When we hear the same story from different sources, we usually start paying attention. This month, several organisations alerted us to the broken links between economic growth and people’s wellbeing. More importantly, it appears that governments are taking notice. Could this be the dawn of an economic revolution? Let’s look at the story.
Last week we found out that the world happiest countries are Switzerland, Iceland, Denmark, Norway, Canada, Finland, the Netherlands, Sweden, New Zealand and Australia. This ranking by the UN Sustainable Development Solutions Network (SDSN) treats happiness as an indicator of wellbeing and promotes it as a public policy goal. What is interesting, is that exactly the same group of countries scores highest in the Social Progress Index, another measure of wellbeing released earlier in the month.
These are wealthy nations, but not necessarily the top performers in terms of Gross Domestic Product and with significant differences in their respective economic results. What they seem to have in common is good governance and a model that encourages social wellbeing. So, just like money does not equal happiness, economic growth defined by GDP does not equal progress or welfare.
Another side of the story has been shown by the State of the World report, recently launched by the Worldwatch Institute. Giving prominence to the environment, the study describes trends that can hinder development and undermine societies. Among them, there are the risks of declining energy supplies and agricultural resources loss, the sociopolitical consequences of events caused by climate change, but also “the growth dependence of the global economy”.
For some, these studies may be abstract exercises or worse, the pursuit of an economic fairy tale. But the surprising reality is that major economies are starting to use some of these alternative metrics to design policies and guide public spending.
The European Commission will adopt the Social Progress Index to allocate funds to stimulate economic development in the poorest EU regions. This is not a minor matter as the regional policy is the main investment programme of the European Union (the largest economy in the world).
Within the EU, the United Kingdom has been measuring national wellbeing “looking at GDP and beyond” since 2011. This year, it also started to calculate the value of the green economy to capture areas unaccounted for in the low carbon and renewable energy sector. The results will “help to inform policies on jobs, growth and investment.”
Separately, China is reviving the “green GDP” concept already explored in 2004. This was designed to account for the environmental costs of economic activities and bring about a more sustainable development model. But the idea was abandoned in 2007, allegedly for the difficulties to get accurate calculations and because other countries were not applying similar principles. With the same sustainability purpose, however, last year the communist party added social and environmental indicators to GDP growth in the criteria for the promotion of local officials.
Initiatives to shape policies using the Social Progress Index have been reported in more than 40 countries. Paraguay is applying it to guide the national development plan for 2030, the cities of Rio de Janeiro and Bogota to drive their urban renewal strategies and the State of Michigan for the development of cities like Detroit. Similarly, the Dubai Plan for 2021 has people’s happiness among its objectives.
It may be early to know whether this is the dawn of an economic model mindful of people and the environment. For this to happen, China must not sweep the “green GDP” under the carpet as it did in the past and signs of engagement are needed from other major economies too, especially the US. After all, back in the 1990s, the Clinton administration made proposals to subtract the loss of natural resources from GDP, but that project was blocked as well due to budgetary decisions (and lobbies’ influence).
Only time will tell if and how these initiatives will take shape and connect with each other. Meanwhile, the GDP concept as we know it has never been so much under pressure.
Read this article on The Huffington Post.
Photo: Road traffic in Beijing, China, 2011. © Claudia Delpero. All rights reserved.
The views and opinions expressed in this blogpost are solely those of the author and do not represent the position of current or past employers.