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OECD Says Nations Need to Measure Sustainability and Well-Being, Not Just GDP

Oct 29, 2012

When it comes to measuring progress in the world, economic measures just aren't enough -- measures such as sustainability, health, education and subjective well-being need to be taken into account, as well. That's the conclusion reached at a four-day forum hosted by the Organization for Economic Cooperation and Development (OECD) in New Delhi, India, Oct. 16-19. OECD gave the theme "Measuring Well-Being for Development and Policy Making" to its fourth World Forum on Statistics, Knowledge and Policy.

Historically, OECD has consisted of the developed nations of the world -- its original membership was made up of 18 European nations plus the U.S. and Canada -- but membership has continued to expand and now includes emerging countries such as Mexico, Chile and Turkey. The organization also works closely with developing nations such as China, India and Brazil.

India struggles to balance environmental protection, development and quality of life. Credit: Jose Pereira, CC BY-ND 2.0

Opening the event on Oct. 16, Shree Srikant Kumar Jena, minister for statistics and program implementation in the Indian government's chemicals and fertilizers program, said, "The emerging consensus around the world is that economic growth should be combined with equity and social justice. This poses formidable challenges to statisticians and policymakers." Even in lands where gross domestic product (GDP) is the preferred metric for well-being, Jena said, "people want some modification to the accounting of GDP, to include aspects like environmental impact and sustainability."

Getting the measurement regime right is crucial to policy-making, said Columbia University economist Joseph Stiglitz in his keynote speech at the forum. He told the group,

"Measures like GDP are part of our information system, and information systems guide how we steer the economy. What is measured and how performance is evaluated can distort outcomes."

In other words, garbage in, garbage out.

He continued:

"GDP measures the busyness of our economy. But the big question is whether we are busy doing the right things. Making your economy grow more will not necessarily get you the things that people really want. Our preoccupation with GDP makes it difficult for politicians to back policies that are good for society and for the environment but which might not result in an increase in GDP."

One reality is that for a country's citizens to be happy, they need to have at least a minimum level of economic well-being. This is evident from comments made by Montek Singh Ahluwalia, deputy chair of India's planning commission. The country's new five-year plan, he said, "recognizes the multi-dimensional nature of goals and objectives before policymakers for achieving human well-being." However, he pointed out that India's per capita GDP is only 10 percent of those of the OECD nations. Given the economic state of many people in India, addressing the forum, he said:

"At this level of per capita income, there is no question that doubling or tripling the GDP would go a long way towards meeting many of the multi-dimensional objectives that contribute to well-being. Ignoring GDP entirely would be impossible. But GDP simply measures goods produced. It does not measure the negative externalities, such as damage to environment and biodiversity, pollution and over-exhaustion of limited natural resources. These problems have now reached a scale where they cannot be ignored."

The Better Life Index

Highlighted at the meeting was OECD's "Better Life Initiative," which works to develop new ways to measure societal progress, such as environmental quality, health, housing, education, security, people's subjective sense of well-being, strength of communities and responsiveness of government and economic institutions. The Better Life Index on the OECD website uses metrics to rank well-being among the OECD member countries on an eight-point scale.

On the index, the countries that rank highest are Australia, Norway, the U.S., Sweden and Denmark, in that order. The countries that rank lowest are Turkey, Mexico, Chile, Brazil and the Russian Federation, starting with the lowest quality of life.

Gross National Happiness

Bhutan has employed its Gross National Happiness measure for 40 years. Credit: Jean-Marie Hullot, CC BY-SA 2.0

In measuring well-being, one challenge for policymakers working at an international level is how to compare apples to apples across different nations. Some nations have undertaken their own initiatives to measure quality of life.

A case in point is the South Asian Kingdom of Bhutan, which has for 40 years measured its national well-being according to what it refers to as Gross National Happiness (GNH). Bhutan uses a periodic survey to measure its citizens' well-being according to multiple dimensions such as psychological well-being, health, education, culture, use of time, good governance, community vitality, ecological diversity and resilience, and living standards.

Describing how the country uses its GNH index to drive policy, titled "A Short Guide to Gross National Happiness Index," the Centre for Bhutan Studies, says:

The GNH Index is meant to orient the people and the nation towards happiness, primarily by improving the conditions of not-yet-happy people. We can break apart the GNH Index to see where unhappiness is arising from and for whom. For policy action, the GNH Index enables the government and others to increase GNH in two ways. It can either increase percentage of people who are happy or decrease the insufficient conditions of people who are not-yet-happy.

Speaking at the OECD forum, Karma Tshiteem, Bhutan's GNH Commission Secretary, said that the nation's GNH metric allows its society to achieve balance between material and non-material needs. Forty years after adopting the GNH measure, said Tshiteem, "our culture and tradition continue to flourish and our environment is probably among the best-preserved in the world today."

The Human Development Index

On a global scale, the United Nations Development Programme (UNDP) has undertaken a Human Development Index (HDI), which measures relative well-being among 187 nations. In a presentation at the OECD event, Jon Hall and Seeta Prabhu of UNDP told the audience that HDI "measures a country's average achievements" in the three basic aspects of health, knowledge and income. While admittedly "simple and crude," HDI does offer a consistent global perspective on human development across nations.


Credit: United Nations Development Programme


Hall and Prabhu say that HDI can be useful on the international stage for "question[ing] national policy choices, asking how two countries with the same level of gross national income per capita can end up with such different human development outcomes." They cited the example of Saudi Arabia, which has a per-capita income that is $2,000 higher than that of the Czech Republic but has a lower life expectancy and level of schooling. Such "striking contrasts can directly stimulate debate about government policy priorities," they assert. One big advantage of HDI is that policymakers can fine-tune it, drill down into it and assess measurements on the national and even local level.

A statement issued at the end of the OECD conference stressed the value of applying broader measures of well-being at the policy level: "It is vital that the relevant things are measured and the link between measurement and policy is strengthened in order to design and implement the right policies. The drive towards better well-being measures will not be successful unless we show that these measures can lead to better policies."