Future trends of Genuine Progress in Finland

Dr. Jukka Hoffrén

Head of Research

Statistics Finland, Statistical R&D unit

e-mail: jukka.hoffren@stat.fi

Trends and Future of Sustainable Development

Tampere 9-10 June 2011

Contents

GDP as a proxy of welfare, GDP criticsEuropean Union and Stiglitz commission proposals and

adoption to FinlandFrom production measurements to consumer

experienced welfare, ISEW and GPI indicatorsComparison of Finnish GDP, ISEW and GPIFuture challenges of welfare measurements

Finnish GDP and it’s critics

Annual GDP calculation were started in mid 1970’s and it has since then transformed the basis of the society.

In 1990’s it was noted that the GDP in Finland is increasing but the welfare of the people is not rising according to many studies.

GDP is not designed to measure of welfare, but only of economic activities state the national accountants. Thus it is a misleading indicator of wellbeing in current day society.

EU: Allocation of funds by using current economic measures is not efficient. Development of new welfare measures is a priority in the EU.

Beyond GDP conference in 2007: New composite indicators should take into account different aspects of wellbeing.

Stiglitz Commission proposals in September 2009. In 2009/2010 Eurostat/OECD/INSEE started 3 sponsorship

groups: Beyond GDP, Quality and communication.

Development in the European Union

1. Economic welfare: household focus, measures that are complementary to SNA. Ideal measure includes household market consumtion, public services, non-market activities, value of leisure and defensive expenditures.

2. Non-economic aspects: capabilities and quality of life. Time use accounts?

3. Sustainability; global and national sustainability constraints must be taken into account. Adjusted Net Savings (ANS) must be positive.

Commission on the Measurement of Economic Performance and Social Progress proposals

Beside GDP measuring economic performance social progress requires also considering:

Stiglitz commission measures for Finland (per capita, real prices, year 2000)

In 2009/2010 Eurostat/INSEE started 3 sponsorship groups: Beyond GDP, Quality and communication.

GDP monitor economic progress from production perspective. Direct linkage to welfare is missing. GDP does not indicate if economic growth benefits the people.

Consequently we should monitor more closely the actual welfare received by the people.

Index of Sustainable Economic Welfare (ISEW) and Genuine Progress Indicator (GPI) have many benefits as they are based on private consumption expenditures that are corrected by positive and negative factors.

From production measurements to consumer experienced welfare

Timeseries for years 1945-2007 in Statistics Finland, R&D unit during 2000’s

First calculations of ISEW and GPI for Finland ISEW is based on Cobb’s and Daly’s original ideas. Finnish GPI Calculation is based on the calculation of

US GPI for years 1960-2006 by Redefining Progress -organisation

Due to data limitations, some parts of the Finnish GPI differ from the US GPI

ISEW and GPI for Finland

GPI indicator

GPI = A + B - C - D + I

A is income weighted private consumption B is value of non-market services generating welfare C is private defensive cost of natural detoriaration D is cost of deteoriation of nature and natural resources I is increase in capital and balance of international trade

Development of GDP, ISEW and GPI indicators in Finland in 1945-2010 (per capita in real prices)

Development of main components of Finnish ISEW in 1945–2010 (1000 euros per capita in real prices)

Development of main components of Finnish GPI in 1945–2010 (euros per capita in real prices)

Artificial pricing methods to price societal and environmental hazards and assets.

Integration of subjective wellbeing to objective measures. Accounting cumulative environmental problems Effect of exhaustion of natural resources to welfare. Importance of health to welfare Private consumption and distribution of income Inclusion of human capital and technological progress Improving statistical database Inclusion of global perspective Inclusion of national characteristics

Issues to be reconsidered in welfare measurements

Measurement of welfare in Finland

Mari Kiviniemi’s government platform 22 June 2010 included a target to start compiling a new welfare indicators for Finland within couple of next years.

Most probably the establishing and implementation of this welfare indicator will be included to next governments’ platform .

Regional GPI -applications have been calculated for Päijät-Häme, Kainuu and Etelä-Pohjanmaa regions, Lappi, Pohjois- ja Keski-Pohjanmaa will follow.

Development of GPI in Päijät-Häme, Kainuu and Etelä-Pohjanmaa

We need to develop advanced welfare accounting system that monitors more the development of welfare of individuals.

In order to be useful for decision-making, new monitoring system should be relatively simple and transparent.

Focus on consumers or households; GPI or derivative measure seems to be the most favoured composite welfare indicator.

Linkage to welfare state reconsiderations and policies. Urgent need that new measure should be in use in 2010’s.

New welfare measure

Thank you!

jukka.hoffren@stat.fi