deakin research online30000998/clarke-choosingmeasures-2006.pdfdeveloped countries, to measure human...

Deakin Research Online This is the published version: Clarke, Matthew 2006, Choosing measures of welfare: adapting existing approaches using social choice theory, in Trends in poverty and welfare alleviation issues, Nova Science Publishers, Inc., New York, NY, pp.81-100. Available from Deakin Research Online: http://hdl.handle.net/10536/DRO/DU:30000998 Reproduced with the kind permissions of the copyright owner. Copyright : 2006, Nova Science Publishers

In: Trends in Poverty and Welfare Alleviation Issues Editor: Marie V. Lane, pp. 81-100

ISBN: 1-59454-827-7 © 2006 Nova Science Publishers, Inc.

Chapter 4

CHOOSING MEASURES OF WELFARE:

ADAPTING EXISTING ApPROACHES

USING SOCIAL CHOICE THEORY

Matthew Clarke * Centre for Strategic Economic Studies, PO Box 14428, Melbourne City MC

Victoria 8001, Australia

Abstract

Numerical measures of social welfare have become an important issue within contemporary welfare economics. Welfare measures are only valuable however, if they offer practical analysis for policy makers seeking to improve human welfare. Is it possible that welfare measures designed for developed countries can also be used for developing countries? This paper argues that it is possible and highlights how one measure, an Index for Sustainable Economic Welfare (ISEW), can be adapted using normative social choice theory. Normative social choice theory reflects the views, opinions and perspectives of societies of differing economic and social circumstances so that measures of human welfare retain their relevance for public policy makers in those countries. Normative social choice refers to the processes of ordering alternative social states on the basis of the preferences, choices and value judgements of members of that society and incorporates the various "social concerns around welfare" that are specific to individual countries. To illustrate the possibility of adapting "developedcountries" measures of human welfare to non-developed countries through social cholee theory, an ISEW is presented for Thailand for a twenty-five year period, 1975-1999. All previous ISEW studies, with one exception, have been for developed countries, yet this adapted measure for Thailand provides important implications for Thailand's traditional development process and policy perspectives in future development paths. The results of this adapted ISEW for Thailand indicate that even low-middle income countries can approach the point in which economic growth produces both diminishing and, at times, negative welfare returns as the costs of achieving growth begin to outweigh the associated benefits. This conclusion is important for policy makers and highlights the importance of implementing alternative human welfare enhancing interventions that must be considered in place of simply achieving economic growth. This result supports the use of pre-existing measures of human

• E-mail address:[email protected]. + 61392481047, Fx. + 61392481350

82 Matthew Clarke

welfare that are adapted through nonnative social choice theory to accurately reflect the perspectives and value judgements of different countries.

1 Introduction

Numerical measures of social welfare have become an important issue within contemporary welfare economics. Welfare measures are only valuable however, if they offer practical analysis for policy makers seeking to improve human welfare. Pressure exists on accessional, transitional and developing countries to use measures of human welfare that were originally designed for developed countries, to allow ease of intercountry and intertemporal comparison. However, the appropriateness of these measures is often not fully considered. Different countries and societies have different preferences and expectation surrounding human welfare outcomes. Indicators for one country may be inappropriate for another and produce misleading policy implications. A level of adaptation of existing measures of human welfare is required that appreciates the differences in human welfare aspirations between accessional, transitional, developing and developed countries.

This paper argues that it is possible to use measures initially designed for developed countries and highlights how one measure, an Index for Sustainable Economic Welfare (ISEW), can be adapted using normative social choice theory. Normative social choice theory reflects the views, opinions and perspectives of societies of differing economic and social circumstances so that measures of human welfare retain their relevance for public policy makers in these countries. Normative social choice refers to the processes of ordering alternative social states on the basis of the preferences, choices and value judgements of members of that society and incorporates the various "social concerns around well-being" that are specific to individual countries.

To illustrate the possibility of adapting "developed-countries" measures of human welfare to non-developed countries through normative social choice theory, an ISEW is presented for Thailand for a twenty-five year period, 1975-1999. All previous ISEW studies, with only one exception, have been for developed countries yet this adapted measure for Thailand provides important implications for Thailand's traditional development process and policy perspectives in future development paths. The results of this adapted ISEW for Thailand indicate that even low-middle income countries can approach the point in which economic growth produces both diminishing and, at times, negative welfare returns as the costs of achieving growth begin to outweigh the associated benefits. This conclusion is important for policy makers and highlights the importance of implementing alternative human welfare enhancing interventions that must be considered in place of simply achieving economic growth. This result supports the use of pre-existing measures of human welfare that are adapted through normative social choice theory to accurately reflect the perspectives and value judgements of different countries.

This paper is set out as following. Section 1 has introduced the paper. Section 2 discusses social choice theory and how it can be used to adapt pre-existing measures of human welfare originally designed for developed countries. An illustrative example of this adaptation is given in Section 3 before the policy implications are briefly discussed in Section 4. Conclusions are drawn in Section 5.

Choosing Measures of Welfare: Adapting Existing Approaches Using Social... 83

2 Normative Social Choice Theory

Normative social choice theory allows a society's choices, preferences and value judgements on issues of economic equity and efficiency, intergenerational equity, aggregation, justice, and poverty to be considered when measuring human welfare for that particular country (see Altman 2000; Bonner 1986; Boadway and Bruce 1984; Sen 1982; Arrow and Scitovsky 1969). By operationalising normative social choice theory, the significance of economic and non-economic events can be evaluated in a formal welfare analysis framework (Boadway and Bruce 1984).

The difficulties of judging society's views on any social outcome have long been recognised (Borda 1781 - reprinted 1953; de Condorcet 1785). This difficulty was made prominent by Arrow (1951). Arrow has been credited for creating the modem field of social choice theory (Heller at al. 1986). Arrow proved it was impossible to construct a social welfare function that does not fail one of four "reasonable" assumptions of: 1) transitivity; 2) the Pareto Criteria; 3) independence; and 4) democracy. Arrow's thoroughness in dismissing the possibility of a democratic social welfare function almost undermined the entire idea of measuring human welfare (Blundell et al. 1994).

However, by easing these restrictions, a democratic ordering of social states becomes possible (Sen 1966, 1970, 1973, 1999a; Hammond 1976; Roberts 1980; Conley et al. 1996). As these "reasonable" restrictions rule out by assumption the ability to weigh the gains of the winners against the losses of the loser, they are "restrictive" rather than "reasonable", A sufficient appreciation of interpersonal comparison of human welfare can be formalised through the study of expenditure patterns, informational inputs or direct surveys. From this perspective, which is distinguished as normative social choice theory, it is not possible to refrain from undertaking interpersonal comparisons (Hausman and McPherson 1996). 'By the early 1980s, theoretical results demonstrating the existence of logically consistent, nondictatorial social welfare functions had been established' (Slesnick 1998, p. 2144).

Normative social choices can be estimated using expert opinion (or analyst), government formulated public policy, or specific interviews of individuals on social welfare outcomes. The methodology for each technique is well established (Islam 2001). Using one, or a combination of the above, it is possible to determine the normative social choice perspectives on various human welfare issues.

Incorporating normative social choices into public policies designed to increase human welfare outcomes is not unusual. Within most societies, the State has retained the role of enforcing various social choice preferences surrounding the functions of allocation, regulation and distribution (Musgrave 1959). As such the State has a role to 'incarnate the moral and political will of the people' (Stoleru 1975, p. 1). This is done in two stages: 1) quantification of individual preferences; and 2) the weighting of these individual preferences by weights determined by some form of consensus (i.e majority voting for particular social structures, etc.). For certain concepts, such as sustainability or welfare, individual preferences will not achieve optimal outcomes and the State (or analyst) must interpret and then act upon these social preferences (Pezzey 2001, 2002; Ehrlich et al. 1999).

It should not be considered unusual for the State to maximise or seek an optimal social welfare outcome by enforcing social preferences. 'Samuelson's (1956) consensus model of the household assumes that all members pool their resources and work in concert to maximise

84 Matthew Clarke

a common utility function' (Slesnick 2001, p. 32). Social choice theory extends this consensus from the household to the society.

Normative social choice theory therefore is concerned with the study of issues surrounding human welfare on the basis of individual preferences but also considering the requirement for an optimal social outcome. Normative social choice theory is concerned with defining and measuring human welfare consistent with individual preferences for improving human welfare conditions but where society's preferences are paramount. As every society has different social welfare expectations, optimal human welfare outcomes will differ from country to country. Operationalising normative social choice theory can make these differences explicit and adapt general measures of development to accurately reflect distinct human welfare goals between different countries. When value judgements are central to measuring human welfare, these judgements must be made explicit. Nonnative social choice theory does just this through the use of social welfare functions.

It is possible therefore to use normative social choice theory to adapt pre-existing measures of human welfare that were originally designed and empirically applied to developed countries, to measure human welfare in accessional, transitional or developing countries. The following section provides an illustrative example of how one such measure was adapted through nonnative social choice theory to measure human welfare in Thailand. As a result, unique policy implications can be discussed knowing they are appropriate in the context of that specific country.

3 Index of Sustainable Economic Welfare

In most economies since the end of the Second World War the central theme of economic policy has been achieving economic growth (Nordhaus and Tobin 1973; Manning 2001). Governments in EU, accession, transitional and developing countries are continuously instigating policies designed to achieve economic growth (see as an example NESDB 1996, 2000). There is little doubt that the main perceived purpose of economic activity is to increase human welfare.

The Index of Sustainable Economic Welfare (ISEW) was developed by Daly and Cobb (1990) to measure human welfare within the United States. Since its inception, the ISEW has been applied to a number of developed countries (Diefenbacher 1994; Hamilton 1998; Jackson and Marks 1994; Lawn and Sanders 1997; Rosenberg and Oegema 1995; Stockhammer et a1. 1997). The major question underlying the ISEW approach is whether an increase in economic growth 'really reflects the true changes in welfare' (Brekke 1997, p. 158). It is possible though to adapt the ISEW approach to appropriately measure the human welfare of non-developed countries. This adaptation is based on the operationalisation of normative social choice theory (see Clarke and Islam 2003a, 2003b).

The purpose of the ISEW is to consider the costs and benefits of achieving economic growth on society's welfare. As different societies have different perspectives on how their welfare is enhanced or reduced, the selection and quantification of these costs and benefits of economic growth will differ between countries. Normative social choice theory is used to identify society's preferences, value judgments and choices on these different perspectives affecting human welfare.


This ISEW is predicated on the assumption that the sum of revealed preferences of individuals does not equate to the optimal revealed preference of society. Normative social choice theory can be used to realign these different outcomes (Clarke and Islam 2003a)< This is based on applying systems analysis and cost-benefit analysis to aggregative standard national accounts (such as national income) to consider the costs and benefits of achieving economic growth to human welfare.

Various adjustments are made to national income to reflect Thai social choice perspectives on various issues that impact on welfare in the social, economic, environmental, political and spiritual sub-systems (Clarke and Islam 2003a).

Economic Sub-system

• Income inequality

Social Sub-system

• Public expenditure on education • Public expenditure on health • Private expenditure on health

• Urbanisation

• Commuting

Political Sub-system

• Government streets and highways

• Consumer durables

• Corruption

• Debt

Environmental Sub-system

• Air pollution • Water pollution • Noise pollution

• Loss of forests • Non-renewable resources • Long-term environmental damages

Spiritual Sub-system

• Commercial sex work

See Appendices A, Band C for a summary of these adjustments (see also Clarke and Islam 2003a, 2003b).

86 Matthew Clarke

The impact on human welfare measured by the ISEW is considerably different to human welfare measured in a conventional way such as using national income or gross domestic product. The changing influences and feedbacks from the various domains impact on human welfare and are captured within this ISEW.

However, unlike previous ISEW studies applied to developed countries, the estimations of the costs and benefits within this ISEW for Thailand have been explicitly based on normative social choice theory for Thailand. This allows an explicit consideration of the social choices, perspectives and value judgements on the optimal human welfare outcome for Thailand.

A social choice framework is normative and value judgements about the valuation of, and preferences for, welfare maximisation are therefore considered. It is concerned with economic and non-economic activities that are important in determining welfare levels, quality and composition. Normative social choice theory can highlight changes within society and how these changes impact on human welfare (Clarke and Islam 2003a). It can also be used to determine the weights assigned to different components of human welfare (Sen 1999).

There are specific reasons why social choice perspectives (as opposed to individual or market perspectives) are necessary to measure optimal human welfare.

3.1 Social Choice Perspective - Economic

Equity is important in optimising human welfare (Sen 1973a) 1973b; Atkinson 1970; Dalton 1920). Yet market based economies, such as Thailand, are focussed on efficient distribution of scarce resources, not equity. The market outcome may be an efficient equilibrium level and thus be op6mal in this regard, however, this equilibrium outcome will not be an optimal equity level (or if it is, this is purely coincidental). Normative social choice theory sets out the value judgments of a particular society on issues of equity and distribution.

3.2 Social Choice Perspective - Social

Many social outcomes of economic growth are not considered by individual or market preferences. Government expenditure on health and education positively impact on human welfare but are ignored by individual or market perspectives. Similarly) the negative consequences of economic growth in terms of commuting) urbanisation and private expenditure on ill-health are not fully considered by individual or market preferences. Society'S value judgements on these social outcomes and how they affect human welfare must be imbedded in a cost-benefit analysis when seeking to optimise human welfare.

3.3 Social Choice Perspective - Political

As with the social aspects, there is a divergence between market or individual preferences and social choice perspectives in maximising human welfare when considering the political impacts of achieving economic growth. The benefits of public roads and the flow of services from consumer durables are not fully considered in terms of human welfare. Nor are the diseconomies of corruption or public debt considered. All of these impact on human welfare


though and a social choice perspective allows their effects to be appropriately incorporated. Again, it is necessary to incorporate a society's perspectives and views on these impacts and how they should be developed into a measure of human welfare.

3.4 Social Choice Perspective - Environmental

Achieving economic growth impacts on the environment. Such externalities are not considered within the market place but can have severe consequences for human welfare. As public resources (air, water, forests) are considered free, the negative social prices of pollution or over-harvesting are not fully considered within market prices. This results in false levels of market equilibrium in which the market price is artificially low, leading to additional demand (Pezzey 2001, 2002). Explicitly incorporating social choices on environmental impacts of economic growth on human welfare results in a more accurate measure of optimal human welfare levels.

3.5 Social Choice Perspective - Spiritual

Market or individual preferences appear to fully exclude the importance of the spiritual impacts on human welfare. Higher spiritual and moral feelings, such as justice, are not explicitly captured by market preferences (Ng 2001). Market prices do not exist for the common bond between humans. Normative social choice perspectives goes some way (though further work is required) in capturing some measure of the value this concept has on human welfare.

The ISEW in Thailand provides a realistic description of human welfare. Not only does ISEW per capita increase at a slower rate, but is also decreases at times when GDP per capita is actually increasing. ISEW per capita rose and fell throughout the 1980s, effectively being unchanged in 1986 from the 1979 figure. In comparison, GDP per capita rose over 25 per cent over this same period.

ISEW per capita rose steadily during the next decade though at significantly different rates than the GDP per capita. Within this period, the divergence between the two indices becomes quite apparent.

Both indices peak in 1996. This is just prior to the financial crisis of 1997. After 1996 both indices begin to fall. Whilst GDP per capita has shown the propensity to increase in 1999, ISEW per capita has not increased but has fallen again. It is too early to confirm whether this is a trend or a fluctuation. However, by drawing on the results of other studies (Daly and Cobb 1990; Jackson et al. 1997), predictions may be made that this new divergence could be expected.

Even though these welfare indices are money-metric, they are not cardinal in nature, but simply ordinal. It is incorrect to say that as GDP per capita has increased ten percent from one welfare state to another, so to has human welfare increased ten percent. It is not possible to assign a cardinal relationship to the various social states estimated by adjusting national income using social choice theory and systems analysis. Further, it is also not accurate, when comparing the levels of GDP per capita and ISEW per capita to infer that the money-metric difference between these two indices (i.e. in 1988 GDP per capita is 28380 baht while ISEW

88 Matthew Clarke

per capita is 6000 baht, a difference of22380 baht) is the difference in human welfare. Wnat can be inferred from these two time series though is the variation and divergence in the two trend lines. The analysis of the human welfare experienced by the Thai population between 1975-1999 is, in this instance, dependent on the shape of these two trend lines.

60000

&OOO+---------------------------------~~r_~

~00+---------------------------~4---------~

~ 30000 +-___________________ ----"c-_______ ~

20000+----~~~~~---------------~

10000 r--------------------------~~~~--

I-- ISEW per ~ita (1988 prices) --~ ~ita (1988 prices)

Source: Clarke and Islam 2003b.

Figure I.Comparison of ISEW per capita and GDP per capita measures of human welfare for Thailand, 1975-1999 (1988 prices)

400

350

300

250

0 0 .... II 200 -I() .... l!!

150

100 -

50

0

~~~~~~$$~$~~~~~~$#######~ ~, ~ ~ ~ ~ ~, ~ ~, ~, ~, ~ ~, ~, ~, ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~,

Year

I-+- ISEW p.c . for 'liailand (1975 =100) ___ G 0 Ror lia iland (1975 =100)


Figure 2. Comparison of ISEW per capita and GDP per capita for Thailand, 1975 = 100


The GDP per capita trend line has three main phases; the initial steady rise to 1986, the accelerated growth to 1997 and the final dip and apparent recovery to 1999. However the pattern for ISEW per capita is significantly different. The rise is slower, there is not an accelerated period, nor is there indication of a recovery in the final year after the index begins falling in 1997. Comparing the two indices further, an increasing divergence is also apparent. This indicates that the relationship between GDP per capita and ISEW per capita is becoming increasingly weaker throughout the time series, casting doubts over the long-term desirability of economic growth in Thailand in terms of human welfare. This is also illustrated by comparing the two measures as indices with a base year of 1975. The GDP per capita index maintains its three phases of growth (constant, accelerated and crisis), whilst ISEW per capita index rises and falls through to the earlier 1990s, then has a steady period of growth before falling again following the financial crisis in 1997.

Suggestions that economic growth may decrease a nation's aggregate human welfare are rare within mainstream literature. When discussed, such economic growth has been termed impoverishing, or welfare-reducing (see Ng and Ng 2001). However, these descriptions are limited as they do not adequately describe Thailand's experience in which human welfare levels improve by increasingly diminishing rates due to the increasing costs of achieving economic growth compared to the associated benefits. The concept introduced is stunting economic growth. This phenomena is so-called because this economic growth has "retarded the progress" of human welfare. During periods of stunting economic growth, human welfare improves at decreasing rates, remains stagnant, and at times (while continuing to trend upwards) falls. Stunting economic growth is undesirable as its effects are sub-optimal. Optimal growth occurs when economic growth increases human welfare at the maximum rate. However, certain adjustments must be made to correct human welfare for the associated costs and benefits of achieving this growth. In Thailand this has resulted in lower rates of increase in human welfare as compared to economic growth - thus, it is sub-optimal growth (Clarke and Islam 2003b).

This "stunted" human welfare outcome occurred as Thailand chose a path of achieving economic growth that was harmful to welfare. This path yielded significant costs that were not inevitable. Economic growth can be important in increasing human welfare but in the experience of Thailand it appears that current policies remain in place so that stunting development will continue into the future (Clarke and Islam 2003a, 2003b). This analysis is based on the adaptation of the ISEW to reflect the specific social choices, preferences and value judgements on optimal human welfare outcomes by the Thai population.

4 Policy Implications

Public policy initiatives should be based on human welfare indices that reflect society's choices and preferences on optimal human welfare outcomes (Hagerty et al. 2001). Therefore, having reviewed the results of the ISEW, it is important to discuss policy perspectives that logically follow from this welfare economic analysis. As this measure is based on the social choices, preferences and value judgments of the Thai society, the policy implications are relevant and important.

Policy makers determine the priorities of national goals. Value judgments by policy makers are central to this process (Sen 1970; Slesnick 1998). The most appropriate value

90 Matthew Clarke

judgements are those based on normative social choice theory whereby the expectations and hopes of society itself determine the boundaries and levels of human welfare to be achieved (Bonner 1986).

4.1 Reduce Emphasis on Economic Growth

Within Thailand, economic growth is not always desirable with regards to increasing human welfare as its net benefits are sometimes negative and rarely as positive as unadjusted aggregated standard national accounts growth rates would suggest. Therefore, the first policy suggestion is to reduce the emphasis on resource consumption based economic growth. Whilst such growth does have benefits and does assist in increasing living standards, its subsequent costs to the environment and social relationships can outweigh these benefits (Clarke and Islam 2003a).

A balanced approach to achieving economic growth is required. Economic growth aimed at specific sectoral areas (Warr 2001) and for specific purposes would be a better option 'rather than pursuing economic growth for its own sake and hoping that the benefits will be spread widely enough that the poor derive some gains' (Fields 1995, p. 76).

4.2 Emphasise Pro-poor Policies

Within Thailand, the Northeast region has traditionally been the poorest region with poverty rates similar to parts of sub-Saharan Africa (Watkins 1998). If economic growth is pursued, one of its specific purposes must be to reduce poverty. Whilst economic growth has been extremely high, the majority of the rural population have been largely unaffected by its direct benefits but have experienced its associated costs (Dixon 1999; Warr 2001). Whilst poverty levels have decreased (Kakwani and Krongkaew 2000), a large number of Thais are still struggling to survive despite three decades of remarkable growth (Tinakorn 1995).

Further, relative poverty has increased as income inequality also worsened during this period of sustained economic growth (Clarke 2001a, 2001b). Indeed, the ultra-poor have become worse off because the distribution of this new income has been received by the rich rather than the poor (Kakwani 1997; Dixon 1999). Such an inverted relationship between economic growth and income distribution is not inevitable.

Pro-poor policies are required to ensure that the poor do receive the benefits of any future economic growth or any residual benefits from previous growth. Whilst controversial, a propoor policy that should be considered is income redistribution. Whilst there are attendant costs with re-distribution (Pigou 1962), it is more likely to reduce income inequality than unregulated economic growth. The reduction of inequality decreases poverty elasticity so future growth has a greater impact on reducing poverty levels (World Bank 2000; Deolalikar 2002). The reduction of inequality also encourages social inclusion (Killock 2002; Maxwell 2001,2003; McKay 2002; White 2001).


4.3 Emphasise other Sub-systems

Public policies can also improve total human welfare by emphasizing non-economic subsystems.

4.3.1 Policies for the Environmental Sub-systems There are three main policy areas that would positively impact human welfare levels in Thailand: 1) natural resource protection; 2) pollution control and abatement programs; and 3) limits on harvesting renewable resources. Whilst such government policies might exist, they may not be adequately enforced. Re-emphasising these policies areas is therefore important.

4.3.2 Policies for the Political Sub-systems Increased attention on the provision of government services and the actual mechanisms of government is required within Thailand. Policies ensuring the protection of political and civil freedoms and reduction of corruption, and responsible management of debt can all improve human welfare.

Political and civil freedoms are important in determining welfare (Islam and Clarke 2001b). Within Thailand, such freedoms have not always been promoted resulting in violent crackdowns and uprisings (Phongpaichit and Baker 1995). Whilst the current climate is one of democracy and relative freedom (Freedom House 2001), there is a responsibility by those in positions of influence to ensure such a climate continues.

4.3.3 Policies for the Social Sub-systems Thailand's human welfare can be enhanced with appropriate policies focussing on issues of: 1) commuting; 2) urbanisation; 3) provision of education services; and 4) provision of health services.

4.3.4 Policies for the Spiritual Sub-systems Thailand is officially a Buddhist country and whilst this has some affect on its present unique character (Hutanwutr 1998; Schumacher 1993), it is not being suggested that this (or any other) religious belief become a government policy. A healthy spiritual sub-system results in the protection of the most vulnerable within society from being de-humanised. This may involve the protection from exploitation of women, and children from commercial sex work or from utter abject poverty.

Conclusion

A specific measure of human welfare for Thailand has been undertaken within this paper. The basis was the ISEW developed and widely implemented in developed and EU countries. However, by operationalising normative social choice theory, it was possible to adapt the ISEW measure to incorporate the choices, values and preferences of the Thai society around issues of human welfare. Therefore, the measure resulting from the implementation of the ISEW to Thailand, is specific to the hopes and expectations surrounding optimal human welfare.

92 Matthew Clarke

It is possible for normative social choice theory to be used in all countries to adapt measures of human welfare designed for developed countries and make them specific and relevant to developing countries.

An important outcome of this adaptation is the policy implications that flow from welfare analysis of the results. As all countries are unique and follow distinct development paths, developing appropriate and successful policies is reliant on fully understanding the society's choices, preferences and values on optimal human welfare. For developing countries, future development paths will only be successful if they are reflections of the desired outcome of that particular society. If developing countries seek to replicate the development policies of developed countries through international pressure or misplaced expectations, optimal human welfare will not be achieved as human welfare outcomes differ between countries and regions. It is essential therefore that measures of human welfare are based on the expectations of the country under review and this is achieved through the operationalisation of normative social choice theory adapting pre-existing measures of human welfare.

Acknowledgements

The author would like to thank Dr Sardar M. N. Islam for his assistance with this research, Dr Adis Israngakurn (Thai Development Research Institute, Thailand) for his assistance in calculating the estimates for environmental damage and Dr Phil Lawn (Flinders University) for his general comments. He also gratefully acknowledges the financial support of the Australian Research Council (grant LP0348013) in partnership with the Victorian Department of Premier and Cabinet (Australia), and World Vision Australia.


Appendix A. Summary of Adjustments for Thai ISEW

Item

Personal Consumption Income Inequality Adjusted Personal Consumption Public Expenditure on Education Public Expenditure on Health Commuting

Urbanisation

Private Expenditure on Health Public Expenditure on Roads Consumer Durables

Corruption

Debt

Air Pollution

Water

Positive / Negative

Positive

Positive

Negative

Negative

Negative

Positive

Positive

Negative

Negative

Negative

Rationale Methodology

Basis ofISEW From Thai National Statistics Office (NSO) (1997, 1999)

Accounting for inequality Equally distributed equivalent level of income Atkinson's (1970)

Adjusted base for index

Adding in non-defensive expenses

Adding in non-defensive expenses

Subtracting costs for time lost

Subtracted for defensive private expenditure

Subtracted for defensive private expenditure

Accounting for services not included m public expenditure Accounting for services not included m public expenditure Subtracting for unaccounted political costs to society

Subtracting for unaccounted political costs to society

75% of public expenditure on education due to low base (NSO 1997, 1999). 75% of public expenditure on health due to low base (NSO 1997, 1999). US$219 per car calculated in 1990 extrapolated to cover all years (Tanaboorboon et a1. 1990) 18% of Bangkok personal income is spent for access to clean water and air (Wodd Bank 1999) 50% of all private health expenditure (Cobb and Cobb 1994; NSO 1997, 1999) 50% of all public expenditure on roads (Daly and Cobb 1990; NSO 1997, 1999) 10% of expenditure on cprivate consumer durables (Daly and Cobb 1990; NSO 1997, 1999 0.0088% of GDP (1975-1981), 0.0074% of GDP (1982-1988), 0.007% of GDP (1989-1999) based on Phongpaichit and Piriyarangsan (1994) 50% of interest paid on public Debt (NSO 1997, 1999)

Subtracting costs environmental damage

of Costs of pollution abatement for Co2, CO, NOX, SOX, SPM (Guenno and Tiesso 1998, Dept of EDP 1990).

Negative Subtracting costs of Costs of cleaning water is 7.5 baht

94

Item

Pollution

Noise Pollution

Positive I Negative

Negative

Deforestation Negative

Long Term Negative Environment al Damage Commercial Negative Sex Work


Matthew Clarke

Rationale

environmental damage

Subtracting costs of environmental damage



Unaccounted costs to spiritual system

Methodology

per kilogram of Biochemical Oxygen Demand (BOD) (Phansawas et al. 1987; TESCO 1993; Dept ofIW 1986)

1 % of GNP (Daly and Cob 1990; NSO 1997, 1999) 886 baht per hectare of forest lost is cost of soil erosion (Panayotou and Parasuk 1990) Estimated damage for each tonne of carbon emissions is 21.59 baht (Nordhaus 1991; Dixon 1999) 3% of GNP (Phongpaichit et al. 1998; NSO 1997, 1999)

Appendix B. Summary of Calculations - ISEW for Thailand

Income Distribution (cost)

Public Education (benefit) Public Health (benefit) Commuting (cost) Urbanisation (cost) Private Health (cost) Public Roads (benefit) Consumer Durables (benefit) Corruption (cost)

Public Debt (cost) Air Pollution (cost) Water Pollution (cost) Noise Pollution (cost) Deforestation (cost) Long-term Environmental (cost) Commercial Sex Wark (cost)

Where: =

=

=

n

I == 1 - I (/ I ~) 111-<;

E"* 1 i= 1

Ed == PE (0.75) H = PH (0.75) C == NRC(219.XR) U BY(0.08) + BY(O.l) H(P) PrHe (.05) R Pr (.05) CD == Cd (0.1) C(po]) = GDP\975-81(O.0088)+GDP1982-

88(0.0074) + GDP1989-99(O.OO7) D{P) IPD (0.5) A cC02+cCO+cNOX +cSOX +cSPM W = [(7.5 x IP) + (7.5 x 4.6 x MP)] x 2 N GDP(O.Ol) D == DF(886)

Damage L cCDt + cCWRt + cCFt

CSW GNP (0.3)

measure of income inequality income of individuals in the ith income range

mean Income

society's perspective on equality

Choosing Measures of Welfare: Adapting Existing Approaches Using Social ... 95

Ed benefits of public education PE = expenditure on public education H = benefits of public health care PH expenditure on public health care C = cost of commuting NRC number of registered cars in Bangkok XR exchange rate U = cost of urbanisation BY average income for Bangkok residents H(p) cost of private health care PrHe = expenditure on private health care R benefits of public roads Pr expenditure on public roads CD benefits of consumer durables Cd expenditure on consumer durables C(pol) costs of political corruption GDP gross domestic product D(p) cost of public debt IDP interest paid on public debt A cost of air pollution cC02 cost of carbon dioxide (.03335 baht per kilogram) cCO = cost of carbon monoxide (.03335 baht per kilogram) cNOX cost of nitrogen monoxide (2.84 baht per kilogram) cSOX cost of sulfur monoxide (7.4 baht per kilogram) cSPM cost of suspended particulate matters (4.15 baht per

kilogram) W = cost of water pollution IP industrial pollution

FI + DI + PI + CI + TI FI = food industry BOD DI drink industry BOD PI paper industry BOD CI chemical industry BOD TI = textile industry BOD MP = municipal population BOD BOD biochemical oxygen demand N cost of noise pollution GDP gross domestic product D = cost of deforestation DF hectares of deforestation L cost of long-term environmental damage cCDt cost of carbon emissions of deforestation

21.59 x tonne of carbon emission cCWRt cost of carbon emissions of wet rice farming

21.59 x tonne of carbon emission cCFt cost of carbon emissions of fuel consumption

96

=

CSW GNP =


Matthew Clarke

21.59 x tonne of carbon emission cost of commercial sex work industry gross national income

Appendix C. ISEW per capita and GDP per capita for Thailand, 1975-1999 (1988 prices)

Economic Social Political Environmental Spiritual ISEW ISEW GDP Year (millions (millions (millions (millions of (millions (millions per per

of baht) of baht) of baht) baht) of baht) of baht) capita capita 1975 289271 -14226 -3336 -81373 -18646 171690 4050 14662 1976 309968 -14380 -2771 -80580 -20371 191866 4440 15754 1977 333312 -17629 -5263 -137464 -22430 150526 3400 16942 1978 348689 -17828 -4460 -145862 -24558 155981 3449 18237 1979 368041 -17613 -5865 -70782 -25744 248037 5379 18819 1980 386847 -16607 -7034 -75363 -27190 260653 5550 19458 1981 405849 -20549 -8540 -79451 -28562 268747 5614 20206 1982 408616 -17597 -10231 -83773 -30133 266882 5464 20883 1983 432608 -17658 -11473 -83698 -32043 287736 5811 21729 1984 438488 -21985 -13914 -87772 -33754 281063 5556 22504 1985 439241 -25719 -15881 -90177 -35137 272327 5258 22996 1986 447554 -28279 -18989 -74774 -36950 288562 5448 23722 1987 483945 -35342 -17922 -78871 -40599 311211 5777 25561 1988 521801 -43117 -17445 -85397 -46051 329791 6000 28380 1989 552434 -48866 -16382 -91478 -51838 343870 6153 31316 1990 603071 -54663 -10593 -113112 -57650 367053 6519 34565 1991 622392 -60523 -7050 -120985 -62420 371414 6520 37073 1992 655585 -63159 -2937 -126737 -66967 395785 6849 39506 1993 719644 -57618 781 -134028 -72808 455971 7816 42765 1994 785056 -57295 3409 -141474 -79645 510051 8631 45174 1995 853737 -59299 8159 -150382 -86771 565444 9510 48511 1996 929336 -66005 10343 -158653 -91513 623508 10372 51489 1997 932210 -65835 2765 -163368 -89590 616182 10132 49691 1998 830688 -55185 -292 -163192 -79414 532605 8665 45348 1999 832001 -70019 -7335 -148076 -82165 524406 8505 45789


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