limitations of gdp as an indicator of social progress and growth

Summer Course, St Sebastian, 5 July 2010

Inna ŠteinbukaDirector, Social and Information Society StatisticsEurostat

Summer Course, St Sebastian, 5 July 2010 -2-

Limits of GDP as Indicator of Economic Growth and Social progress

Communication on GDP and beyond: Measuring progress in a changing

worldRecommendation of Stiglitz-Sen-

Fidoussi commission


Outlines

GDP: pros and cons EC communication to the Council and the EP: GDP and

beyond. Measuring progress in a changing world – What it is about?

Recommendations of “The Commission on the measurement of Economic Performance and Social progress”

The new needs for statistics


GDP: pros and cons

Developed in the 1930s, GDP has become a standard benchmark for fiscal, budgetary and monetary policies

GDP = private consumption + investment + (export – import) The framework and rules of calculation are set in the

European System of Accounts which is broadly consistent with the UN System of National Accounts


GDP: pros and cons

“Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our GNP, if we should jugde America by that,

counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our

doors… Yet the GNP does not allow for the health of our children, the quality of their education, or the joy of their play… it measures

everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we

are Americans.”

Robert F. Kennedy Address, University of Kanzaz, 1968


EC communication to the Council and the EP: GDP and beyond. Measuring progress in a changing world – What it is about?

The Communication identifies a number of actions to be taken in the short and medium term on better measuring progress

The aim is to develop more inclusive indicators that provide a more reliable knowledge base for better policy-making


Recommendations of “The Commission on the measurement of Economic Performance and Social progress”

In the lesson, the integrated conclusions of two initiatives will be presented. The special focus will be placed on the main messages and recommendations of Stiglitz–Sen–Fidoussi Commission.


Stiglitz Commission: main messages and recommendations

I. Towards better measures of economic performance in a complex economy: before going beyond GDP it is worth analysing where existing measures of economic performance need improving.



II. From Production to well-being

1. When evaluating material well-being, look at income and consumption rather than production.2. Emphasise the household perspective.3. Consider income and consumption jointly with wealth.4. Give more prominence to the distribution of income, consumption and wealth.5. Broaden income measures to non-market activities.



III. Well-being is multi-dimensional:

Material living standards (income, consumption and wealth); Health; Education; Personal activities including work; Political voice and governance; Social connections and relationships; Environmental (present and future conditions); Insecurity, of an economic as well as a physical nature.



IV. Objective and subjective dimensions of well-being are both important

6. Quality of Life depend on people's objective conditions and capabilities. Steps should be taken to improve measures of people's health, education, personal activities and environmental conditions. In particular, substantial effort should be devoted to developing and implementing robust, reliable measures of social connections, political voice, and insecurity that can be shown to predict life satisfaction.7. Quality-of-life indicators in all the dimensions covered should assess inequalities in a comprehensive way.8. Surveys should be designed to assess the links between various quality-of-life domains for each person, and this information should be used when designing policies in various fields.



IV. Objective and subjective dimensions of well-being are both important (continued)

9. Statistical offices should provide the information needed to aggregate across quality-of-life dimensions, allowing the construction of different indexes,

10. Measures of both objective and subjective well-being provide key information about people's quality of life. Statistical offices should incorporate questions to capture people's life evaluations, hedonic experiences and priorities in their own survey.



V. Use a pragmatic approach towards measuring sustainability

11. Sustainability assessment requires a well-identified dashboard of indicators. The distinctive feature of the components of this dashboard should be that they are interpretable as variations of some underlying "stocks". A monetary index of sustainability has its place in such a dashboard but, under the current state of art it should remain essentially focussed on economic aspects of sustainability.



VI. Physical indicators for environmental pressures

12. The environmental aspects of sustainability deserve a separate follow-up based on a well-chosen set of physical indicators. In particular there is a need for a clear indicator of our proximity to dangerous levels of environmental damage (such as associated with climate change or the depletion of fishing stocks).


National Accounts-related Recommendations

Recommendation 1: When evaluating material well-being, look at income and consumption rather than production

Recommendation 2: Emphasise the household perspective

Recommendation 3: Consider income and consumption jointly with wealth


National Accounts And Social Statistics (1)

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

– Average measures of income, consumption and wealth should be accompanied by indicators that reflect their distribution, e.g. median and quintiles

– This will require stronger linkages between social statistics (household surveys and administrative sources) and national accounts figures


National Accounts And Social Statistics (2)

Recommendation 5: Broaden income measures to intra-household non-market activities

– Compile comprehensive and periodic accounts of household activity as satellites to the core national accounts

– Time-use surveys are a major source for these data

– Comparisons of living standards over time and across countries need to also take into account the amount of leisure that people enjoy


Social Indicators on Quality of Life (1)

Recommendation 6:

– Steps should be taken to improve measures of people’ s health, education, personal activities, and environmental conditions,

and– Substantial effort should be devoted to developing and

implementing robust, reliable measures of social connections, political voice, and insecurity that can be shown to predict life satisfaction



Recommendation 7: Quality of life indicators should assess inequalities in a comprehensive way

Recommendation 8: Surveys should be designed to assess the links between various quality-of-life domains for each person, and this information should be used when designing policies in various fields

Recommendation 9: Statistical offices should provide information needed to aggregate across quality-of-life dimensions, allowing the construction of different indexes



Recommendation 10: Measures of both objective and subjective well-being provide key information about people’s quality of life. Statistical offices should incorporate questions to capture people’s life evaluations, hedonic experiences and priorities in their surveys


Sustainable Development and Environment

Recommendations 11 & 12 are dealing with sustainable development This does not mean that they are focused on environment Sustainability requires the simultaneous preservation or increase in

several “stocks”: natural resources, human, and physical capital The measurement of human capital is an important challenge for

social statisticians. A task force has been launched by OECD. Coordination is needed.

Summer Course, St Sebastian, 5 July 2010 -22--22-

Thank you for attention