Beyond GDP indicators: To what end?

Today’s post is by Lucas Chancel, researcher at the Institute for Sustainable Development and International Relations (IDDRI) and lecturer at L’Institut d’études politiques, Paris and Damien Demailly, programme co-ordinator at IDDRI.

When a French MP recently decided to draft a law for the adoption of Beyond GDP (BGDP) indicators in France, she was told that such a law wasn’t necessary because BGDP indicators already existed and were published annually in the country. The MP replied that nobody in Parliament or government was aware of it. The reason was simple: the new set of indicators was published in the annex of a very technical administrative report – in a place where nobody would even bother look at them. This example sheds light on an important dimension of the BGDP indicator debate: measuring and publishing indicators is not sufficient, it is essential to reflect on how they can be used practically in policy making processes.

Today, several countries have already officially adopted dashboards of BGDP indicators. These pioneers are interesting cases to look at in order to see how BGDP indicators are used in practice: are they left in technical annexes of government reports, used as communication tools or mobilised effectively in the making of public policies?

Australia set up Beyond-GDP indicators as early as 2002, developed and supported by the Australian Bureau of Statistics and its statistician in chief. The dashboard comprises 26 dimensions grouped around four headline themes: society, economy, environment and governance. The dashboard has been published frequently and holds particular interest for the media and the general public. Indicators were initially designed to help citizens consider progress in a more integrated way, and not to evaluate government actions – however, the dashboard is regularly used by political staff in their media interventions.

Belgium ratified a law, early 2014, aimed at developing indicators to complement GDP. These indicators are currently being developed by the Belgian Federal Planning Agency and could include some of the indicators already adopted at the regional level by Wallonia: six indicators, including GDP, on three dimensions: environment, society and the economy. Interestingly, a review of BGDP indicators progress is planned to be included in the annual report of the Banque nationale de Belgique and the indicators’ progress will be debated in parliament each year. Contrary to what was initially planned in Australia, indicators are to play a very political role in Belgium.

The United Kingdom has produced a comprehensive dashboard of Beyond-GDP indicators since 2011 under a national programme for measuring well-being which was supported by Prime Minister David Cameron. The dashboard of indicators in the UK contains more than thirty indicators. Some are objective (e.g. income level) and others are subjective (e.g. percentage of anxious people in the population). The British would like to use their dashboard to measure the before and after impacts of public policies. This is not yet done systematically, but monthly reports are published to comment on how the country is performing on different dimensions of well-being and some indicators have been used to inform decision-making.

These case studies provide three interesting lessons.

First, in terms of methodology, it stands out clearly that “replacing” GDP is not an option any more in the countries which adopted new indicators. The choice that was made was to complement GDP rather than replace it. This choice can be understood by the fact that it is difficult to simply get rid of an indicator as emblematic as GDP but also because, despite its many limitations, GDP retains several powerful features (i.e. standardisation, part of a wide system of national accounts, etc.). In addition, GDP is not complemented with a single indicator but a dashboard of indicators – seen as a better way to represent different dimensions of well-being which cannot be merged into one single metric.

Second, initiatives to complement GDP were supported at the highest level. The executive power supported the Well Being Programme in the UK, the legislative power in Belgium and the administrative in Australia. In addition, indicators are not supported by one political party or sensibility: all sides of the political spectrum support beyond-GDP indicators. In the UK, it is the Conservative government, in Belgium, the Greens-Socialist majority. However, all political parties do not support similar sets of indicators. It may be anecdotic, but the UK does not have an objective measure of income inequality in its dense dashboard of indicators, while Belgium will very likely have one.

Finally, these examples showed three possible types of use of indicators. They can play a symbolic role, as initially planned in Australia: the indicators are supposed to represent progress in a different way but are not developed to measure government’s performance. Indicators can also play a political role, like in Belgium where they are developed precisely to assess government’s performance via an annual debate in Parliament. And new indicators can also be developed in order to play an instrumental role: when they are used to measure the impacts of specific public policies. Clearly, BGDP indicators are rarely used in this way currently, partly because of a lack of statistics and theory to understand how they are impacted by different types of public policies.

However, it should be reminded that, just like BGDP indicators, GDP did not always exist and has not always been used in an instrumental way. It took several years and decades, with developments in economic theory and statistical methods, as well changing socio-economic expectations, to make of GDP a symbolic, political and instrumental indicator. BGDP indicators are following this path even though it will undeniably take time and – indeed- political will.

Useful links

OECD Better Life Initiative: Measuring Well-Being and Progress

Home made but global: ANDI will measure the future Australians want

BLIToday’s post is from Mike Salvaris, Director, Australian National Development Index (ANDI) Ltd

The Australian National Development Index (ANDI) could fairly be described as ambitious. It’s a five year national project to engage half a million citizens and a large team of university researchers in developing a new set of national progress measures. ANDI has evolved organically over time, and its present form reflects both its local origins and Australia’s participation in the larger global movement to develop societal progress measures “beyond GDP”.

How ANDI developed

Australian work in this field goes back at least 20 years. In 1993, a group of researchers and community groups successfully petitioned the Australian Parliament to set up an enquiry into new measures of national well-being. A Senate report in 1996 approved the idea and recommended that the Australian Bureau of Statistics (ABS) work with researchers, policy makers and community groups on this task. Two years later, Australia saw its first national conference on measuring progress which drew together several hundred researchers, policy makers and citizens from many different fields of social progress. In 2002 the ABS became the world’s first National Statistics Organisation to develop a new statistical model for measuring national progress; rather than simply putting existing data together in a new combination, it was based firmly on the idea that to measure a society’s progress, you must first be able to describe and define clearly what social progress looks like. (Sadly this pioneering project was discontinued this year due to agency budget cuts.)

Fast forward to 2008: a newly elected Labor government decides to convene the nation’s first ‘National Ideas Summit’, seeking new projects and new thinking for Australia’s next decade. The idea of an Australian National Development Index based on extensive community engagement and research was highly rated. Two years later, ANDI became a national, not-for-profit, citizen-owned company with a Board of Directors that included a number of eminent Australians.

Mike Salvaris explains the Australian National Development Index (ANDI) in The Zone.

In the last decade, the quest for better measures of progress and well-being has truly become a “new global movement”, as the OECD described it, noting some seventy current projects around the world. And while the OECD has played a crucial leadership role in the process through the Better Life Initiative, the movement itself has built up from the convergence of many different streams over perhaps forty years. Environmentalism, the women’s movement, the local community well-being movement, the UN Development Program and the example of world leading projects like the UN Human Development Index, Bhutan’s Gross National Happiness Index and the Canadian Index of Wellbeing and the OECD’s own earlier work on social indicators in the 1980s – all of these have played a part in the journey.

Australia has been both a contributor and a major beneficiary in this worldwide movement, so vigorously championed by the OECD. Australian researchers, policy makers and community leaders have been part of most of the key OECD forums and meetings, but also kept in touch with colleagues and projects all over the world: not just those in our part of it (Thailand, Japan, Bhutan, New Zealand etc), but in Europe, Canada, USA and Latin America.

In trying to design the best national model we can for Australia, we are very conscious of learning from global ‘best practice’. Today, with so many ideas and so many different projects in this field, there is much to choose from. But perhaps we should start with the common values and the shared experience that underlies most of these various endeavours.

What have we learned?

Two years ago at the Delhi World Forum, I tried to identify what I thought were the key conclusions and agreements that have emerged from this decade of intensive global work and thought about redefining society’s progress, and I’ve listed them below. These are now largely embodied in research articles and reports (like the Stiglitz-Sen-Fitoussi commission’s) but also in broader formal declarations like the Istanbul Declaration of 2009 and the Delhi OECD World Forum Communiqué in 2012.

  • GDP may be a good measure of economic output but it is a poor measure of the quality and wellbeing of society as whole, and using it this way can distort policy outcomes in practice.
  • A new model of societal progress is needed, not just new measures. True progress is an increase in equitable and sustainable wellbeing, not just in economic production.
  • Measures of true societal progress must integrate the economic, social, cultural, environmental and governance dimensions of progress; and they must consider the subjective wellbeing of people and the qualities of the society, such as justice and sustainability, not just the material outcomes.
  • The task of developing new progress measures is one that must engage citizens, scientists and policymakers. The process can be an important new tool to strengthen democracy, reverse the growing alienation of citizens, and create new shared visions of national progress.
  • It is now time to apply these new measures and processes in practice, to planning, policy-making and government, in the media and the community.

ANDI’s innovations

ANDI has taken all these lessons very seriously. And while we want to build the best features of all these models into our Australian index (allowing for own special priorities and culture) we have chosen to give special emphasis to two features that will make us a little different from our colleagues (I would never say “competitors” in the present context, although it is a term Australians naturally favour).

The first difference will be in the scale and range of ANDI’s community programme (and thus, hopefully, in its contribution to the larger democratic process). ANDI will aim to engage 500 000 Australians from all walks of life and all corners of the nation in a conversation addressing the central question: “What kind of Australia do we want?”. The programme will be carried out over 2 years, through a wide array of platforms and programmes: surveys, focus groups, town hall and kitchen table meetings, social media and blogs, school curricula, film and video. It will be funded from philanthropic, corporate and community sources, and will fully utilise the extensive networks of ANDI’s 60 partner organisations and their two million members.

A second difference is in the index itself: ANDI will produce each year an index of overall national well-being, but also twelve separate indexes and status reports in each key component domain of progress. These domain indexes will be released in different months, in order to maximise publicity, discussion and policy relevance, and aggregated into the national well-being index. The aggregate index will be weighted according to the relative priorities accorded to each of the 12 component domains. This is similar to the weighting process that is possible with the OECD’s Better life Index but in ANDI’s case, the weighting will be based on a national survey rather than the preferences of self selected individuals. Collectively these features will make for a more sophisticated policy-diagnostic tool, with the capacity to identify the key driver of change in progress and wellbeing, not just at the level of broad domains, but within each domain.

Useful links:

OECD Better Life Index

How’s life? 2013 – Measuring well-being

Australian National Development Index (ANDI)

Commission on the Measurement of Economic Performance and Social Progress

The arithmetick of green growth

Click to find out more about OECD work of relevance to Rio+20

Today we publish the first in a series of articles on the OECD’s contribution to the  RIO+20 UN Conference on Sustainable Development

Here’s one of the best ever openings to a paper in any academic discipline you care to name: “The economic changes that occurred in this country during recent years are sufficiently striking to be apparent to any observer without the assistance of statistical measurements. There is considerable value, however, in checking the unarmed observation of even a careful student by the light of a quantitative picture of our economy.” That’s Simon Kuznets in his unremarkably entitled 1934 paper National Income, 1929-1932. Three years later, he would present a report to the US Congress that formulated such a “quantitative picture”: GDP, a single measure of the size of a nation’s economy.

Before GDP was invented (and it seems such an obvious, natural measure it’s hard to believe both that it was invented and invented so recently) governments did have some objective data on the state of the economy on which to base policy. In the 17th century already, William Petty established the bases of national accounting, essentially for tax purposes, although his Political Arithmetick also has many other lessons that are still relevant today, for example on how “a small Country and few People, by its Situation, Trade, and Policy, may be equivalent in Wealth and Strength, to a far greater People and Territory”.

Despite the centuries separating them, Petty and Kuznets were responding to a similar need to understand a changing situation. Petty’s concern was that although money rather than barter was starting to dominate economic transactions, national wealth was still counted as it had been for centuries in terms of gold and silver. In Kuznets’ time, the US government’s role in the economy was growing after the Great Depression, but as Richard T. Froyen points out, its interventions were being guided by a sketchy set of indicators such as freight car loadings or stock price indices.

The beauty of GDP was that it included so many different things in a single figure, and despite the suspicion and even outright hostility any innovative approach attracts, it became the standard measure of national economies following the 1944 Bretton Woods conference. The main criticism was, and still is, that it is not a measure of well-being since production can increase while leaving most people no better off in any way. Kuznets himself insisted that GDP was a quantitative measure and not meant to describe the quality of growth.

Speaking to the OECD Observer in 2005, François Lequiller, head of National Accounts work at the OECD, also defended GDP as doing very well what it was designed for, but admitted that it left out a number of key topics such as environmental degradation. However, as he pointed out, it’s probably impossible to design a single GDP-like figure for a wider application that would reflect the many different aspects in any meaningful way, and including them in GDP would damage its usefulness as a measure of output. A suite of indicators is more appropriate in these cases.

The OECD’s Better Life Index follows this logic to allow citizens to establish their own measure of well-being. Users “weigh” 11 topics – community, education, environment, governance, health, housing, income, jobs, life satisfaction, safety, and work-life balance – to generate their own Index from a collection of 20 indicators. But even if growth is what’s being measured, a single figure may be misleading or too vague.

When OECD governments asked the Organisation to develop tools to support policy analysis and monitor the progress of green growth strategies, it was clear that by its very nature green growth is not easily captured by a single indicator, and a set of measures would be needed as markers on a path to greening growth and seizing new economic opportunities.

A database of green growth indicators has just been launched by the OECD, structured around four groups to capture the main features of green growth:

  • Environmental and resource productivity, to indicate whether economic growth is becoming greener with more efficient use of natural capital and to capture aspects of production which are rarely quantified in economic models and accounting frameworks.
  • The natural asset base, to indicate the risks to growth from a declining natural asset base.
  • Environmental quality of life, to indicate how environmental conditions affect the quality of life and wellbeing of people.
  • Economic opportunities and policy responses, to indicate the effectiveness of policies in delivering green growth and describe the societal responses needed to secure business and employment opportunities.

Colombia, the Czech Republic, Korea, Mexico and the Netherlands have already applied the OECD’s preliminary set of green growth indicators to assess their state of green growth, and Costa Rica, Ecuador, Guatemala and Paraguay are now doing so.

Apart from providing data on what we know, compiling the database also reveals a number of gaps in our information relevant to green growth, for instance on biodiversity, what’s happening at industry level, or monetary values to reflect prices and quantities of stocks and flows of natural assets.

Even where enough data exists, it may be difficult to combine them due to differences in classifications, terminology or timeliness, to allow cross-country comparisons for example. The system of national accounts pioneered by Petty allows such comparisons for national economies, and provides the inspiration for the System of Environmental-Economic Accounts (SEEA), internationally agreed standard concepts, definitions, classifications, accounting rules and tables for producing internationally comparable statistics on the environment and its relationship with the economy.

We can only guess what William Petty would have thought of such an exercise. As for Simon Kuznets, he anticipated it in his 1971 Nobel lecture, pointing out over 50 years ago that “the conventional measures of national product and its components do not reflect many costs of adjustment in the economic and social structures…” going on to cite “clearly important costs, for example, in education as capital investment, in the shift to urban life, or in the pollution and other negative results of mass production.”

Useful Links

OECD work on green growth indicators

OECD work on green growth

Why measure subjective well-being? Richard Layard, Director of LSE’s Wellbeing Programme, argues in the OECD Observer that the search for measures of progress that might replace GDP is a timely and necessary one, but only a single metric will do the trick.

Enriching our poverty measures

Click on the image to read what people affected by poverty say about it

This post was contributed by Kate Scrivens of the OECD’s Statistics Directorate. Kate is working on a project researching indicators of household vulnerability and resilience in OECD countries.

One of the most widely recognised  Millennium Development Goals (MDG) is halving the proportion of people living on less than $1 per day. And yet, how many of us have actually taken time to think about what that could mean, to live on less than $1 a day? Indeed, for most people in the developed world, this represents such a miniscule sum as to be almost meaningless. How can we better understand what life is actually like for the world’s poor?

A new international poverty measure – the Multidimensional Poverty Index (MPI) – devised by the Oxford Poverty and Human Development Initiative (OPHI) and the UNDP Human Development Report, goes some way to addressing this problem. A person may not be considered poor according to the traditional monetary threshold and yet still have woefully inadequate access to schooling, food, healthcare, electricity, water or decent housing.

The MPI takes these different dimensions into account, and finds significant differences between the income-poor population and the population facing wider deprivations. For example, in Ethiopia, only 39% of the population is counted as being income-poor using the $1.25-a-day measure (the $1 figure was revised to account for inflation), yet 90% of the population are “multi-dimensionally” deprived according to the MPI.

As the MPI directly measures the hardships experienced by individual households, it can give a much more nuanced picture of patterns within countries.  In Kenya, the overall poverty rates for the Kikuyu and Embu ethnic groups are similar; however the experience of poverty for the two groups is quite different. The Kikuyu suffer from higher rates of child mortality and malnutrition, whereas the Embu are more likely to face insufficient access to electricity, cooking fuel and adequate sanitation.

From a policy perspective, this kind of detail is crucial to be able to identify the challenges faced by different groups and to design effective solutions accordingly.

There are obvious links between lacking income and being deprived in a wider sense, and monetary measures of poverty remain very useful. However, poverty is a complex and multifaceted phenomenon – a reality that is sometimes obscured by income statistics. The availability of international comparable data of the breadth and depth of detail provided by the MPI can hopefully result in more informed policy and tangible change in the lives of poor people.

Of course, poverty is not just a problem for the developing world and the need for more comprehensive measures of household living conditions is increasingly being recognised in OECD countries too. The Stiglitz-Sen-Fitoussi Commission made recommendations in this vein last year, and surveys such as the EU Survey on Income and Living Conditions are starting to give a richer picture of poverty and social exclusion. The OECD publication Growing Unequal provides an analysis of non-income poverty indicators in OECD countries.

These developments are important because how we define and measure a problem dictates how we respond to it. By using a narrow definition of poverty, we risk ignoring large groups of disadvantaged people and implementing ineffective policy. Better data can provide a powerful (and much-needed) advantage in the fight against poverty.

Useful links

OECD Statistics Directorate

The OECD Progblog discusses progress.

Wikigender is a project initiated by the OECD Development Centre to facilitate the exchange and improve the knowledge on gender equality-related issues around the world.

OECD Insights on Sustainable Development