From GDP to Better Life Indexes of Wellbeing

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© Hazel Henderson, 2011

www.hazelhenderson.com

(word count  1280)
By Hazel Henderson

At last, after promising to overhaul GDP national accounting in 1992 in Agenda 21, Article 40 signed by over 170 governments, real progress is being made.  Since 2007 and the Beyond GDP conference in the European Parliament surveys in 12 countries show wide public support.  Over the past 20 years, I have analyzed the excruciating delays in correcting GDP, which tracks national output using money flows, which its inventor Simon Kuznets warned, was never intended to measure overall progress.

GDP indexes and their regular reporting in mass media became a “fetish,” as described by Bank of Sweden prizewinning economist Joseph Stiglitz in the 2009 Stiglitz-Sen Commission report to French President Sarkozy (Stiglitz-Sen Moving in the Right Direction, but Slowly“).  GDP-growth rates became the focus of economic competition between nations; the justification for interest rates on their sovereign bonds (“Grossly Distorted Picture: GDP Still Misleading Governments“); the obsession of politicians seeking election; business leaders’ plant location decisions at conferences in Davos, the G-7, G-20, IMF, World Bank, as well as at the WTO and the United Nations.

Financial reporting and mainstream media amplified GDP in their global echo chambers.  In stock markets, security analysts, economists and pundits relied on GDP in benchmarking performance of securities, central bankers, company CEOs and politicians.  Macroeconomists’ models measured GDP performance numbers, reducing the rich complexity of countries’ culture, history, geography, climate, terrain and various approaches to development – down to money-coefficients.  This one-size-fits-all focus on priced output of goods and services was akin to overflying a country at 50,000 feet.

While this simplified the math, such aggregation and over-averaging of data obscured important aspects of national progress and human development: education, health (both treated as “consumption” in GDP rather than key investments), the state of infrastructure and the environment.  Many of these key indicators are un-priced, still treated as “externalities,” such as pollution, in economics and company balance sheets, passed on to taxpayers and future generations.  These false accounts ignoring social and environmental costs are then reflected in GDP, as explored by over 700 policymakers in Curitiba, Brazil, in 2003 (“Statisticians of the World Unite“).

All this explains why it has taken twenty years to make the needed corrections to GDP and why it has been so staunchly defended by economists, business leaders, politicians, powerful ministries and even statistical agencies in most countries.   GDP perpetuates the false prices resulting from externalizing costs to societies and exploiting environmental resources.  This helps explain BP’s massive oil well blowout in the Gulf of Mexico and the meltdowns of nuclear reactors in Fukushima, Japan.  Many crises have reached global levels in pollution, desertification, climate change and disease epidemics.  Recurring financial crises produce unemployment, “jobless economic growth” and un-repayable debts.  Public distrust and anger is growing, along with demands for truth and accountability.  If societies are blinded to longer-term threats by incorrect prices, all incorporated into stock and bond markets and GDP – then such crises and social backlashes will worsen.

Many efforts have been mounted by NGOs, academics and professionals in key scientific disciplines beyond economics to correct GDP.  They call for proper accounting for these externalities and for the some 50% of productive work in all societies that is unpaid and ignored in GDP.  They have faced implacable, polite opposition from economists, business groups and their political allies as well as special interests making money by externalizing costs.  Alternatives to GDP have proliferated based on indicators beyond economics: on health, education, sustainability and the environment.  These include the UN’s  Human Development Index (HDI), the Living Planet Index, Ecological Footprint, Bhutan’s Gross National Happiness and the Canadian Index of Wellbeing.

The Calvert-Henderson Quality of Life Indicators which I co-created with the Calvert Group in 2000 uses a web-based dashboard with 12 indicators (www.calvert-henderson.com).  A new State of the USA project uses a similar wide range of multi-disciplinary indicators, following the earlier  MDG Dashboard.  Britain’s Prime Minister David Cameron recently ordered its statistical office to develop an Index of Wellbeing, similar to that in Canada.  China’s innovative Green GDP, which showed in 2006 that some 3 percentage points of its rapid economic growth were externalized environmental costs which should be deducted from its GDP, was quashed – in spite of public support.

The most significant new effort is that of the OECD, which announced its Better Life Index in 2011.  I interviewed chief statistician Martine Durand about its use of indicators of: housing, income and wealth, jobs, community, education, environment, governance, health, life satisfaction, safety, work-life balance.  I was impressed with the conceptual breakout from the economic approach and the choice of robust data sets supporting these indicators.  Dr. Durand emphasized that her group had worked with statistics from all 34 OECD member countries including the UK group working on wellbeing, as well as with the Stiglitz-Sen Commission.

A unique innovation is the OECD’s Your Better Life Index, an interactive tool allowing customized comparisons of indicators on education, housing and environment across selected countries.  Their performance can be assessed according to the users’ view of the importance of each of the 11 topics covered by the Better Life Index.  The admirable goal is to invite more scrutiny and involvement of citizens, so as to foster a more intelligent debate about national progress and wellbeing.

As in most of the new indicators and efforts to go beyond GDP, direct confrontation with GDP proponents is avoided.  EUROSTAT’s 2011 conference did not directly address GDP’s reliance on false pricing and externalized social and environmental costs.  Such timidity and discretion is understandable in facing the power of special interests and their profits in “business as usual” externalizing costs models.  We welcome the MDG Dashboard’s development of a much-needed Policy Performance Index!

History is now on the side of the Better Life Index and the growing influence of all the other new indicators mentioned.  The European Parliament voted to approve the “Beyond_GDP_Resolution” Beyond GDP report and a new regulation on  Environmental Economic Accounts.  Danish Conservative MEP Anna Rosbach pointed out how GDP’s money focus distorts the view of development and called for stepped up pressure for better indicators.

I asked OECD’s Dr. Durand whether new indicators will be added to examine poverty gaps and inequality.  She affirmed such plans, explaining that this is just a start and that the Better Life Index will be updated annually and that inequality factors will be accounted for across all indicators.  Durand noted that she agreed with US Secretary of State Hillary Clinton at the OECD’s 50th Anniversary, who had emphasized the importance of measuring gender inequalities.  Such gender indicators are used in the HDI and by the US-based Center for Partnership Studies.

I also asked Dr. Durand if national security or military indicators are contemplated like those in the UN’s HDI and in the Calvert-Henderson Quality of Life Indicators as well as on infrastructure and energy-GDP ratios to focus on efficiency.  Durand pointed to the OECD’s Global Green Growth program which will cover resource efficiency, similar to the TEEB report approach, as well as its latest standards for multi-national companies on social accountability.  The Better Life Index relies on objective research and outcomes rather than subjective approaches to “happiness” which are culturally-biased and based on various definitions of this term (review of  Exploring Happiness).  Another good sign is their “wiki progress” website which invites wide public participation and input.  The OECD at 50 is evolving, as evidenced by the Better Life Index, while focusing on job creation, social inclusion, the empowerment of women, green growth and a new paradigm for development.  We will continue reporting on the Better Life Index and these OECD programs as part of our Ethical Markets focus in our Green Transition Scoreboard®, Transforming Finance initiative and Beyond GDP surveys.

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Hazel Henderson, D.Sc.Hon., FRSA, author of Ethical Markets:Growing the Green Economy and other books, is president of Ethical Markets Media (USA and Brazil), www.ethicalmarkets.com.  The Calvert-Henderson Quality of Life Indicators are updated regularly at www.calvert-henderson.com.