Sunday, January 19, 2014

Progressing Beyond Economic Growth

National Well-Being

Human Progress: The old GDP model of comparing a nation's well-being, by only measuring its economic output, is no longer reliable.
Source: Nature

For seven decades, one single metric has been used to measure a nation's well-being, economic growth or GDP; now, we are ready to move beyond a nation's growth domestic product and its variants to measure how well nation's and, most important, its people are faring.

So argues an article in Nature News by lead author Robert Constanza, which says:
Soaring economic activity has depleted natural resources. Much of the generated wealth has been unequally distributed, leading to a host of social problems5. The philosopher John Stuart Mill noted more than 200 years ago that, once decent living standards were assured, human efforts should be directed to the pursuit of social and moral progress and the increase of leisure, not the competitive struggle for material wealth. Or as the economist John Kenneth Galbraith once observed: “To furnish a barren room is one thing. To continue to crowd in furniture until the foundation buckles is quite another.”
The limits of GDP are now clear. Increased crime rates do not raise living standards, but they can lift GDP by raising expenditures on security systems. Despite the destruction wrought by the Deepwater Horizon oil spill in 2010 and Hurricane Sandy in 2012, both events boosted US GDP because they stimulated rebuilding.
Alternative measures of progress can be divided into three broad groups (see Supplementary Information). Those in the first group adjust economic measures to reflect social and environmental factors. The second group consists of subjective measures of well-being drawn from surveys. The third group relies on weighted composite indicators of well-being including housing, life expectancy, leisure time and democratic engagement.
Adjusted economic measures. These are expressed in monetary units, making them more readily comparable to GDP. Such indices consider annual income, net savings and wealth. Environmental costs and benefits (such as destroying wetlands or replenishing water resources) can also be factored in. One example is the genuine progress indicator (GPI). This metric is calculated by starting with personal consumption expenditures, a measure of all spending by individuals and a major component of GDP, and making more than 20 additions and subtractions to account for factors such as the value of volunteer work and the costs of divorce, crime and pollution6.
Subjective measures of well-being. The most comprehensive of these is the World Values Survey (WVS), which covers about 70 countries and includes questions about how satisfied people are with their lives. Starting in 1981, the WVS is conducted in 'waves', the sixth of which is currently in progress. Another example is the gross national happiness index used in Bhutan. This measure uses elaborate surveys that ask how content people feel in nine domains: psychological well-being, standard of living, governance, health, education, community vitality, cultural diversity, time use and ecological diversity.
GDP, which became the de-facto measurement of national well-being at the American-led Bretton Woods conference in New Hampshire in 1944, only measures market transactions; it does not measure social and environmental factors that we now know are as important as monetary transactions. Things like sustainability, efficiency and the psychology of human well-being ought to now be factored into a national figure. We now have the science and have developed reliable models to measure such areas of human activity.

Since such metrics ultimately influence government policy, the sooner we adopt a more progressive standard of measurement the greater the chance of effecting policy changes that benefit us all. Both the GPI and the WVS are a step in the right direction.

You can read the rest of the article at [Nature].