Happiness is the new GDP

Twelve months into the economic crisis, a commission chaired by Economics Nobel Prize laureate Joseph Stiglitz is advocating the widespread use of a new economic performance indicator, which does a better job of measuring the well-being of populations. France wants Europe to take note of the commission’s report.

Published on 15 September 2009 at 14:23

The date for the submission of the Report by the Commission on the Measurement of Economic Performance and Social Progress to Nicolas Sarkozy was not chosen by chance: Monday 14 September coincided neatly with the first anniversary of the collapse of American bank Lehman Brothers – an event which precipitated the worldwide financial crisis – and its findings will also be available in time for discussions at this months G20 summit in Pittsburgh and the general meeting of the United Nations, where heads of state will attempt to determine new rules to regulate economic policy.

In his opening address to the international conference at the Sorbonne for the official presentation of the report, the French President called for a statistical revolution that will “set aside the religion of figures.” Mr Sarkozy is also planning to promote this message in Pittsburgh and at the United Nations.

The report, which was mainly authored by Joseph Stiglitz, and Amartya Sen – two Nobel Prize in Economics laureates – and Jean-Paul Fitoussi, chairman of France’s economics monitor Observatoire français des conjonctures économiques (OFCE), proposes that new instruments should be developed and adopted to measure the wealth of nations. Arguing that what is required is a shift in focus from economic production to the well-being of populations, it advocates an approach with a reduced emphasis on Gross Domestic Product (GDP), and more detailed consideration of Net National Product (NNP), which takes into account all aspects of the depletion of capital: including natural and human capital.

In short, it aims to introduce a new paradigm which would be no longer exposed to the perverse mathematics of GDP – which for example increases in the event of natural disasters, when it is boosted by the cost of reconstruction, while ignoring the real cost of the destruction of resources and property.

Sustainability

When President Sarkozy announced the creation of the commission of 20 international experts in February 2008, he had three main objectives in mind: to develop economic metrics that would be more in tune with the experience of the French population, and the experience of peoples around the world — who often complain that economic statistics fail to reflect the reality of their daily lives — to promote the relevance of environmental considerations in economic data, and to provide politicians with measurement instruments that are more pertinent to the goal of social progress.

The “twelve recommendations” of the commission confirm the relative inadequacy of current measurement systems, which did not provide sufficient warning of the impending financial crisis — “We are almost blind when the metrics on which action is based are ill-designed or when they are not well understood” — and the report’s authors insist on the need for a more long-term focus, which emphasizes the concept of “sustainability,” that is to say the capacity of an economy to maintain the well-being of a population over time.

Now that these issues have been raised, much remains to be done. There is no doubt that France will not undertake a unilateral initiative to modify its national accounting system, but that change must be introduced at an international level. This autumn will be marked by a programme of meetings between the managers of economic statistics institutes — the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD), France’s INSEE, the European Union’s Eurostat etc. — but harmonization will not be achieved overnight. At the same time, several members of the commission, including French economist Jean Gadrey, believe that the debate should not be the sole preserve of economic experts — but that it should be open to a broader range of stakeholders and invite contributions from civil society at a series of meetings similar to those organized for France’s Grenelle Environment Round Table in 2007.

Well-being

Hell, if you’re Italian

The European press seems to have welcomed the report, but not without some caveats. “GDP”, notes the FT, “is riddled with imperfections. …As US GDP rose during the past three decades, incomes stagnated or fell in the bottom half of the population. And some production we would be better off if we could do without: guns are one example”. It warns, however, that GDP should not be “dethroned by an all-encompassing measure of “happiness”. That would repeat a mistaken desire for one number to capture all that matters.” La Stampa columnist Massimo Gramellini declares himself “enthusiastic”, but admits that “as an Italian I fear that new rules could sink us in hell. Our GDP must already be stripped of tax fraud, which makes up another GDP. If we had to account for the experiences of those travelling from one city to another or requesting a paper from a public institution, our participation at G20s would be limited to a catering role. That’s unless the economist includes in indicators of well-being anarchy and impunity… then we would be a superpower.”

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