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”
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.
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.
Tom Walker
Beyond Accumulation and Technical Progress: Negative Externalities as an Engine of Economic Growth
Stefano Bartolini
Bryonny G-H
RT @leftfootfwd: Cameron's Happiness Index is welcome news for progressives http://bit.ly/aRNYI4
Darren Johnson
Happiness index good news for progressives http://bit.ly/azvuZr