Cameron’s Happiness Index is welcome news for progressives

Simon Kuznets, the Nobel Prize winning economist who helped develop GDP, recognised such flaws when warning the US Congress in 1934: “The welfare of a nation can scarcely be inferred from a measurement of the national income.”

Jules Peck is a founding partner of the innovation and strategy consultancy Abundancy Partners; he is a trustee of the think-tank the new economics foundation and a fellow of ResPublica

The government has announced a wellbeing review. What might this mean and why is this an important and welcome sign of progressiveness?

Prosperity lost? In conventional wisdom, economic growth and higher incomes mean richer lives and improved quality of life. But, as the Happy Planet Index shows, true prosperity goes beyond material pleasures. It resides in the health and happiness of our families, in the strength of our relationships and our trust in the community.

However, in our search for prosperity we seem to have lost our way. We have become fixated on economic growth as opposed to more meaningful indicators of success.

Limits to growth: Growth has delivered its benefits, at best, unequally. And as the economy expands, so do its ecological impacts. We live now as if we have 1.5 planets. We are eating into our natural capital rather than living off its interest. We find ourselves locked between the horns of a deep-seated dilemma: growth may be unsustainable, but ‘de-growth’ appears to be unstable. Questioning growth-fixation in these circumstances is deemed to be the act of fanatics or idealists.

Prevailing wisdom calls instead for a slightly greener shade of business-as-usual and a ‘decoupling’ of economic activity from material throughput. But efficiency improvements are continually offset by increases in scale. Global carbon emissions rose by 40 per cent even as the carbon intensity fell. And yet, by 2050, the global carbon intensity needs to be only 6 grams/$ of output – 130 times lower than today’s figure of 770g/$.

Grossly Distorted Picture: The principal tool to measure economic growth is Gross Domestic Product (GDP). But GDP is a deeply flawed way of measuring progress. While it tots up the total of a nation’s economic activity in any given year, it ultimately fails to reveal anything about environmental stability, social cohesion, psychological health or public services.

Simon Kuznets, the Nobel Prize winning economist who helped develop GDP, recognised such flaws when warning the US Congress in 1934:

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

GDP measures what we make, but can’t measure what we destroy to make it. Our economy is borrowing prodigiously from the natural economy but without recording the loans. GDP also gives us no information on how well we are doing in maximising the wellbeing of society within the planet’s limits.

Dethroning growth and measuring what matters: There is now rising support for dethroning growth as the focus of our economies from people as diverse as Thomas Friedman, HRH Prince Charles, Archbishop Rowan Williams and Joseph Stiglitz to name but a few. A new form of Dynamic Equilibrium economics (DEe), where planetary level growth is restricted to planetary limits, would shift the focus of economies towards maximising units of wellbeing delivered per unit planet input.

The details of steps which will be needed to be taken are outlined in the ‘Prosperity Without Growth’ recommendations to Government. These are subject of a recent book and talk, and outline 12 steps for transition to a new economics. An important part of this transition will be around measuring wellbeing, refocusing society around such measures and freeing people from the social logic of materialistic consumerism.

Governance for prosperity: Governments are currently conflicted. Although they have a role in ‘securing the future’, as long as macro-economic stability depends on economic growth-fixation, governments will have a tendency to support social structures that reinforce materialistic, novelty-seeking individualism rather than true wellbeing.

What is urgently needed is a new political philosophy and vision. None of this will happen without the political will to make space for audacious change but for those brave enough there is voter support for government action on these issues. Consensus from the left and the right on these issues is possible but it requires our politicians to step up to the plate and embrace this ‘big idea’ for the economy (see Jules Peck’s chapter in this Demos report).

Prime minister David Cameron has in the past been outspoken about the need to de-thrown growth and he commissioned the Quality of Life Review which I directed and which gave recommendations on a new wellbeing economics. Until recently we heard little about this from Mr  Cameron, and what we did hear seemed confused. But the recent announcement is to be welcomed. Leader of the Opposition Ed Milliband has also of late joined the debate on the need for new measures of prosperity.

The UK government’s Sustainable Development Commission has been working on ideas for a Growth In Transition Commission which would carry on the great work done for President Sarkozy by the Stiglitz Commission. Luckily work is already underway in the UK to model what a DEe wellbeing economy no longer fixated on growth would look like. In Canada work has shown such an economy could bring high employment, greater equity, a stable economy and combat climate change.

Other leaders are engaging with this debate including Horst Kohler; president of the European Commission José Manuel Barroso; European Union environment commissioner Dimas; and President Sarkozy.

The OECD and EC are currently seeking ways of measuring progress and well-being more broadly than by taking GDP as the sole measure and countries like Austria, Finland and New Zealand are examining these issues. Bhutan uses an alternative to GDP in their Gross Domestic Happiness measure. And many US States are now developing their own indicators of progress beyond-GDP.

Flourishing within limits: True prosperity consists in our ability to flourish as human beings – within the ecological limits of a finite planet. The challenge for our society, for government and for business is to create the conditions under which this is possible. It is the most urgent task of our times and one we believe is achievable.

25 Responses to “Cameron’s Happiness Index is welcome news for progressives”

  1. Northern TUC

    RT @leftfootfwd: Cameron's Happiness Index is welcome news for progressives: //bit.ly/bmSnJi says @CitizenJules

  2. Tim Bedwell

    RT @leftfootfwd: Cameron's Happiness Index is welcome news for progressives: //bit.ly/bmSnJi says @CitizenJules

  3. nef

    RT @leftfootfwd: Cameron's Happiness Index is welcome news for progressives: //bit.ly/bmSnJi says @CitizenJules (a trustee of nef)

  4. Nicholas Day

    RT @theneweconomics: RT @leftfootfwd: Cameron's Happiness Index is welcome news for progressives: //bit.ly/bmSnJi says @CitizenJule …

  5. Fernando North

    RT @theneweconomics: RT @leftfootfwd: Cameron's Happiness Index is welcome news for progressives: //bit.ly/bmSnJi says @CitizenJule …

  6. One Society campaign

    RT @leftfootfwd: Cameron's Happiness Index is welcome news for progressives //bit.ly/aRNYI4

  7. jules peck

    Cameron's happiness index is good news for progressives //tinyurl.com/3xztrhf

  8. Celia Cole

    RT @theneweconomics: RT @leftfootfwd: Cameron's Happiness Index is welcome news for progressives: //bit.ly/bmSnJi says @CitizenJule …

  9. Tamara Giltsoff

    RT @theneweconomics: RT @leftfootfwd: Cameron's Happiness Index is welcome news for progressives: //bit.ly/bmSnJi says @CitizenJule …

  10. Tamara Giltsoff

    @citizenjules (my biz partner never seen on here) wellcomes Cameron's wellbeing review //bit.ly/cmLdKg #beyondgrowth

  11. centre 4 well-being

    RT @theneweconomics: RT @leftfootfwd: Cameron's Happiness Index is welcome news for progressives: //bit.ly/bmSnJi says @CitizenJule …

  12. Paul McCarthy

    RT @theneweconomics: RT @leftfootfwd: Cameron's Happiness Index is welcome news for progressives: //bit.ly/bmSnJi says @CitizenJule …

  13. Simon Hodges

    RT @theneweconomics: RT @leftfootfwd: Cameron's Happiness Index is welcome news for progressives: //bit.ly/bmSnJi says @CitizenJule …

  14. Louis Henry

    While I applaud a focus on quality of life rather than GDP, the cynic in me remembers that John Prescott came up with much the same notion in 1997 that as surely intended as a ‘plan B’ if economic growth went into reverse. As soon as it was seen that GDP was rising the Quality of Life Index was quietly forgotten as a government indicator of success. Greenies and those looking for a fairer society should have spotted that then and must now hold this government more strictly to account.

  15. Matthew Sinclair

    Ah, the Happy Planet Index. The “nations that score well show that achieving, long, happy lives without over-stretching the planet’s resources is possible.”

    Take a look at the rankings on page 63 (//www.happyplanetindex.org/public-data/files/happy-planet-index-2-0.pdf). Here are some countries that rank above the United Kingdom, the United States and Sweden:

    Colombia
    Saudi Arabia
    Mexico
    Pakistan
    Uzbekistan
    Burma

    I would say that if you believe they are the model we need to follow, you are indeed a fanatic or an idealist at best. Lunatic might be a better term. People take huge personal risks every day to get from number 23 to number 114. And the New Economics Foundation have released those kinds of findings twice!

    Best,
    Matt Sinclair

  16. Tom Walker

    Step in the right direction. But a “Happiness Index” won’t give us enough information about what to do. A much more practical approach would be to start identifying “asymmetrical entering” in the current GDP and stop counting them as “growth.” After all, they are not. See Roefie Hueting’s work on environmentally sustainable national income accounts.

    Going back to some of the seminal work in national income accounting, particularly John Maurice Clark’s Studies in the Economics of Overhead Costs, it is clear that a system of social accounting that doesn’t account for the social costs of unemployment is not worthy of the name “national income” or “national revenue” to use Pigou’s term.

    Imagine today’s GDP without an implicit price deflator. It would be BIG but it wouldn’t be real. Now imagine today’s GDP without an asymmetrical entering deflator — and that’s what we’re operating with. This stuff is all pretty complex for a blog comment, so I invite anyone interested to visit my blog (click on my name), Ecological Headstand.

  17. David Gould

    @Matt Sinclair What’s the problem with Happy Planet?

    As a world-respected psychologist, “All things considered, how satisfied are you with your life as a whole these days?” seems as good a way as any to measure ‘happiness’.

    I’m not so sure that life expectancy is a big deal. But the rest is fair enough from my brief scan.

  18. Tom Walker

    Beyond Accumulation and Technical Progress: Negative Externalities as an Engine of Economic Growth

    Stefano Bartolini

    ABSTRACT
    The traditional explanation of growth based on the primum and secundum movens of accumulation and technical progress, faces two major empirical anomalies. Why do people work so much i. e. why do they strive so much for money? The growth literature provides no answer to these question, nor to the further and very important one of why people are so unhappy. Moreover, finding a joint answer to the two questions seems particularly puzzling. Why do people strive so much for money if money cannot buy happiness? I argue that the solution to this ‘paradox of happiness’ can be provided by including in the theory a tertium movens of growth: negative externalities. These externalities can be of two kinds. The first are positional externalities, i. e. those due the fact that individuals may be interested in relative not absolute position. The second kind of negative externalities are those which reduce free goods. Some recent models, both evolutionary or with optimising agents, show the role of these externalities as an engine of growth. This approach emphasises that the growth process generates extensive negative externalities which reduce the capacity of the social and natural environment to furnish free goods. In these models individuals have increasingly to rely on private goods in order to prevent a reduction in their well-being or in their productive capacity due to decline in social and natural capital. This generates an increase in output which feeds back into the negative externalities, giving rise to a self-reinforcing mechanism whereby growth generates negative externalities and negative externalities generate growth. According to these models, growth appears to be a substitution process whereby free final (or intermediate) goods are progressively replaced with costly goods in the consumption (or production) patterns of individuals. From the point of view of this GASP (Growth As Substitution Process) models the two anomalies of growth theory are two sides of the same coin. People strive so much for money because they have to defend themselves against negative externalities: they work so much in order to substitute free goods with costly ones. But an increase in income does not improve their happiness because it involves a process of substitution of free goods costly ones. Some implications for environmental economics are drawn.

  19. Bryonny G-H

    RT @leftfootfwd: Cameron's Happiness Index is welcome news for progressives //bit.ly/aRNYI4

  20. Darren Johnson

    Happiness index good news for progressives //bit.ly/azvuZr

  21. Matthew Sinclair

    @David Gould

    You think Colombia, Saudi Arabia, Mexico, Pakistan, Uzbekistan and Burma are models we should be following?

    Some results are self-refuting. If you want a broader argument against the measure though, see this old blog:
    //www.taxpayersalliance.com/bettergovernment/2007/09/the-problems-wi.html

    Best,
    Matt

  22. Mr. Sensible

    I would feel a lot happier if this government is out of office…

  23. David Gould

    @Matthew Sinclair

    Costa Rica, the Dominican Republic and Jamaica are at the top of the list.

    Mind you, it could just be the weather. XD

    GDP isn’t the primary goal of any govt and I certainly wouldn’t be advocating Happy Planet to be so.

    The best argument of your linked TPA article is that Govt attempts to make the population ‘happy’ are 99% likely to be doomed.

    That doesn’t mean it’s a bad goal. Just find the 1% that works beforehand.

    We have corporate brainwashing that convinces people the only way to be happy is to buy their merchandise, invariably produced in sweatshops.
    This is nuts, although possibly useful in the short-term economic climate.

    Likewise, all the rich people complaining about losing their child benefit demonstrated that a good portion of the country has lost the plot.

    Raping the planet for an unsustainable boost in GDP is the definition of stupidity.

    The Govt is allegedly there for our benefit. Would the British people rather be rich than happy?

    The first thing we need to figure out is what the people really want.

    We can’t go back to the capitalism of the last 3 decades.

    The second thing we need to get figure out how to modify it to get the people what they want.

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