Redefining impact
Transforming government is one thing, but how can governments be sure that change equates to progress? How can they be certain that all the transformative initiatives that they implement translate into appreciable benefits for their citizens and businesses? What does success look like for governments?
Traditionally governments have taken some of the vast amounts of data that they collect and used this information to assess their performance in areas such as economic growth and prosperity. The primary measurement of choice for governments and other organizations for this purpose is Gross Domestic Product (GDP), one of the twentieth century’s greatest inventions, according to the US Commerce Department.153
Yet established measures of national success, such as GDP, are increasingly called into question. Governments are reassessing what national success and prosperity looks like, and whether characteristics such as personal well-being and happiness might be useful indicators. Leaders in France, the UK, Australia, the OECD, the United Nations and elsewhere are driving efforts to develop more meaningful measures of national performance, including a wider definition of national well-being.
Measuring the progress of nations
The notion of GDP emerged from the US government’s desire to have more financial information for economic planning following the Great Depression, and then wartime planning during World War II. The Department of Commerce commissioned the economist Simon Kuznets, who was at the National Bureau of Economic Research (NBER) in New York, to develop a set of national economic accounts. With the help of a small government team and researchers back at the NBER, Kuznets – who was awarded the Nobel Prize in Economics in 1971 – reported back to Congress in 1937, as well as publishing a research report, National Income, 1929–35. This was the basis for the Gross Domestic Product measure, which, after the Bretton Woods conference in 1944, became the de facto tool for weighing the performance of a country’s economy.
The aim was to represent in a single metric all economic production by individuals, companies and government. Theoretically, when things were good, the GDP would rise, and conversely, GDP would fall when circumstances were not as rosy.
But by the 1950s, critics of GDP as a metric were emerging, critics such as the economist Moses Abramovitz. Indeed, Kuznets himself had written that ‘the welfare of a nation can scarcely be inferred from a measure of national income’.154 One criticism of the use of GDP focuses on the effectiveness of GDP as an economic measure per se. As a number of critics have pointed out, GDP can be considered flawed. It does not, for example, measure volunteer or non-market transactions. These types of transactions are both numerous and wide ranging and can cover anything from the care of sick relatives to the creation of open-source software. Furthermore, GDP is either a sum total or per capita measure. As such, it does not reveal the distributions of wealth behind the per capita figure. Indeed, the GDP per capita figures may hide important and potentially divisive wealth inequalities within a country.
It is also difficult to tell from GDP measures exactly what benefit the nation has gained from a particular investment. For example, GDP treats repairs to infrastructure in the same way that it treats a new investment. Thus it is impossible to differentiate remedial spending on a damaged motorway that does not increase traffic capacity, for example, from building a new motorway and increasing traffic capacity.
And GDP also fails to reflect the changing nature of goods. So, for example, the quality of a computer has improved over time, in theory adding to productivity. However, there has been very little change in the price of that same computer.
Another type of criticism directed at the use of GDP to measure a nation’s progress is that, by focusing narrowly on GDP, policymakers fail to capture a true picture of how a country is faring. GDP ignores many important items that critics would argue affect people’s well-being, and thus the well-being of the nation, including health, social factors such as family and friendships, and environmental conditions such as pollution. Moreover, GDP does not encapsulate the impact of negative environmental and social externalities that can arise from the production of goods.
Many critics are also uncomfortable with the value neutrality of GDP. For example, does a society benefit as much from $1 billion spent on building prisons as it does from $1 billion spent on building schools? In the short term, these have the same impact on GDP, although they may have different eventual effects on production.
It is not so much GDP itself that is the problem, some critics charge, but rather the measure’s status as a ‘fetish’ for governments, as Nobel Prize-winning economist Joseph Stiglitz put it. The measure gets used as a single measure of societal well-being and progress, regardless of its suitability, partly out of habit and a lack of alternatives or an unwillingness to explore alternatives.
More recently, however, political leaders and economists have shown themselves more willing to pursue and possibly adopt alternative measures and indices.
The difficulty, of course, is to know just what to include in such a measurement. One approach is to attempt to combine various social, environmental and economic measurements into a single index. A good example is the United Nations Development Programme’s Human Development Index (HDI), originally developed by economists Mahbub ul Haq and Nobel laureate Amartya Sen in the 1990s.
The composite index, which had its methodology revised in 2010, measures progress in three dimensions – health, knowledge and income. Health is measured by life expectancy at birth. Knowledge is measured by a combination of the expected years of schooling for a school-age child with the mean years of prior schooling for adults aged 25 and older.
The HDI approach is not perfect. For example, there has been some debate about whether equal weighting of the components is a problem.155 In the current methodology, all three are weighted equally. Also, life expectancy, expected years of schooling and gross national income are only proxies for individual health, knowledge and income.
Another approach has been to rely on some measure of happiness or well-being. Although by definition subjective, statisticians are creating increasingly effective surveys in this regard. Nevertheless, significant practical problems remain: should one measure overall well-being or well-being across a range of areas? How should the state trade off different levels of happiness between groups for the purposes of policy formation?
The thinking behind any national well-being index is ultimately utilitarian, suggesting something is right if it increases the happiness of the largest number of people by the greatest amount. Although a widely held ideological position, its adoption by a government involves favouring it over other ideological positions. For example, if a subjective state of well-being is the result of adaptation by the individual or group to a condition of objective inequality (and there is evidence to suggest that people can adjust in this way), an index based on perceived well-being might be seen as justifying and entrenching inequality.
Thus the biggest problems with measures of well-being are conceptual rather than institutional. Most governments have the capacity to obtain and analyse economic and social data through various measurement and survey techniques. Within this framework, what has to be decided on is what to include in any index or set of indices, what relative weighting to give to each element, the extent to which national or subgroup averages are more relevant, and the action, if any, the government will take with any resulting data. Once such conceptual problems are overcome, the practical issues of data gathering and analysis are relatively straightforward for any modern government statistics bureau.
An important element in the debate about alternative measures of national progress is the Easterlin paradox, first advanced in the 1970s and named after the economist, Richard Easterlin. His US-based research showed that, while self-reported levels of happiness correlated with income there, when looking at a global picture, average GDP and happiness levels were unrelated. And although income rose steadily between 1946 and 1970, happiness levels stayed relatively constant during that time. Various authors, including Easterlin, have since updated the theory and claim the evidence supports the paradox.
The Easterlin paradox highlights two difficulties related to using well-being or happiness metrics. One is that happiness appears to have a tendency to stay largely the same over time. This suggests that seemingly positive factors – such as higher levels of education, life expectancy and money – appear to have no impact on happiness. People adapt well to their circumstances, leaving levels of happiness unchanged, which means that governments would have a difficult time using happiness as a measure of progress.
However, some research suggests a strong correlation between wealth levels within a society and reported happiness levels of individuals, as well as between average GDP internationally and subjective perception of well-being within countries. In other words, GDP may be, however inadvertently, a good proxy for happiness.
Transformation at work: happy Bhutan
When Jigme Khesar Namgyel Wangchuck came to the throne in Bhutan in 2008, he decided to adopt an unorthodox approach to assessing his nation’s prosperity which was not based on the traditional measure of GDP. Instead, he used the Gross National Happiness Index, with the Gross National Happiness Commission as the main public policy planning body. The country’s constitution says that the state has the responsibility to pursue GNH, and Bhutan’s GNH Index shows some of the difficulties of creating and using an index based on well-being, and the choices involved.
The index was originally made up of nine dimensions, covering everything from psychological well-being (including general psychological health, emotional balance and spirituality) to how people used their time (how time, especially non-work time, was able to be spent, including sleep).
Each dimension was measured individually, and happiness defined as having sufficient achievement in each area. A very high achievement in one area was not able to balance out underachievement in another. The government based the index on data from a survey conducted in 2007 that included 209 questions and covered seventy-two indicators. The government also developed a GNH policy lens: a list of twenty-three questions for every policy being considered, to determine if it was likely to be helpful, or at least neutral, in raising GNH.
This unusual approach to measuring national well-being was noted with interest by many other governments and organizations around the world. For example, in 2011 the United Nations passed a resolution sponsored by Bhutan. The main thrust of the resolution was that ‘happiness is a fundamental human goal and universal aspiration; that GDP by its nature does not reflect the goal; that unsustainable patterns of production and consumption impede sustainable development; and that a more inclusive, equitable and balanced approach is needed to promote sustainability, eradicate poverty, and enhance well-being and profound happiness.’156
Following on from this, the UN eventually made promoting well-being and happiness its ninth millennial development goal, with Bhutan heavily involved in promoting this ambition.
There has been some debate in Bhutan over what GNH actually is, and its use of GNH as an indicator.157 More recently, in a slightly awkward turn of events, one of the main champions of the concept of national happiness as an indicator, the former Prime Minister Jigmi Y Thinley, vacated his parliamentary seat after his party lost a general election in 2013. His successor, Tshering Tobgay, appeared less enthusiastic about GNH as a national indicator. He has moved away from GNH as the main national indicator, preferring more traditional economic measures of success. ‘Rather than talking about happiness, we want to work on reducing the obstacles to happiness’, he was quoted as saying.158
The contentment of nations
While no country has yet abandoned GDP as a measure of national success and progress in favour of a well-being alternative, several governments are exploring broader metrics to supplement their use of GDP.
In 2004, the Australian Treasury announced the creation of its ‘Well-being Framework’.159 Rather than a utilitarian index of happiness, it attempted to measure the capacity of individuals to engage in activities of their choosing. The framework, revised in 2011, identifies five dimensions that directly or indirectly have important implications for well-being:
- The set of opportunities available to people. This includes not only the level of goods and services that can be consumed, but good health and environmental amenity, leisure, and intangibles such as personal and social activities, community participation, and political rights and freedoms.
- The distribution of those opportunities among the Australian people. In particular, that all Australians should have the opportunity to lead a fulfilling life and participate meaningfully in society.
- The sustainability of those opportunities available over time. In particular, consideration of whether the productive base needed to generate opportunities (the total stock of capital, including human, physical, social and natural assets) is maintained or enhanced for current and future generations.
- The overall level and allocation of risk borne by individuals and the community. This includes a concern for the ability and inability of individuals to manage the level and nature of the risks they face.
- The complexity of the choices facing individuals and the community. Concerns include the costs of dealing with unwanted complexity, the transparency of government and the ability of individuals and the community to make choices and trade-offs that better match their preferences.
The Canadian Index of Wellbeing is a citizen-led initiative launched in 2011. Responsibility for it currently rests with the Faculty of Applied Health Sciences at the University of Waterloo. The index is based on sixty-four indicators within eight domains: living standards, healthy populations, community vitality, democratic engagement, time use, leisure and culture, education and the environment. Although assisted by the government agency, Statistics Canada, there is no sign that the government currently makes use of this index or intends to in the future.
Both former French president Nicolas Sarkozy and UK prime minister David Cameron have publicly called for the creation of an index of national well-being to supplement or replace GDP in policy consideration. In France, the commission appointed by the government to create such an index instead reported on the sort of things it should include, and expressed scepticism that a single index would be sufficient.
The UK has created the Office of National Statistics Measuring National Well-being Programme.160 This looks at a set of forty-one headline measures which are organized by ten domains, including topics such as health, relationships, job satisfaction, economic security, education, environmental conditions and measures of ‘personal well-being’ – that is, individuals’ assessment of their own well-being. The measures are both objective (e.g. number of crimes against the person per thousand adults), and subjective (e.g. percentage of people who feel safe walking alone after dark).
The programme’s data suggests that the factors that were most strongly associated with personal well-being were health, employment status and relationship status. The Life in the UK 2014 report revealed that 77 per cent of those surveyed were satisfied with their lives. Perhaps one of the most telling statistics was that the proportion of people who trusted the government was 24 per cent.161
Transformation at work: a better life
The OECD’s Better Life initiative, launched in 2011, covers the OECD member countries with several additional nations included; China, India, Indonesia and South Africa are also due to be added in the future. The initiative provides a framework for assessing well-being using eleven subject areas that the OECD believes relevant to assessing an individual’s well-being.
Some of these factors – housing, income and jobs – relate to material living conditions. Others – community, education, environment, governance, health, life satisfaction, safety and work-life balance – are to do with quality of life. In turn, each of these areas comprises up to four separate indicators. In the case of jobs, for instance, the four topics are the employment rate, personal earnings, the long-term unemployment rate and job security.
Visitors to the online index (www.oecdbetterlifeindex.org) can construct their own weighted basket of the eleven measures and then see countries ranked according to scores on those criteria. Alternatively, assuming the criteria are equally weighted, then the national scores can be shown as a ranking. Detailed information is available across all the indicators both at an averaged country level and in detail for each country included in the index.
The OECD has also used data from eight topics – income, jobs, health, access to services, environment, education, safety and civic engagement – to construct a guide to regional well-being. The data (available at www.oecdregionalwellbeing.org) allows comparisons of quality of life across 300 OECD regions.
The societal progress debate
Governments are not short of data to assess the performance of their many and disparate activities. From emergency response times to civil service staff turnover, from government Internet statistics to prisoner reoffending rates, unemployment figures and public transport punctuality times – there are petabytes of data.
But a metric for assessing the performance of government as a whole remains elusive. The metric of choice in recent history has tended to be an economic measure associated with economic growth – GDP. Yet that assumes the purpose of government is economic growth rather than maximizing the mental and physical health and well-being of the population or increasing people’s overall happiness.
As we head deeper into the twenty-first century, some countries are questioning the assumption that economic growth is the measure of progress.
For those who take the view that GDP receives too much prominence in policy formation, improved metrics that better reflect the true state of society are essential to good governance. But critics point out that GDP, for all its shortcomings, is a straightforward measure. Could any single measure or group of measures really encapsulate the ‘good’ of society, even if a definition of that could be agreed upon?
Moreover, governments wishing to hide their own inabilities might conceal their shortcomings behind indices that exaggerate the value or the level of overall well-being – especially in the absence of internationally comparative indices.
At present, efforts to create a wider definition of national well-being beyond GDP provide additional insights on how society is performing. These can supplement existing economic, social and environmental measures. But we are still missing a holistic, robust, universal framework that defines societal progress, and a measurement approach that enables countries to scientifically measure their progress and guide their choices and decisions, while at the same time allowing performance comparisons with other countries.
The discussion about what metrics are best for measuring national progress and prosperity is a debate that is likely to continue for some time yet.