mexico oil spill resulted in a higher GDP! And even GDP’s creator, economist Simon Kuznets, was aware of these limitations. When preparing the pile of statistic data for the US Congress in 1933, he noted that:

The welfare of a nation can scarcely be inferred from a measurement of national income.

Since, many have challenged the dominance as a benchmark in the countries’ annual performance reviews. Most competing indices aim to rebalance GDP, by providing economic performance and add other data in areas as social matters, environment and education. This is the case for indicators like the Humanitarian Development Index (HDI), the OECD’s Better Life Index and Bhutan’s Gross National Happiness.

And further beyond… all economic data!

The Social Progress Index (SPI), however, has a different approach.

The SPI differentiates itself from other challengers to GDP by its unique conceptual choice to stay away from economic data. Instead, it measures social progress via 52 concrete outcomes assessing three key indicators to measure progress: basic human needs, ‘foundations of well-being’, and opportunity (see more in this eloquent TEDx talk).

These concepts are assessed via a series of questions asking about people’s experiences in many aspects that matter for quality of life: how many people have shelter and sufficient water? Do people live in a sustainable ecosystem? How many people experience discrimination? Survey data allow to compare such outcomes based on what people feel, rather than by measuring social issues via public expenditure or laws.

 

Source: data from Social Progress Imperative, available here.

Social progress does not equate happiness

The SPI does not measure happiness or aim to do so. Still, a glance at the wealth of data produced by the SPi suggest that their ranking broadly overlaps with the data from the World Happiness Report. All the top time countries are the same, but in a different order. Switzerland, Iceland and Denmark form the top-three in happiness; for social progress it’s Norway, Sweden and Switzerland.

But there are some differences: especially Latin American countries seem to rank lower in the SPI. Countries like Costa Rica, Mexico, Brazil, Venezuela and Panama benefit from a ‘Latin American happiness bonus and make it to the top-25 in happiness, but fall short of the top-25 in social progress. To the contrary, some highly developed countries (Germany, France, Japan, South Korea) combine lower levels of happiness with higher levels of social progress.

A different data set for policy makers 

The main use of SPI as a policy tool is that it is adds knowledge on progress without building on economic data. From that perspective, it may be surprising that there nevertheless is a solid correlation of 0.78 between GDP and SPI. But SPI allows policy makers to make assessment from a different angle. The main benefit is to identify areas where a country is shortcoming comparing to peers with similar GDP levels, and to strengthen the information base about interventions that can address lower performance.

In recent years, policy makers’ interest in beyond GDP indicators has steadily risen. The SPI is also benefitting from this. The European Commission has started talks to integrate the SPI to monitor regional policy outcomes. And in the US, where social progress and happiness are lagging behind economic strength, several local and state level politicians have started to integrate SPI information in their dashboard of monitored outcomes. For instance, the city of Somerville, Massachusetts, has started analysing tailored SPI analytics on the local level. And in the state of Michigan, social progress indicators are included in a set of key performance indicators.

Data for a good society

This is exactly what alternative indicators should do. GDP has a value. Economic data provide a useful understanding about people’s lives. But if you want to find out what a good society is, and whether you are on an upward or downward trend, there is a lot more to watch. The SPI provides a great contribution to help policymakers find out on which areas they should work to make their country progress.

Beyond GDP, a long road to travel

Almost fifty year since the famous speech by Robert F. Kennedy, and almost ten years after the start of a thorough debate on ‘beyond GDP’, it’s time to meet the unfilled promise.

On some occasions before, I have written blog posts to encourage EU policy makers and politicians to step up their ambitions and integrate ‘beyond GDP’ indicators in their policies. For instance, see posts on ‘Gross European Happiness‘ or ‘An EU Happiness Manifesto‘, and an essay I wrote for the Next Generation for Europe magazine NGE Magazine 1 (Chapter three, pdf).

And I must say, the topic is on the agenda. I recently had the fortune to attend a European Commission expert conference on ‘beyond GDP’. Noting the importance of the topic, the conference was opened by two outgoing Commissioners: Laszlo Andor, for Social Affairs, and Janez Potocznik, for Environment.

Winning the battle of measurement…

How to make the giant leap from theory to practice? Enrico Giovannini, a former Italian Minister and OECD Chief Statistician, has pushed the debate on GDP forwards in the recent decade. He asked whether those supporting the idea of beyond GDP have won or lost in the debates from the last years. His conclusion was that the ‘battle of measurement’ has been won. In comparison to ten years ago, national statistic offices do a lot more effort to measure what matters.

Routine measurements of social and environmental indicators allows us to get a broader understanding of quality of life than economic growth and inflation could give us. They are more and more interested in collecting and refining social figures on employment rates, NEET rates (people Not in Education, Employment or Training – a proxy for youth employment), and inequality-adjusted GDP growth. Environmental numbers like generated waste, emission of green house gasses and water use also gain more prominence. And new indices like the OECD Better Life Index treat all indicators equally.

OECD

Screenshot of the OECD Better Life Index website

… but the battle for policy must still be fought

There are two questions around this: do we measure enough? And do we do enough to exploit this massive amount of data and adapt our policies to it? When asking whether we won the battle of policy, the answer from Giovannini is simple – no. If you want to make simple policies from these crunched numbers, you have to make trade-offs. How much air pollution is an increase in GDP of 1% worth? How much fossil fuels can you burn to lift one thousand people out of poverty? And what, objectively, is well-being anyway? These are incredibly difficult questions to answer. Economic growth is a lot easier objective. There is no easy way out.

Can economic, environmental and social betterment go hand in hand? The Commission – via its stated objective of smart, sustainable and inclusive growth – thinks so. But MEP Philippe Lamberts doesn’t agree. He believes that in a finite planet, sustainable growth is an inherent paradox. From an environmental perspective, we may need degrowth; but at the same time, that has consequences on employment. And, higher growth is also associated with more money invested in environmental protection.

How do you cut this Gordian knot?

The quest for perfection limits action

Nobody can easily answer these complex these questions. But I can offer my own conclusions:

  1. A lot of laudable work is being done by statisticians and policymakers, especially in social and environmental departments. With a lot of conviction and passion, they had managed to put the issue on the agenda. But they need to get economists more involved in these debate to get more leverage. It was telling that very few participants were trained economists.
  2. Call me a pessimist, but my feeling is that the political momentum behind the beyond GDP drive is fading. There are generic references to the agenda, but the policy efforts needs to be stepped up. In my view, policymakers need to be more courageous and bring their policies to main stream politics. That requires broad political campaigning and communication, as the new economics foundation also writes (pdf). Reports don’t change reality. Action does.
  3. Finally, maybe it is a quest for perfection that is limiting action. A perfect measurement of well-being does not exist. If you group indicators together in one figure – say well-being is ’42′ – you can make little sense of it. Similarly, a ‘dashboard’ with eleven different figure as in the OECD Better Life Index can be difficult to apply. But in this case, it appears the perfect is the enemy of good. GDP also has been refined often. It’s better to refine measures and policies of well-being on the way than to never start the journey.

Beyond GDP: a long road to travel, but one that is worthy to go.

Gross National Happiness – an idea whose time has gone?

In a piece in between a challenge and a provocation, the Financial Times’ Beyond Brics blog this week claimed that “Gross National Happiness is a bad idea whose time has gone”.

Criticising Bhutan is not new. The Himalaya kingdom famously has inspired the concept of Gross National Happiness (GNH) in the 1970s (earlier discussed in several posts). But the country remains poor. Average GDP per capita stood around $7,000 in 2013, below China and Thailand but above India and the Philippines.

Bhutan. Photo via Let's Travel Somewhere.

Bhutan. Photo via Let’s Travel Somewhere.

A young democracy

It is a young democracy. The royal family in 2008 decided to hand over power to the parliament. The elections in 2013 where the second in Bhutan’s history and saw the ruling party hand over power to the opposition. Nevertheless, Bhutan by no means have the democratic culture similar to Western democracies. Like in many Asian countries, Bhutan has a history of serious troubles with minorities. In the 1980s, tens of thousands of ethnic Nepalis have been expelled, suggesting the idea of one harmonious society does not extend to people following other faiths than Buddhism.

Do all these ills discredit Gross National Happiness as a concept to inspire government to bring about higher levels of well-being for the population?

In an interesting statement quoted by the FT, current Prime Minister Tshering Tobgay says:

If the government of the day were to spend a disproportionate amount of time talking about GNH rather than delivering basic services, then it is a distraction. Rather than talking about happiness, we want to work on reducing the obstacles to happiness.”

GNH is a tool

Both FT writer Alan Beattie and from PM Tobgay here blatantly misrepresent what GNH is. GNH is not a religious credo offering answers to all questions. Like GDP, it is a tool that should be used to judge where the government should focus its efforts. Using a broader indicator like GNH can help a state of offer more holistic objectives beyond promoting economic growth. GDP is better suited to factor  in environmental and social criteria.

GNH as a concept is not the problem. It is the lack of a systematic administration that can thoroughly implement the idea. The contradiction between GNH and basic services. If GNH is the focal point, and you ask yourself what you can do to enhance the quality of life of your citizens, the major way you can increase well-being is realise these basic services. Spending a disproportionate amount of time talking about GNH is just as unproductive for a government as spending a disproportionate time of talking about the weather.

The duty of a government is to take care of the population it governs. That means taking care of safety and security, functioning healthcare and education systems, and doing so in a way that ensure well-being and a good life for the future generation. How can people be happy without basic services?

Any index is arbitrary

Gross National Happiness, or alternative indices offering national accounts of well-being, have also been criticised for a lack of transparency. They are not perfect. Indeed, in an autocratic state – of which Bhutan still appears to have some characteristics, there are ways to manipulate the outcomes of an index. But at the same time, GDP or economic indicators are not an exact science. They can be manipulated, albeit with more difficulty. And like GNH, elements included in GDP can be arbitrary or inflated. Should investment in research account as productive, or a cost? Should the shadow economy be included? Is prostitution productive? And what about money spent on jails or rifles, as Robert F. Kennedy asked?

There is one point where I agree with Alan Beattie. He appears to support the OECD’s Better Life Index. Rather than formulating results in one number with little value per se (as GDP and GNH do), the Index offers a comparison between several objectives. This makes it easier to compare performances in different fields, and to assess where performance is lagging and efforts should be focused on.

Where I disagree with Beattie and Togbay is in my belief that GNH, if applied well, is getting closer to the right answer than GDP. Considerations of GNH can set the direction. GNH is not a goal per se, but sets a horizon and offers a sense of direction. Where confronted with various options for government measures to invest in, happiness considerations can guide politicians in prioritising the area where the most impact on well-being can be made. They might sacrifice a couple of percentage points of economic growth, but perform better for social or environmental terms.

The main lesson of Bhutan, in the last decades, is that there is more in life than economic development. By raising his standard against GNH, Beattie risks losing four decades of slow and hard needed progress: social, environmental and economic.

Robert F. Kennedy: measure what makes life worthwhile

If there is one icon that inspires me in my discoveries on For A State Of Happiness, it is Robert. F. Kennedy. In a way, this is a bit ridiculous. For a large part, my image of the man is based on an extract of barely 300 words in a speech delivered almost five decades ago. There must be leaders alive in our times who have something to say about the topic.

Robert F. Kennedy (or RFK) was the seventh out of nine children in the Kennedy family. He served as Attorney General is his brother John’s administration. After the murder of JFK, RFK was one of the most prominent members of the Democrats. In 1968, he ran for President.

JFK and RFK kept a joint diary with quotes that inspired them. Many of those are aphorisms from old Greek philosophers, like Plato. French writer Albert Camus was another favourite. I really like the idea and have started my own notebook. I imagine I can look back at the quotes in some years and be re-inspired by them.

In 1968, RFK was one of the candidates in the Democratic primaries for the position of President of the United States. On 18 March, he delivered a long speech at the University of Kansas. Amongst others, the speech talks about civil rights, inequality and the Vietnam war. But he (or his speech writer) also gave an extremely sharp critique of Gross Domestic Product. It has a central place in my own notebook, and I’d like to quote a full extract:

“And this is one of the great tasks of leadership for us, as individuals and citizens this year.  But even if we act to erase material poverty, there is another greater task, it is to confront the poverty of satisfaction – purpose and dignity – that afflicts us all.  Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things.

Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product – if we judge the United States of America by that – that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage.  It counts special locks for our doors and the jails for the people who break them.  It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl.  It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities.  It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children.

Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play.  It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.  It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.  And it can tell us everything about America except why we are proud that we are Americans.”

That was on 18 March 1968. What has happened next? The US went through a volatile time. Martin Luther King was murdered on 4 April. RFK had the same fate on 5 June. And the elections that year were won by the Republican Richard Nixon.

This month, it is 46 years ago that RFK died. Who knows what could have brought into motion if RFK had won the Presidency…?

The politics of well-being

Some time ago, I was ‘converted’ to the creed of well-being politics, if I may use that term. To the extent they’re willing to listen, I’ve told many people why I believe governments should adopt a broader perspective than economic growth and fully integrate environmental and social development in their policies.

In this context, I’ve had the question whether I’m pursuing a personal political agenda behind this. I’ve never had a clear-cut answer to this. Firstly, I don’t see myself as a politician. It’s a tough job to have a well-founded opinion about everything. And secondly, as a person with a social-liberal disposition, I am not sure how large the role of the government can be.

My recent discussions with fellow social-liberals indicated limited political support for my ideas to attach more weight to policies that can enhance well-being and happiness. And at the two congresses I recently attended, it still seemed to be seen as a creative, somewhat strange, idea. But what is the purpose of our state, if not promoting the well-being of its citizens?

Part of the aversion is out of fears of governments deciding how we should be happy. Even if that’s a concern in totalitarian states, there is no reason to dismiss any government role in ‘well-being politics’. Naturally, the government should in no way tell us how to be happy. Every individual is responsible for their own life and the happiness and well-being that result from their choices. Still, there are areas where we need our governments.

In the current post-crisis ‘happiness wave’, there is more attention for these policies. Media increasingly pay attention to it. On Bhutan’s initiative, the UN introduced an International Day of Happiness in 2013. Venezuela has a minister of supreme happiness. And several countries are exploring new ways to integrate well-being in their policies.

 

Beyond economic growth

Bhutanese Prime Minister Jigmi Y. Thinley - a politician who believes in GNH! Source: UN

Bhutanese Prime Minister Jigmi Y. Thinley – a politician who believes in GNH! Source: UN

The main point of the well-being political agenda is that objectives other than economic growth should be granted a larger role in political decisions. An important method to do this is the Gross National Happiness (GNH) index (see also this earlier post). If you are not familiar with its methodology, GNH by its name can come across as a vague phenomenon pursued by pot-smoking, tree-hugging utopians.

But it is a lot more solid than that. The Bhutanese concept is based on 124 variables that determine an individual’s well-being or quality of life. And apart from GNH, there are many other alternative ‘beyond GDP’ indicators.

Their aim is basic and revolutionary at the same time. Beyond GDP indicators (there is at least a dozen contenders) aim to benchmark the performance of a society in a broader perspective. Gross Domestic Product (GDP) has many advantages, but doesn’t reflect the costs (in economic and well-being terms) of environmental damage and social inequality.

The assumption of ‘beyond GDP’ advocates that if you measure something else – GNH instead of GDP – you’ll also act differently. A state that benchmarks its performance on GNH does not neglect the importance of monetary wealth. What it tries to do is to carefully balance the benefits of economic growth with its environmental, social and psychological impact. Politicians are increasingly aware of the promise of well-being politics. One party congress I attended adopted a position calling for the use of the Index of Sustainable Economic Welfare (ISEW). But there is still a long way to go before politicians truly implement these lessons. I will play my part in convincing them.

The Happy City: lessons from Bhutan

I wrote this article for Stadsleven (“City Life”), an Amsterdam-based talk show about urban issues. The next session on 27 January will be dedicated to the Happy City, and the editor of Stadsleven asked me to explain what our cities can learn from Gross National Happiness (GNH) in Bhutan. The original Dutch version can be found here.

Bhutan-Happiness-is-a-Place-logo-2011-small

What is the objective of the state? Philosophers and leaders have been reflecting about this question for thousands of years. Most states focus their policies on economic development. The assumption is that when a country becomes richer, its citizens will be better off. But is that the case? Research shows that the Western world is a lot richer than fifty years ago. At the same time, we are hardly any happier than in the 1950s.

For Bhutan, a small Buddhist kingdom in the Himalayas, these conclusions do not come as a surprise. Already in 1972, Bhutan based its policy on Gross National Happiness (GNH). GNH takes a broader approach than economic interests, and also helps the state to consider the influence of factors like health, mental well-being and community life. Bhutan’s king observed that these factors largely influence the happiness and quality of life of the Bhutanese, and thus put them as the central objective of public policy. The video explains how it works:

Bhutan’s core philosophy thus is different, and we hardly realise how revolutionary that is. The economy and Gross Domestic Product (GDP) are central topics in the public debate in the Netherlands. We’re confronted with growth forecasts on a daily basis. Many people in the Netherlands will know that the target for the budget deficit is 3%. But will they have an idea about national happiness level? Probably not. And consider that the Social and Cultural Planning Agency (SCP) recently concluded that quality of life decreased between 2010 and 2012, for the first time in thirty years!

After Bhutan, the UK, the OECD and the European Commission, to name some, GNH could also inspire the Netherlands (and Amsterdam). Of course there is no way that our political leaders should tell you and me how to be happy. Dutch Prime Minister Mark Rutte is right in saying that the state is not a happiness machine. But the government does have the responsibility for our quality of life. But how, and what does make us happy?

gross-national-happiness2

The British new economics foundation has researched five ways to well-being. These are factors that affect the happiness and well-being of an individual: connect, be active, take notice, keep learning and give. Cities can integrate some elements in their urban planning and design. Public spaces can be designed to facilitate that people meet each other (connect) or are invited to do sports (be active). Through education and community activities, city councils can promote skills and values that help us to appreciate the moment (take notice), be curious (keep learning) and share with others (give).

The lessons of Bhutan deserve to be followed. Isn’t there a more noble cause than a happy city?

(Never) trust Einstein’s wisdom

“Not everything that counts, can be counted, and not everything that can be counted counts.”

albert-einstein-04

Attributed to Albert Einstein

Albert Einstein was a brilliant man. He revolutionised science with the theory of relativity. He was the subject of some wicked photographs – we’ve all seen the iconic photos of the great scientist with his tongue outside his mouth and with his electrified hair. And, if we believe what we are being told, he has authored a collection of aphorisms that rivals Oscar Wilde’s and would most certainly be an instant bestseller.

Reportedly, his timeless jewels includes quotes like

“Put your hand on a hot stove for a minute, and it seems like an hour. Sit with a pretty girl for an hour, and it seems like a minute. That’s relativity!”

and

“It’s better to be an optimist and be wrong, rather than be a pessimist and be right”

 

Did he really say that?

Wonderful quotes, but did he really say that? The classic internet joke attributes the statement “The trouble with quotes on the Internet is that it’s difficult to determine whether or not they are genuine” to Abraham Lincoln. Indeed, the internet has brought misattribution to the next level.

The quote about counting, an almost mandatory reference entry in any article about Gross Domestic Product and well-being – is not the fruit of Einstein’s ingenious brain.  Quote Investigator writes that instead it has been authored by sociologist William Bruce Cameron.

The second one is autenthique, and given its subject is relativity, that is not surprising. The authorities of Wikiquote contend that Einstein suggested his secretary to use the comparison with hot stoves and pretty girls as a way to explain relativity to the general public.

The source of the third quote on optimism is unclear and it is attributed to various famous people. As a generic quote, it must have been around for long. And anything accredited to Einstein does get more weight.

Is it a problem that Einstein can only be proven to be the author of one of these three quotes? The technique, piggy-backing on a famous name, is often used in commercials (‘recommended by Rafael Nadal’, ‘used by Emma Watson’). I wouldn’t advocate the creation of a League for the Correct Attribution of Aphorisms to right all wrongs. But from an artistic point of view, the original source deserves to be mentioned.

In the current times, individual creativity and originality are highly valued. We don’t live in the middle ages anymore, where the subject of the art counted most. Often themes were openly copied (or blatantly plagiarised, in a more modern interpretation), and mostly left unsigned. Times have changed. A quick online search when you want to use a quote is the least one could do. William Bruce Cameron deserves some credit.