An Outline of Existing Monitoring Systems

Abstract

AbstractEconomic performance has long been routinely measured by GDP. Although it is a good measure of activity, it is generally agreed to be a poor measure of economic success. The reasons are that it omits domestic labour and other unpaid work, it includes a great deal of economic activity that does not contribute directly to economic welfare (“defensive expenditures”) and may be harmful to individuals, society or the environment, and it is insensitive to inequality. There are also several other, more technical, problems. More fundamentally, purchases that merely improve one person’s economic standing compared to others make no contribution to aggregate wellbeing yet are counted in GDP. And macro-evidence shows that in rich societies, increasing prosperity is subject to diminishing returns—as GDP per person rises ever higher, the amount of additional benefit greatly decreases, possibly even to zero.There have been various responses to this situation. One is to start from GDP, and attempt to remedy its defects by adding some items (e.g. domestic labour) and subtracting others (e.g. the cost of deterioration of nature). Various methods have been devised to adjust for inequality. And there have been many attempts to broaden the range of included items to form composite indices—the basic motivation being that economic success is only one criterion of societal benefit (this is not the same thing as providing a measure of economic success). Some useful ideas have emerged from this work, but there are no clear criteria for deciding which items should be included. Furthermore, the underlying notion is that monitoring something desirable will in itself lead to improvement—whereas in reality, effective policy needs to be based on the determinants of desirable outcomes that can be altered. And it is difficult to envisage such composite indices displacing GDP in the development of major policies. However, a different approach to “beyond GDP”, the OECD/EU initiative for an “economy of wellbeing”, has much in common with the emphasis on basic needs proposed in this book.A great deal of progress has been made in assessing household disposable income, in valuing public services that are free at the point of delivery and in evaluating “free” goods and new products. The valuation of the various types of assets has also advanced considerably, including the UN System of Environmental Economic Accounting and the Inclusive Wealth Index. Particular attention is needed in relation to critical resources that are non-substitutable, including drinkable water, fertile soil, and pollinators including bees.Subjective wellbeing has been the focus of much development activity. It is now widely monitored, and substantial research is being undertaken on its determinants. However, many methodological and conceptual problems remain, and its causal dependence on economic factors may be too weak to justify its sole use in evaluating the success of an economy. Health status needs to be considered alongside happiness as a primary criterion. Its social determinants are extremely well established, and account for a greater proportion of health outcomes than either healthcare or lifestyle choices. To a large extent, these determinants correspond to the satisfaction of basic needs as emphasised in this book, and health is responsive to interventions across the corresponding range of policy areas. The success of an economy in promoting a good quality of life for everyone can therefore be evaluated by monitoring of the satisfaction of basic needs, as determinants of health and happiness.