Martin Boddy - Getting the Measure of Prosperity

Getting the Measure of Prosperity Martin Boddy, Chair, SWO Board and Professor of Urban and Regional Studies, UWE, Bristol

Prosperity?
affluence, good fortune , abundance , accomplishment , advantage , arrival , bed of roses, benefit , boom , clover, ease , easy street, expansion , fortune , good , good times, growth , increase , inflation, interest , life of luxury, luxury , opulence , plenteousness, plenty , prosperousness, riches, success , successfulness, the good life, thriving , wealth , welfare , well-being

Wellbeing?
good health or fortune, comfort , contentment , eudaemonia, happiness , health , profit , prosperity , protection , safety , security , success , welfare

Why it matters …
Definitions and assumptions are embedded in the measures we use and the way we use them
Policy goals are in turn defined in terms of the measures we use, the performance indicators we set and the definitions and assumptions that underlie them
What we measure affects what we do – and vice versa

Economic output: GDP/GVA
Widely used ‘official’ headline measure of economic performance …
an integral part of the UK national accounts … a measure of the total economic activity in a region … one of the main ‘summary indicators’ of economic activity and references to ‘growth in the economy’ are quoting the growth in GDP (Office of National Statistics)

GDP…
Measures value of goods and services (including government services) produced over a given time period in a given spatial unit
Equivalent to private consumption + government spending + investment
Productivity: output per head of population, per worker, per hour work – key measure of ‘competitiveness’ (according to HMT)

Important because …
Strongly linked to income, unemployment, employment security, health, life expectancy
‘ Recession’ - negative growth in GDP in two successive quarters – shows what happens when it all goes horribly wrong and output falls

Centre stage for government
PSA 1 para 1.1: “Higher rates of productivity growth in the UK are essential to sustaining high and rising rates of economic growth, improving the standard of living of UK citizens and maintaining the UK’s position as a dynamic, open and thriving economy.”

Going for Growth, BIS, 2010
“ The imperative now is to focus on equipping people and businesses to return the economy to growth, increasing employment, raising incomes and supporting an improving quality of life. Restoring the public finances to a sustainable position and preventing cuts to essential public expenditure, including key front line public services, means restoring growth in the economy. That growth needs to be environmentally sustainable, balanced, and resilient to economic shocks.”

So what’s wrong with that?
GDP simply measures the monetary value of goods and services regardless of their benefit – or harm – to people and society, ‘bads’ as well as ‘goods’
GDP takes no account of the impact of producing those goods and services on the environment sustainability or non-renewable resources
GDP measures total (or per capita) value – it takes no account of the distribution of what is produced, of inequalities across society

And there’s more …
At best a weak relationship between higher levels of output per head, income, wealth, and self-reported levels of happiness or satisfaction with life – ‘ subjective well-being’ – well-being has not risen with GDP, income levels in richer nations (Easterlin Paradox)
Poor measure of many aspects of ‘ objective well-being’ or ‘quality of life’ as measured by factors closely linked to happiness - health, job security, family status, freedom, quality of democracy, trust, quality of environment, level of education, religion (Layard)

Robert F Kennedy, Kansas, 1968
“ .. Our gross national product ... if we should judge America by that - 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 those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armored cars for police who fight riots in our streets…

… 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. “

Increasing focus on alternative measures – and goals
OECD Paper: Alternative Measures of Wellbeing (2006)
New Economics Foundation, Centre for Wellbeing
Layard (2006) Happiness: Lessons from a New Science
HMT Paper: Developments in the Economics of Wellbeing (2008)
Stiglitz Commission Report: The Measurement of Economic Performance and Social Progress (2009)

Alternative measures and approaches…
Alternative monetary indices (nef Index of Social and Economic Wellbeing, RDA R-ISEW)
Alternative aggregate indices (UNDP Human Development Indices)
Multiple indicators/score-card (Defra Sustainable Development Indicators)
Subjective well-being indicators, the (social) science of happiness (Layard)

1. Index of Economic and Social Wellbeing
Starts with consumer expenditure (close to GVA)
Adds in value of domestic labour and volunteering
Adds in value of health and education
Deducts social costs – income inequality, defensive spending on education and health, costs of commuting, car accidents, noise, crime, family breakdown
Deducts environmental costs of – pollution, climate change, loss of habitat, farmland, finite natural resources
Single index, monetary value: IESW and Regional IESW – latter raises SW from 4 th on GVA to 1 st

2. UNDP Human Development Indices
Single indicator, comparison over space/time
Three basic dimensions
Long and healthy life
Knowledge
Decent standard of living
Weighted combination of GDP per capita, life expectancy at birth, adult literacy, population in education
Variants including gender-related index
Emphasis on development, potential

3. Score-card: Defra SD Indicators
Presents range of indicators measuring different dimensions
Defra SDI, 68 indices (126 measures):
Sustainable consumption and production
Climate change and energy
Natural resource protection and enhancing the environment
Creating sustainable communities and a fairer world

4. Subjective Well-being, Happiness
Survey-based, self-reported levels of ‘satisfaction’, ‘happiness’
Standardised measures, tested against ‘objective’ measures
Replicated across countries, populations/time periods
Multiple causes – identify and focus on these

And what makes people happy?
Income (mainly relative in rich countries), wealth
Employment
Job security
Family status (not separated, divorced, widowed
Good health – physical and mental
Strong & secure families and communities
Personal freedom, political voice, governance
Quality of environment
Religion
Trust in others
Income redistribution – greater equality (aggregate effect)

So where does that leave us?
How do we want to define prosperity, wellbeing or …?
What are our policy objectives and priorities?
How can we best measure it?
Should we adopt alternative measures?
Or combine different measures?
How can we make progress in terms of those objectives?
What leverage do we have over the drivers of change, who has what leverage where?

Three perspectives …

1: It’s the economy, stupid …
“ Productivity isn’t everything, but in the long run it is almost everything” Paul Krugman (1994) The Age of Diminished Reason, p. 13
.. And new evidence that rich people are happier than poor people, rich countries happier than poor, rising incomes do increase happiness, absolute income does matter as well as relative (Stevenson and Wolfers, 2008)

2: Maximise happiness …
“… happiness is the overarching good and it depends on happy outcomes in many dimensions of life (ie family, work, community, income, health and so on) and each of these in turn has its own causality”
Richard Layard, Social Science and the Causes of Happiness and Misery, 2008

3. Well-being and sustainability …
“… the time is ripe for our measurement system to shift emphasis from measuring economic production to measuring people’s well-being. And measures of well-being should be put in the context of sustainability” Stiglitz Commission, 2009

… and a 4 th : Prosperity without Growth
“ Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist”
(Attributed to Kenneth Boulding - economist)
“ Prosperity for the few founded on ecological destruction and persistent inequality is no foundation for a civilised society … For the advanced economies of the western world, prosperity without growth is no longer a utopian dream. It is a financial and ecological necessity.” (Tim Jackson for SDC, 2009)

Martin Boddy - Getting the Measure of Prosperity

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