Executive Director at nef (the new economics foundation), London
Breaking the Wall of Misleading National Indicators. How Economics Can Measure Real Progress
With the major crises shaking global markets, and projecting uncertain scenarios on the future of the historical superpowers, the need of a revision of the capitalist system as we know it is evident even for the whitest of Wall Street collars. According to Stewart Wallis, whose career includes studies at Cambridge, London Business School, and appointments at the World Bank and Oxfam, the most fundamental problem to our survival is the systemic problems that our economies face which include growing inequality and instability, and a failure to live within ecological limits. of life. As the executive director of nef (the new economics foundation), Wallis is promoting research and solutions able to challenge the mainstream conception of economy by reframing it with social justice, environmental sustainability and collective well-being. Wallis urges policy makers to accelerate a transition to an economy that abolishes out-dated economic indicators like the Gross Domestic Product (GDP) and instead takes ecological boundaries and real human needs into account. In Berlin, he will present new parameters to assess common progress and show how implementing these will fundamentally change economics
Hello. It is fantastic to be here. What gets measured gets done. Or another way it is put sometimes is: you treasure what you measure. That statement is usually attributed to Peter Drucker, and I think it is largely true, which is why it is so fundamental that we measure the right thing. I am going to tell you today that we are measuring the wrong thing in terms of national progress, tell you about the breakthrough that is being made right now in measuring the right thing, and explore some of the implications and breakthroughs that might follow from that.
First, a bit of gloom. Many of our advanced economies, or so-called advanced economies, are suffering four interlinked and systemic problems – and these are long-term problems. I call them the four “U”s of economics or the four horsemen of economics. Unsustainable. Not only – as we have heard already – do we face the risk of serious or runaway climate change, but the very life support systems on which we depend, the ecosystems and the ecosystem services, are being degraded. The UN recently said that 15 out of 25 key ecosystems are in decline or serious decline. That covers things like fresh water, pollination systems, topsoil and vital life support systems. Unfair. There are about 400 people in this audience. The top 400 richest Americans now have the same amount of wealth as, wait for it, the bottom 155 million Americans. That is the distribution. Unstable. Well, you all read the newspapers; I don’t need to say anything there. Clearly we build our economic systems for efficiency, supposedly, and not resilience; we haven’t built in the safety nets. As a result, they are not either efficient or resilient often. Lastly, that word “Unhappy”. In my country, the UK, the economy doubled in GDP terms from 1980 to 2005 – well-being was flat. In America it went down in the same period. We are not getting any happier despite that.
Now what do we measure? We measure Gross National Product at the minute. Robert Kennedy, famously in his ill-fated presidential bid, back in 1968, said a brilliant thing about Gross National Product. He pointed out how pollution increased it, war increased it, and cutting down the redwood trees increased it. He ended it by saying this: “The Gross National Product measures everything except that which makes life worthwhile.” The OECD basically said recently that: “Just relying on GDP is like driving a car without a speedometer.” Obviously we need to know whether our economies are overheating or about to run out of fuel. So, we need some other things on the dashboard.
But even that is not enough. Because if we get back some of our economies to full speed, the key thing is: are we going in the right direction? There is no use getting up to full speed if we are going the wrong way. What is the right way? We believe the goal of a good economy is to achieve high well-being, as Dennis has already said, social justice, and to do so within fair ecological limits. That is what we should be aiming at. We have been working for the last 15 years on how you measure well-being – using survey techniques – and what it is correlated to, and what the implications are for policy.
Well-being and flourishing, I think one can use interchangeably. What it means is that it is much more than being happy. I could be happy, high on an illegal substance, but I wouldn’t be flourishing, would I? Flourishing means that you are functioning well, and you are experiencing good feelings about yourself and about your purpose in life – both day-to-day and overall.
A fairly simple applied model covers feelings and functionings, but they depend on two other things. They depend on your own psychological resources, how you live, and they depend on external conditions – a little bit about both of those. Personal flourishing. In the UK, there is an advertising campaign that says: if you want to be healthy, you have five fruit and vegetables a day – five-a-day. Well, these are the five-a-day of well-being. Connect: fundamental, how you relate to your friends, your loved ones, the quality of your relationships is absolutely vital. Be active: not my strongest suit, but important. Take notice. Just that simple thing: how many of you wandered out and looked at the river today and saw what the weather is doing, the colour of the trees? It actually matters whether we look around, whether we are living in the present. Keep learning. And that last one, the most uneconomic thing – give. Look at economics and you cannot see much about “giving”, yet it is fundamental to our well-being: how we give of our time, our love, our resources, is the key to our well-being.
But, well-being is also affected by external conditions. So, if unemployment goes up, if inequality goes up, if instability goes up – either at the level of the economy or individual jobs, if environmental pollution goes up, if social fragmentation goes up, and – I should have added – if debt goes up, our well-being goes down. And the reverse is true, though not necessarily proportionally.
Now, the breakthrough that we have made is that we have been working with people in the UK government, including the Chief Statistician, for many years, trying to persuade them – and this is with others: Professors Layard; Stiglitz; Sen and lots of other people in this field, but together we have all been saying for a long time: “It is really important to start measuring well-being.” The UK government is now committed to measuring well-being, as the headline indicator. The first data will be available in July next year. The whole of the civil service is going through the initial tests of the questions. All the top 200 civil servants are going to a day-long induction in this, the appraisal manuals of government are being changed, and everybody who has been inducted in the civil service are taking it very seriously. They are going to measure well-being.
This is what David Cameron said: “It is the serious business of government.” Last week we had the head of the civil service and ex-head of the treasury in the UK, called Sir Gus O’Donnell, who has been known affectionately in the British civil service as “GOD” by his initials; he came along and talked about the implications of starting to measure well-being. He said a very interesting thing. He said that he thought within ten years well-being would be the headline indicator, our well-being would be the fundamental thing we are measuring, and GDP would be a subsidiary indicator. Now, I hope he is right. But as I left the room, somebody said: “You are very lucky, you know.” I said, “Why”? He said: “Well, you have got God on your side.” So, we will see.
What is the framework for measuring societal progress? We have done a lot of work on this as well. The goal, on the right-hand side, is high well-being, and you need to look at the distribution of that: what percentage of the population is flourishing? The key fundamental resources are environmental resources. We have seen and we have heard how that is going to be one of the scarcest things we face. Economic activity is the way one is translated into the other. You have got three types of efficiencies here. But the most interesting is that the key one is how effective are we going to be at translating environmental resources into high well-being.
In the study that we have done – the left-hand side shows happy life years – it is a combination of how much well-being in each country there is and how long people live. Down at the bottom is what Dennis was talking about earlier: ecological footprint. About just below the 002 on the bottom there are countries that are living within planetary means. Getting over a footprint of 002 means you are living beyond the ability in the long-term to regenerate itself. On the top right, you have the USA; people living generally quite long lives, quite high levels of well-being but consuming five planets worth of resources in doing so. Down here on the bottom, you have a lot of the Sub-Saharan African countries, levels of well-being aren’t high and sadly because of HIV and many other things, longevity is short – people don’t live a long time. Up there on the top left on its own is Costa Rica in the green zone. Costa Rica has the highest level of well-being of any country in the world; people live longer than the USA. It is doing so virtually within planetary means. It is too long to go into why, but as well as a bit of Latin magic: abolishing their army in 1949, making 99% of their electricity from renewable resources, and a carbon-tax, or should I say “carbon-fee”. The key clearly is to get all the countries up to the top left-hand side. That is the direction. When we talk about “are we going in the right direction or the wrong direction”, that is what matters. A number of countries are going off to the right, and some of them are dipping down. So, they are using up too many planetary resources; that is increasing, and their well-being is going down. We want all the countries up in the top left-hand corner. That is the direction we want.
So, if we start measuring well-being in the UK, and Australia has also said that it will use the same types of questions and data as well, I think it will spread to lots of other countries. What are the implications for policy? Well, as Gus O’Donnell said, virtually everything. But just to mention a couple of simple ones – sports, art and music, both in schools and the community, have a tremendous impact on well-being. That is something that we should be investing in far more heavily. The design of our cities, of our workplaces – the changes are massive. But it might, and this is where I speculate about the future, do something else as well. It might change that central dynamic. I pointed out at the beginning those Four “U”s. It just might, if we are measuring the right thing, get us to think about what we want in life. We might see a values shift. It might help a value shift from being consumers to stewards. It might even help us with the whole issue of climate change. It is very difficult – and I have done this for quite a time – telling people “you’ve had it if we don’t change.” That is not very compelling. Getting across, “we can actually have better lives, higher well-being, and do so on lower carbon.” That is a much more interesting message. That is one that could win. So, this could change things dramatically. I think it will also change macroeconomics and the economics as a whole, because if there is ever a wall that needs to fall, it is how we particularly practice economics, but also the theory in some cases. We will need to rethink resilience. We will need to be able to distinguish between that growth that is economic in terms of creating well-being, in terms of creating good jobs, and that growth that is uneconomic. So, uneconomic growth – that is a new term for you, but think about it.
Similarly, distinguishing between growth that is sustainable, and growth that is unsustainable. Then the issue of rethinking efficiency and productivity: if actually the key scarce resource is natural resources, natural capital, and if what we are trying to maximise is well-being and jobs, then we might have to satisfy on some returns to capital, and we might even have to move to labour productivity that goes in the wrong direction. That changes economics totally. It helps us deal with, what I call, the “over-consumption dilemma”. In the medium-term, we are going to face the situation where, if we carry on as we are, we are running out of planet, we are over consuming; our foot is on the accelerator too much. But if you try and move the foot to the break, all we do at the minute is put a lot of people out of work, cause greater recession. That is not an answer to stop people consuming. The issue is to change, not just the measurement, but the incentives, the institutions in the economy, so that we have an economy that is still going to be a market economy but runs to a very different metric. That requires, what I call, a “great transition of our economies”. So measuring the right thing might help start us get there. I also think it is so fundamental though that one is clear: where are we trying to go, and have we got measurements about how we might get there? That will change things in ways I cannot begin to imagine. Thank you.