You are on page 1of 6

Chasing Progress

Beyond measuring
economic growth
The power of well-being 1
Every society clings to
a myth by which it lives;
ours is the myth of
economic progress.

That’s why the year-on-year 16,000


sustained growth is not the same
performance of the Gross Domestic thing as sustainable growth, even in
Product (GDP) continues to 14,000 economic terms. And when it comes
dominate national policy and 12,000 to environmental and social well-
fascinate the media. But a new GDP being, it isn’t growth so much as the
10,000
composite Measure of Domestic quality of our lives and the health of
1995 Pounds Sterling

Progress (MDP) – designed to factor 8,000 our environment that counts. The
in the environmental and social 6,000
Labour Government has explicitly
costs of growth – highlights how far recognised this. In the foreword to
off-track we might be in our 4,000 MDP the UK’s Strategy for Sustainable
relentless pursuit of GDP (Figure 1). 2,000 Development, entitled quite simply
The results are salutary: A Better Quality of Life, Tony Blair
0
1950 1960 1970 1980 1990 2000 acknowledged:
• GDP has soared in the last 50 years;
but MDP has struggled to take off at Figure 1: MDP v GDP in the UK:1950-2002 ‘We have failed to see how our economy, our
environment and our society are all one. And
all. Growth is on track… that delivering the best possible quality of life
• The divergence is especially
transparent over the last 30 years:
There’s little doubt about it: We are
living in an age of unprecedented
for us all means more than concentrating
solely on economic growth..’
GDP increased by 80 per cent, but economic prosperity. The national
MDP fell sharply during the 1980s income has tripled, in real terms, in The report argues that ‘achieving
and has not yet regained its 1976 the course of only half a century. We a better quality of life, now and for
peak. are three times better off than our generations to come’ means meeting
grandparents were and it shows. four simultaneous objectives:
• In spite of improvements in air and
water quality, environmental costs Higher incomes, warmer homes,
have risen by 300 per cent in the last wider choice, better communications, • Social progress that meets the needs

half century (Figure 3). faster cars, newer gadgets: these of everyone.
are the windfalls from an • Effective protection of the environment.
• Social costs have risen 600 per cent
in the same period with a staggering
extraordinary surge in consumer • Prudent use of natural resources.

13-fold increase in the costs of crime


spending over the last few decades. • Maintenance of high and stable levels
And like the election theme song on of economic growth and employment.
and a four-fold increase in the costs which this Government came to
of family breakdown (Figure 4). power, it really does seem like Each of these objectives is
• The Labour Government has so far
failed to curb income inequality which
‘things can only get better’. challenging in its own right. This
Government came to power, in part
rose by a factor of seven during the …but what about quality of life? at least, because the Tories failed to
last 50 years. But as everyone from Mahatma deliver on key social goals and left
• MDP bears a closer resemblance to
life-satisfaction data – which has not
Gandhi to cult pop-group the
Black-eyed Peas (and even Tony Blair)
whole sections of the community out
of the growth bonanza. Moreover,
risen for 30 years (Figure 5) – than it has pointed out, more isn’t always failures to protect the global climate,
does to GDP. better. Too much food makes the the ozone layer, water quality in our
nation obese. Burgeoning traffic leaves rivers and air quality in our cities
• The ‘hidden’ costs of future climate
change and resource depletion
the roads congested. More guns make have haunted successive
our streets unsafe. Endless choice governments for decades.
constitute a continuing threat to long-
term economic stability.
leaves us hurried and harried.
Mountains of waste leave our tips So how are we to set about
over-flowing. Burning too much carbon achieving these demanding goals?
In short, the persistent divergence threatens our climate. Excessive Are they even achievable
of MDP from GDP raises difficult commercialism erodes social value simultaneously? This is the
questions for the Government’s and strips our lives of meaning. enormous challenge of sustainable
Sustainable Development Strategy, No one can deny that we’re development in the 21st Century, and
and casts serious doubts on the witnessing an extraordinary period it’s far from having been overcome.
myth of economic progress. of economic prosperity. But

2 Chasing Progress
16,000 800%
GDP
14,000 700% Climate Change
GDP
12,000 600%
Economic
1995 Pounds Sterling

Adjustments
10,000 500%

Social Costs Resource Depletion


8,000 400%

6,000 300%
Environmental Costs
Lost Land
4,000 200%
Resource Depletion Air Pollution
2,000 MDP 100% MDP
Water Pollution
0 0
1950 1960 1970 1980 1990 2000 1950 1960 1970 1980 1990 2000

Figure 2: Components of the UK MDP Figure 3: Environmental costs of progress

Measuring progress But the results of the exercise make the time, have had a key role in
It is scarcely news, of course, that for uncomfortable reading. The reducing levels of polluting emissions
GDP is not a very good measure of following key statistics illustrate a into the atmosphere and into rivers.
progress. Even in the 1960s, the late growing divergence between GDP And as a result air pollution and
Senator Robert Kennedy warned and MDP over the last half century: water pollution costs have declined
that the GDP: by around 50 per cent since the
‘is indifferent to the decency of our factories • GDP per capita has tripled since 1950,
but MDP has not yet doubled.
early 1990s.
and the safety of streets alike. It does not
include the beauty of our poetry or the • GDP rose by 80 per cent since 1975
alone: but MDP fell consistently during the
But there is little room for complacency
here. These important gains are
strength of our marriages, the intelligence of
our public debate or the integrity of our public 1980s and has struggled to return to its over-shadowed by other more
officials. The [GDP] measures neither our wit mid-1970s peak. intractable costs: the slow loss of
nor our courage, neither our wisdom nor our
learning, neither our compassion nor our
• The average growth rate in MDP was barely
half that of GDP over the last 50 years.
productive rural land and natural
habitats, the continuing depletion
devotion to our country. It measures
everything, in short, except that which makes • Environmental costs have increased by
300 per cent since 1950; and social costs
of mineral resources, and the rising
‘hidden’ costs of climate change.
life worthwhile.’
by 600 per cent.
Economists and politicians alike have
been slow to accept this indictment,
• MDP has staged something of a revival in
the last decade, growing faster than GDP at
These hidden costs are different
from many of the other costs
and the relentless pursuit of GDP has times but progress appears to have faltered included in the MDP: we do not feel
been a defining characteristic of UK over the last two years of the study. their impact now. The brunt of these
politics over the last 50 years. That’s costs will be borne by future
why the Government’s Strategy for When it comes to assessing our generations. Recent policies to
Sustainable Development represents progress towards the Government’s combat climate change will reduce
such a profound departure from sustainability objectives, the MDP is the rate at which these future costs
conventional thinking. But having a potentially useful tool because it is accumulate. But our cumulative debt
accepted, as Labour did, that growth possible to unpack the composite to future generations now stands
by itself will not deliver quality of life, index into different sustainability 650 per cent higher today than it
the question remains: how do we factors. Figure 2 shows a series of was in 1950 – even though it has
measure our progress towards this adjustments subtracted in turn from been ‘discounted’ here to take into
more elusive goal? GDP to arrive at the MDP index. account the fact that the costs fall
This analysis reveals that social mainly in the future.
One approach is to adjust existing costs, environmental costs and
measures of growth to account for resource depletion have all played Our current attitude towards these
a variety of costs and benefits not a significant part in depressing the future costs is a bit like taking out an
usually factored into them. As a step index below the GDP measure. endowment policy to pay off a
in this direction, nef (the new mortgage and then forgetting to pay
economics foundation) has Cleaner and greener? the premiums. As each year passes,
calculated a new ‘Measure of Most striking of these effects is the the amount we ought to be putting
Domestic Progress’ (MDP), designed role played by environmental costs. aside to make the eventual
to reflect our progress towards For long periods of time, these repayment just goes on getting
sustainable development by including constitute the single largest bigger. One day it will be too late; the
economic progress, environmental adjustment to the measure. But how mortgage company will repossess
costs, resource depletion and social does this square with government the property. And at some point the
factors in a single composite measure claims that our factories are more costs of climate change may derail
(see What is MDP). Combined efficient than they used to be, our economic stability altogether.
together these contributions provide a rivers cleaner, and our cities
powerful indication of trends over time greener? As Figure 3 illustrates, Lost in translation?
in relation to the Government’s these claims are partly true. In fact, So what about social progress?
sustainability objectives. environmental policies put in place Are we any more successful in our
from the 1970s onwards, however pursuit of this objective? Undeniably,
unpopular they may have been at we have seen signs of social

3 Chasing Progress
800% 200%

180%
700%
Crime 160%
600% GDP
140%
500%
120%
SWB
400% 100%

Family Breakdown 80%


300%
60% MDP
200%
40%
100% Inequality 20%
MDP

0 0%
1950 1960 1970 1980 1990 2000 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000

Figure 4: Social costs of progress Figure 5: SWB, GDP and MDP in the UK: 1973-2002

improvement over the last few and half times the divorce rate in Could it even be that the institutional
decades. Aside from the higher 1950. In the subsequent decade, it structure of growth creation is
average standard of living that appeared to stabilise and even fall incompatible with key dimensions of
economic growth delivers, longevity slightly, leading to a decline in the social progress? Forty years ago,
has increased slightly and social and psychological costs the economist Simon Kuznets
unemployment has fallen since associated with family breakdown. proposed that rising income
the mid-1970s. But even here, the last couple of inequality was an inevitable
years have witnessed a worrying consequence of the early stages of
Paradoxically, however, for a ruling reversal of the previous positive trend. economic growth. He predicted,
party founded in social ideals and however, that beyond a certain
committed to reducing social So what became of those Labour stage, inequality would begin to fall
exclusion, the story is not pledges? Is it just that more time is again. The only trouble is it clearly
unequivocally positive. Crime, needed before the impacts of hasn’t; and perhaps it simply can’t.
inequality and the costs of family policies already in place begin to
breakdown (Figure 4) have all grown take effect? Is it that the manifesto Bolstering the economic miracle of
dramatically over the period. And in commitments were nothing more the last 50 years now appears to
spite of manifesto commitments to than ‘sound and fury’, signifying require continued access to cheap
be ‘tough on crime and tough on the nothing in terms of real progress? credit, low taxation levels, and the
causes of crime’ and to protect Or is it possible that something even whipping up of material desires in the
vulnerable families and communities, more insidious is happening? increasingly affluent middle classes.
the years of Labour rule have not yet But what happens when cheap credit
managed to turn this trend around. Chasing progress encourages bad debt? What happens
Could it be that economic growth, when low taxation restricts the public
To be fair, some efforts were made. and our unquestioned allegiance purse? And what happens when
The Cabinet Office Social Exclusion to it, blind us to the social and unbridled materialism leads to the
Unit, for example, has put out report environmental implications of gradual erosion of social values?
after report aimed at reducing protecting and promoting it? To
poverty, and tackling inequalities in create more and more growth we There is, in the current climate, no
access to important basic services. need more and more consumption. real alternative to economic growth
But the sad truth is that the loss in To achieve more and more that doesn’t involve the risk of even
collective well-being associated with consumption, we need to keep greater hardships for the most
the unequal distribution of our buying more and more stuff. But what vulnerable in our society. And yet,
incomes has increased by 600 per if more and more stuff doesn’t lead to perhaps what the history of the last
cent over the period and shows no happy families and fulfilling lives? 50 years is telling us is that we have
immediate signs of abating under to start thinking the unthinkable. The
Labour rule. This is precisely the suggestion that myth of economic growth is frayed at
arises from yet another important set the edges and the promise of social
Even this trend is dwarfed, however, of data. Quantitative measures of and environmental progress is one of
by the 13-fold increase in crime over subjective well-being (SWB) or the first casualties of its dereliction.
the last 50 years. And here the ‘life-satisfaction’ have shown precious
pattern is even more worrying. little movement over the last 30 years Beyond the mirage
Crime peaked in 1992 and costs (Figure 5), prompting some to Every society has a cultural myth by
then fell consistently for seven years speculate that the pursuit of social which it lives; ours is the myth of
in a row. But after this brief respite, progress is a little like trying to run up economic progress. So long as the
they began to rise again sharply, the down-escalator. Or like the Red national income continues to rise,
mainly as a result of a disturbing Queen in Lewis Carroll’s classic we feel safe in assuming not just
increase in violent crimes. Through the Looking Glass: we’re that we are doing well, but that we
running faster and faster; but we seem are living better than our parents or
Some kind of social progress is to end up in exactly the same place. our grandparents did; that we are
noticeable in relation to family progressing – not just as individuals
stability. The divorce rate peaked in but as a society.
1993, albeit at a level that was five

4 Chasing Progress
In all probability most of us feel some But what exactly can we do beyond Perhaps most importantly, there is a
comfort in that belief. And why highlighting the issue? A clear clear need to engage in a longer-
shouldn’t we? One of the roles of starting point would be to term debate about the pursuit of
cultural myth is to furnish us with a reformulate the sustainability national well-being, and to devise
sense of meaning and provide objectives (as the SDC proposes), new ways of promoting and
continuity in our lives. But a society and in particular to tease apart the measuring social progress. This may
that allows itself to be steered by a objective of maintaining full or may not entail developing our own
faulty myth risks foundering on the employment (which is clearly concept of GNH as Bhutan is doing.
shores of harsh reality. This is the desirable) from that of pursuing But if a country of barely two million
danger that the MDP is pointing us growth (which is problematic at people who have never witnessed
towards: economic growth is running best). In addition, there are the level of economic prosperity
unacceptable environmental risks, numerous avenues for improving enjoyed by the affluent West is
doesn’t guarantee social progress, social progress and promoting prepared to engage so creatively
and isn’t even making us any happier. environmental protection which with the subject of human well-being,
need not conflict with economic then perhaps it is time that we did.
nef is not alone in highlighting this goals, including:
issue. A recent Cabinet Office report Acknowledgements
on life-satisfaction alerted the • Reducing income inequalities and
improving access to basic services.
This briefing note has been prepared by
Government to the well-being Tim Jackson, an Associate of nef (the
paradox: life-satisfaction is resolutely • Promoting social cohesion by supporting
local community development.
new economics foundation) and
static in spite of continuing economic Professor of Sustainable Development at
growth. Last year the Sustainable • Speeding up the transition to a
low-carbon society.
the University of Surrey. It is based on
Development Commission (SDC) numerical analyses carried out by the
urged the Government to abandon • Developing a long-term strategy for the
protection of rural land.
author and colleagues at the Centre for
single-minded pursuit of growth and Environmental Strategy in the University
‘re-define prosperity’. And as this • Re-evaluating the impact of government
policy signals on personal and social
of Surrey. The author is particularly
briefing goes to press, the tiny grateful for help with data collection and
well-being and on community values.
kingdom of Bhutan in the Himalayas collation from Phil Sinclair and Nic Marks,
is hosting an international • Encouraging and promoting pro-social and
pro-environmental consumer behaviour.
and for editorial inputs from Hetan Shah,
conference to operationalise its own Andrea Westall, Nic Marks and Andrew
concept of ‘gross national happiness’ • Establishing a protected ‘environmental
futures’ fund to guard against the future
Simms. nef would like to thank the
(GNH) in place of GDP. Environmental Research Trust for the
costs of climate change.
funding which made this work possible.

What is MDP? promise for the future. nef is actively engaged in


The MDP is one way of approaching the difficult developing this agenda.
question: how can we measure our progress towards
an improved quality of life? There are three main A third approach is to construct ‘adjusted’ economic
approaches to this problem. indicators. The MDP falls into this third category.
Adjusted economic indicators provide a single
The Government’s answer has been to establish a set performance index by adapting conventional economic
of 147 separate indicators, measuring things like adult measures such as GDP or consumer expenditure to
numeracy and literacy, social investment as a include social and environmental costs and benefits
percentage of GDP, crime levels, river quality, that normally lie outside the accounting framework. A
populations of wild birds, and so on, as well as the GDP variety of attempts have been made to construct such
itself. Recognising that such a huge set of indicators is indicators over the last 20 years. These include
unwieldy, the Government has selected 15 ‘headline Nordhaus and Tobin’s Measure of Economic Welfare,
indicators’ from the larger set to represent different Daly and Cobb’s Index of Sustainable Economic
aspects of its four strategic objectives. But even 15 Welfare (ISEW), and the Genuine Progress Indicator
indicators can present potentially confusing messages (GPI) developed by the US-based lobby group
to policy-makers. What does it mean if seven of the Redefining Progress. The MDP is modelled closely on
indicators go upwards, and eight go downwards? Is this these developments and in particular on earlier work
better or worse than the case in which eight go by the author and his colleagues to define a UK ISEW.
upwards and seven go downwards? Does it depend on Several additional developments have been
which go up and which go down? And how does our incorporated into this new measure and we have
recent performance (the indicator set is after all only a re-labelled it MDP rather than ISEW or GPI because
few years old) compare with longer term trends over the we do not believe that a rising MDP either guarantees
last 50 years? sustainability or ensures ‘genuine’ progress.

A second approach is to measure various dimensions Like the earlier measures, MDP takes as its basis
of subjective well-being (SWB) such as life-satisfaction consumer expenditure in the UK. It then adjusts this
or happiness (Figure 5). This is a useful and valid way basis to account for a series of different factors which
of assessing some aspects of social progress. In affect domestic progress towards sustainable
particular, it can provide us with a psychological development. The key differences between MDP and
‘snapshot’ of the nation’s ‘mood’ at any one time. GDP are that in the MDP:
Extended measures of well-being, incorporating
different psychological goals such as life fulfilment or
personal development and accounting for broader
social or environmental factors show considerable Continued overleaf

5 Chasing Progress
• Spending to offset social and environmental costs (defensive
expenditure) is taken out.
Components of the UK MDP
Type Indicator Influence
• Longer-term environmental damage and the depreciation of
natural capital are accounted for.
on MDP

• A number of economic adjustments associated with ensuring


prudent investment and trade balances are made.
Consumer expenditure +ve

Economic indicators
• Changes in the distribution of income are accounted for,
reflecting the fact that an additional pound in the pocket means
Value of services from domestic labour +ve
Public (non-defensive) expenditures on
more to the poor than to the rich. health and education +ve
• A value for household labour is included.
Difference between expenditures on and
Key differences between MDP and the ISEW are the service flow from consumer durables -ve
inclusion in MDP of the costs of crime and family Net capital growth mainly +ve
breakdown, and some adjustments to the
methodologies used to account for climate change Net international position mainly -ve
and resource depletion, in response to criticisms of
the earlier work. Effects of inequality in the distribution
of incomes -ve
Although based on economic assumptions and widely
available statistical data sets, the MDP is not a rigorously Defensive private expenditures on health
Social costs

defined economic measure. Neither can it provide a and education -ve


robust reflection of quantitative changes in each of the
Costs of commuting -ve
147 indicators of sustainable development selected by
the Government. It is certainly not a guarantee that Costs of car accidents -ve
Britain is on course for a sustainable future. Costs of noise nuisance -ve
Costs of crime -ve
However, it does offer insights that cannot be gleaned
from a disparate indicator set. In particular, it is clear Costs of family breakdown -ve
that the MDP does reflect the influence of policies
Environmental costs

designed to affect social progress, economic growth,


environmental protection and prudent use of natural Costs of personal pollution control -ve
resources. In doing so, it allows us to present a Costs of air pollution -ve
systematic assessment of domestic progress towards
Costs of water pollution -ve
sustainable development over a long period of time,
and to compare this against GDP. Estimated costs of climate change -ve
Costs of ozone depletion -ve
natural resources
Prudent use of

Loss of natural habitats -ve


Loss of farmlands -ve
Depletion of finite natural resources -ve

new economics foundation


3 Jonathan Street
London SE11 5NH
United Kingdom
Telephone: +44 (0)20 7820 6300 Design by cyandesign.co.uk
Facsimile: +44 (0)20 7820 6301 Design: bwa
E-mail: info@neweconomics.org Registered charity number 1055254
Website: www.neweconomics.org © 2004 nef (the new economics foundation)