Happiness and Sustainability – Alternative yardsticks for economic growth

15th June 2012

This is an important question, as there several ways to measure GDP for starters, and a lot these figures won't tell us. Are these economies sustainable in the future? Are the people content and therefore likely to be productive going forwards?

Today saw the publication of the Happy Planet Index from the New Economics Foundation (NEF), coinciding with the UN's Rio+20 sustainable development conference. This ranks countries based on their sustainable well-being – how long people live, how happy they are and the size of their ecological footprint.

"The index is about efficiency – countries score well by maximising the happiness they create per unit of environmental input," says the New Statesman Economic blog.

It shows that people in the UK are better off than those in any other European Union or G8 country, reports the Guardian – despite the recession.

However, it also shows that developed countries including the UK are falling behind many poorer nations when it comes to "sustainable wellbeing". The UK scores highly within the EU and other big economies, but is behind much of the developing world, because of its large ecological footprint.

Costa Rica, Vietnam and Colombia topped the poll because of their low environmental impact, relatively good life expectancy and high levels of contentment reported by their citizens. And eight out of the top nine countries in the index are from Latin America or the Caribbean, despite high levels of poverty.

So are conventional economic measures inadequate?

For an indicator we have to use all the time, GDP has very few advocates. The idea of a single number to show a country's economic power originally came from US Nobel-prize winning economist Simon Kuznets.

GDP will not measure people's true welfare, and the state of environmental degradation, which is likely to put limits on future growth.

And it sometimes tells us the wrong thing.

As Mindful Money's economist Shaun Richards comments in his blog on its accuracy: "The earthquake, tsunami and subsequent Fukushima nuclear power station problem that hit Japan just over a year ago is a case in point, which I raised at the time. The destruction of the event was not recorded by GDP statistics but any reconstruction efforts will be. So Japan as a nation is worse off but GDP numbers will show an improvement over time."

Over recent years, as the financial crisis has deepened, experts have started to move beyond GDP and raw economic growth as the only yardstick of progress. Supporters of other measures include several world leaders, including David Cameron.

At the Rio+20 conference, the UN and World Bank will lead discussions of how to include the value of natural capital – land, forests, waterways and other environmental goods. At present, under current economic accounting, a forest is considered to have nil value until it is cut down and the timber sold. This might be called GDP Plus.

The Organisation for Economic Cooperation and Development (OECD) has been trying another new approach: asking people what they think is important through its Better Life Index.

The Index puts you in charge by allowing you to choose what matters to you – and how highly it should be ranked.

It's considered a major success by the OECD, says this Guardian blog, particularly as users consistently rank quality of life indicators such as education, environment, governance, health, life satisfaction, safety and work-life balance above more traditional ones.

Meanwhile, the Kingdom of Bhutan has been measuring gross national happiness for almost 40 years.

This momentum in these alternative measures has, of course, been hastened by the turbulent economic climate and the perception that traditional economics has somehow failed our society.

Consideration of these factors might not have prevented the financial crisis, but they are increasingly forming a vital role in discussions of a sustainable future – and therefore economic growth.


More on Mindful Money:

The problem with GDP

Wellbeing, happiness and sustainability: hallmarks of a new economic paradigm

The financial crisis and the benefit of hindsight

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