This gap between official economic statistics and the reality of people's lives is one of the issues taken up in a radical and ambitious report on the measurement of economic development and social progress, recently released by a team led by distinguished Nobel-winning economists, Joseph Stiglitz and Amartya Sen.The document was commissioned by President Nicolas Sarkozy of France who felt that the available statistics about the economy and society were unsatisfactory guides for public policy. His request came in February 2008, before the worst of the financial crisis hit. The turmoil that followed only makes this 292-page report more timely and important.
Its main message is that while gross domestic product (GDP) is the most widely-used measure of economic activity, it is too limited to adequately reflect the state of a nation and its economy. Emphasis needs to shift from an assessment that is “production-oriented” to one that embraces broader measures of social success. This means taking into account the well-being of the current population, but also sustainability, which reflects how this quality of life can be passed on to future generations.
In many countries, particularly when income inequalities are wide, the rise of GDP is not necessarily matched by a rise in happiness. In May this year, I cited an Organization for Economic Cooperation and Development (OECD) study that showed Turks as being the least happy among citizens of member countries. And yet Turkey had gone through several years of spectacular economic development.
Economies are increasingly complex, and therefore harder to measure. Capturing quality change, rather than simple industrial output, is particularly difficult. A classic GDP measurement may not distinguish between the production of gas-guzzling cars and the manufacture of environmentally-friendly vehicles, yet they have different implications for the future. “Market prices,” the report points out, “are distorted by the fact that there is no charge imposed on carbon emissions.”
The automobile industry may rejoice when cars are sold and the fuel they consume further adds to the GDP, but the additional vehicles on the road do not necessarily add to the “joie de vivre” of commuters stuck in traffic jams nor that of nearby residents inhaling the fumes.
To evaluate material well-being, the team recommends focusing more on household income and consumption patterns. Spending recklessly and maxing out on your credit card may bring you short-term satisfaction, but it also affects your long-term sustainability and that of the economy as a whole. Income distribution across an economy is also a key factor that affects happiness.
Material standards are, of course, not the only aspect of well-being, which is why the authors recommend that other key dimensions be taken into account, such as health, education, political voice, social connections and relations, environment and economic insecurity.
The crisis taught us a very important lesson, the commission states. “Those attempting to guide the economy and our societies are like pilots trying to steer a course without a reliable compass. The decisions they [and we as individual citizens] make depend on what we measure, how good our measurements are and how well our measures are understood.”
The report does not provide ready-made solutions. It recommends that governments gather stakeholders at national level to identify and prioritize the indicators they believe would be most useful to assess social progress. At a time when the world faces important challenges, the commission offers a brand new perspective on economic development and seeks to launch a global debate on societal values and what is really important, beyond the usual economic indicators.
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