Our values are changing. After a long period in which most people and communities judged their success by measuring material wealth, there is a new interest in the wider quality of our lives. Policy-makers and academics are increasingly interested in how we might gauge whether or not we are satisfied with the lives we lead, and whether people are able to flourish and enjoy their lives. Improving well-being is an urgent challenge for all of us.

The French approach

In February 2008, the President of the French Republic, Nicholas Sarkozy created "The Commission on the Measurement of Economic Performance and Social Progress". The Commission's aim has been:

  • to identify the limits of GDP as an indicator of social progress, including the problems with its measurement;
  • to consider what additional information might be required for the production of more relevant indicators of social progress;
  • to assess the feasibility of alternative measurement tools,
  • and to discuss how to present the statistical information in an appropriate way.

It is an indicator of the inadequacy of classical economic theory that a group of distinguished economists, five of them Nobel Prize winners, would assert that in measuring social progress serious attention should be given to self-reports of subjective feelings.

The unifying theme of the Commission's report is that the time is ripe for our system for measuring social progress to shift emphasis from economic production to quantifying people's well-being. And measures of well-being should be put in a context of sustainability.

Regarding material living standards i.e. income, consumption, and wealth, the Commission made the following four recommendations;

1: Look at income and consumption rather than production.

GDP is the most widely-used measure of economic activity. But GDP mainly measures market production not economic well-being. Material living standards are more closely associated with measures of real income and consumption.

2: Consider income and consumption jointly with wealth.

Income and consumption are crucial for assessing living standards, but in the end they can only be truly gauged in conjunction with information on wealth. A vital indicator of the financial status of a firm is its balance sheet, and the same holds for the economy as a whole. This means having comprehensive accounts of its assets (physical capital - and probably even human, natural and social capital) and its liabilities (what is owed to other countries). Measures of wealth are also central to measuring sustainability because what is carried over into the future necessarily has to be expressed as stocks - of physical, natural or human capital.

3: Emphasise the household perspective.

While it is informative to track the performance of economies as a whole, trends in citizens' current material living standards are better followed through measures of household income and consumption. Indeed, the available national accounts data shows that in a number of OECD countries real household income has grown quite differently from real GDP, and typically at a lower rate. The household perspective entails taking account of payments between sectors, such as taxes going to government, social benefits coming from government, and interest payments on household loans going to financial corporations. Properly defined, household income and consumption should also reflect the value of in-kind services provided by government, such as subsidized health care and educational services.

4: Give more prominence to the distribution of income, consumption and wealth.

Average income, consumption and wealth are meaningful statistics, but they do not tell the whole story about living standards. For example, a rise in average income could be unequal across income groups, leaving some households relatively worse-off than others. Thus, average measures of income, consumption and wealth should be accompanied by indicators that reflect their distribution across persons or households. Ideally, such information should not come in isolation but be linked, i.e. one would like information about how well-off households are simultaneously with regard to all three dimensions of material living standards: income, consumption and wealth. After all, a low-income household with above-average wealth is not necessarily worse-off than a medium-income household with no wealth.

5: Broaden economic measures to include non-market activities.

There have been changes in how households and society function. For example, many of the services people received from other family members in the past are now purchased on the market. This shift translates into a rise in income as measured in the national accounts and may give a false impression of a change in living standards, while it merely reflects a shift from non-market to market provision of services. Many services that households produce for themselves are not recognized in official income and production measures, yet they constitute an important aspect of economic activity. While their exclusion from official measures reflects uncertainty about data more than it does conceptual dissent, more and more systematic work in this area should be undertaken. This should start with information on how people spend their time that is comparable both over the years and across countries. Comprehensive and periodic accounts of household activity as satellites to the core national accounts should complement the picture.

The Commission was not primarily concerned with obtaining better estimates of material well-being, but rather in broadening the measurement of well being to encompass multiple domains of localism classified in the following key dimensions:

  • material living standards (income, consumption, and wealth);
  • health;
  • education;
  • personal activities including work;
  • political voice and governance;
  • social connections and relationships;
  • environment in relation to present and future conditions;
  • insecurity, of an economic as well as a physical nature.

Localism may be viewed as a system, the social action cycle, by which people establish a social niche and take up living sustainably as a right and a responsibility. This has to be seen in conjunction with the political uptake of economic localism by which local people are enabled and empowered with tools and resources to have a significant input in building a neighbourhood economy and making environmental improvements for living sustainably. The social action cycle is responsible for the social transmission and inheritance of cultural knowledge, and material culture necessary for building a human niche. This happens through activities that positively assert the embeddedness of self and heritage, both cultural and biological, in a neighbourhood. The social action cycle is linked to the biological action cycle by which other beings construct species niches by modifying their environment and thereby influencing their own and other species’ evolution.

The Australian approach

Mike Salvaris a member of the interim national committee of the Australian National Development Index compiled the following list-definition of human progress in well being.
  • Progress is a possibility for human society, not an inevitability
  • Progress must be related to our goals and values as a society
  • In democratic societies the task of determining the priorities and goals of progress is necessarily a responsibility of citizens and governments
  • Progress is a universal aspiration, inclusive of all members of society
  • Progress multi-faceted and necessarily includes social, economic, environmental, cultural and democratic dimensions of life
  • Progress includes improvement in both material wellbeing (health, housing, education, income, leisure, work life, etc) and in ethical, moral and spiritual wellbeing
  • Progress requires the full development of human capacity
  • Progress necessarily means giving priority to the reduction of acute social disadvantage such as poverty, malnutrition, disease, and violence
  • Improvements in education, culture, civilisation, and the arts are critical components of societal progress
  • The progress of societies encompasses the healthy functioning of social institutions and systems and the broad qualities of the society (such as fairness, creativity, etc) as well as the wellbeing of individuals
  • Democracy, human rights, active and informed citizens and good governance are necessary ingredients of social progress
  • Social progress is not possible in the absence of peace, security and good international relations
  • Progress requires harmony and balance: in the life of people, and between people and nature
  • Conservation and stewardship of natural resources and ecological systems is a precondition for human progress
  • True progress is progress that can be sustained for future generations and the future of our planet

In a recent article reviewing the history of progress, the OECD concluded with a phrase that many may feel aptly summarises the key elements of the new paradigm of societal progress (and some older ones).

While notions of progress differ, they are united in the philosophy that “progress” comprises both material and non-material components. Many people are working to define and measure concepts such as wellbeing, quality of life, life satisfaction and sustainable development. All these concepts are related to each other, but they have different connotations … We consider that societal progress occurs when there is an improvement in the sustainable and equitable wellbeing of a society. (This) concept is broad enough to encompass most of the alternative views above mentioned and is coherent with the aim of the Global Project on “Measuring the Progress of Societies”, whose objective is not to impose a single definition of progress worldwide, but, as the Istanbul Declaration advocates, to “encourage communities to consider for themselves what ‘progress’ means in the 21st century”. (WikiProgress)

Osberg and Sharpe

Osberg and Sharpe have outlined a methodology for calculating an index of economic well being (IEWB), which is a weighted average of measures of per capita consumption, aggregate accumulation of wealth, income distribution and insecurity. As the name indicates, the index is intended as a measure of economic well being only It does not pretend to indicate overall "social progress", which is a broader concept. Since the index is calculated as a simple weighted average of four components, the authors stress that observers who differ in their values can choose the relative emphasis that they wish to put on, for example, income distribution, compared to trends in average consumption. Most of the work involved in constructing the index arises in attempting to get a better measure of trends in aggregate accumulation or average consumption than is available for the System of National Accounts. Gross Domestic Product (GDP) statistics do not include consideration of many issues (like trends in leisure time, life expectancy, economies of scale in household consumption) which affect the utility individuals derive from consumption and ignore the accumulation, or dissipation, of real wealth in the form of human capital, the environment or research and development - but the IEWB does include these items.