Your economy grew by 2% last year. So are you 2% happier or better off? Take national income per head or GDP per capita, which have been the standard measures of a country’s economic progress for decades. Now, imagine a politician tells you that the GDP per capita in your country has leapt from $20,000 per head to $25,000 in three years. Has your income risen by that amount? And even if it has, has your lifestyle improved, your environment become cleaner, or your country more honest than before? And anyway, how would you be able to tell for sure?
Nowadays, more and more people, including governments and economists, are becoming frustrated with the shortfalls of GDP as an indicator of the true wellbeing of individual people and society more widely. Indeed, several countries, including France, Germany, Italy, Japan, Korea, Spain and the UK, are now going beyond GDP and launching national initiatives on measuring progress. All share a common goal of trying to measure, and evaluate how countries are performing beyond mere increases in the value or volume of output and spending.
Indicators and data that attempt to go beyond income and profit are already quite common in business. NGOs such as the Global Reporting Initiative produce sustainability reporting for company accounting as part of corporate social responsibility (CSR), for instance, and some stock market indices now reward good CSR performance.
But such attempts have been fewer at economy level. Ever since the OECD started out in 1961, GDP has been the yardstick by which it has measured and understood economic and social progress. But it has failed to capture many of the factors that influence people’s lives, such as security, leisure, income distribution and a clean environment.
These are the kinds of factors which growth itself needs to be sustainable, which is why the question of what constitutes well-being and how to measure it is such a rich and vital debate of our time.
The OECD, already known for its leading indicators, PISA education surveys and several other influential initiatives, has been leading international reflection on measuring the progress of societies for nearly 10 years. Lately, it has been an important contributor to the work of the Stigliz-Sen-Fitoussi Commission on the measurement of economic performance and social progress, a French government initiative created at the beginning of 2008. As Joseph Stiglitz recently wrote in these pages, the OECD’s input proved very timely in today’s economic downturn, and with other challenges, such as climate change and global inequality, models and ideas are understandably being questioned (see references).
Now, in its 50th anniversary year, the OECD is ready to unveil the first fruits of that hard work, the OECD Better Life Initiative, due to be launched during the 50th Anniversary Week. It will be the first instalment in a quite unprecedented broadbased international attempt to present comparative evidence on progress, leaning on two pillars: material living conditions and quality of life. Income and wealth count, but so do housing conditions. Quality of life considers aspects such as education, health, work-life balance, civic engagement and overall life satisfaction. Natural capital, physical capital, social capital and human capital will be considered as part of a future third pillar, sustainability.
As a central element of this initiative, the OECD is launching an index that will enable ordinary people to assess their well-being according to their own preferences: Your Better Life Index. The index is a new way of empowering and educating everyone who cares about building a stronger, cleaner and fairer world. This includes governments, who can then learn from this data to shape policies and get better results. The Better Life Index web tool is simple and in many ways fun to use, even for those with no background in data or economics, in large part because it presents indicators in an attractive way that is easy to interpret. At the time of launching, there were 11 dimensions for users to take on board: housing, income, jobs, community, education, the environment, governance, health, life satisfaction, safety and work-life balance. More factors will be added on as the index is developed.
Each country is represented by a flower, where the size of each one of the 11 petals illustrates the country’s performance on a particular dimension, such as green for the environment, brown for safety, and so on.
The length of the stem changes with the country’s overall performance, so the taller the flower, the better the country is doing. The length of the petals represents the country’s score.
The OECD has not assigned weights to any of the dimensions: the user can choose to start with all the 11 dimensions weighted equally or to set their own preferences from the beginning. This neutrality means that the OECD selects the factors, but leaves the job of judging which ones count more than others to the public. People do this by using a control panel to fine-tune the weights in line with what matters to them.
This way, the Better Life Index allows users to measure and compare the quality of life across OECD countries–major emerging economies will soon follow suit–and to build and customise their own indices. By assigning their own weights to each of the 11 dimensions, they will be able to see how the emphasis they place on any particular factor affects the relative position of each country.
Increase the weighting you wish to give to, say, the environment, and the length of the “stems” will adjust to reflect how other countries perform on the environment, while the width of the green petals will grow in size too. This creates a simple basis for making your country comparisons.
A closer look at the environment dimension helps to understand how the index works. Every dimension is made up of one to three indicators: the green petal denoting the environment reflects one for now: levels of air pollution in residential areas of cities with populations greater than 100,000. On a scale from 0 to 5, if you want to assign the greatest weight of 5 to environmental quality while keeping, say, governance, safety and all the other dimensions at 1, you’ll find a list of countries topping your list. In this instance, Sweden, Australia, New Zealand or Canada capture most closely how you would define well-being. If you’re more concerned about income and wealth, and adjust the weights accordingly, you may find you have more affinity with Luxembourg or the US.
These very personal assessments can then be saved and the results shared via email, Twitter or Facebook. The OECD experts, while respecting privacy norms, will be able to see the wider patterns of preferences among users and see how they vary by nationality, age and other criteria. This data will then be made available to shape ongoing work on measuring progress and help countries to understand the kinds of policies that promote well-being.
Indeed, the Better Life Initiative is firmly grounded in an important, long-term OECD project called How’s Life? Beyond OECD Week, this project will continue with a major new book in September. Also called How’s Life?, the book will focus on the living conditions of households and people, rather than the economy as a whole. It will ask whether employees are working particularly long hours, and how much time people devote to leisure activities and personal care, or to what extent mothers of young children participate in the workforce, and the effects this has on their well-being. It will even consider how much people socialise, whether they tend to vote, and how much confidence they have in their countries’ institutions.
How’s Life? and the Better Life Index are, by definition, works in progress. New dimensions will be added, particularly as the sustainability pillar is built, emerging economies are added and users provide continuous feedback. Also, while the Better Life Index incorporates household disposable income and wealth, consideration of how those are distributed in the country has yet to be included. GDP has its limitations as a measure of well-being, but it will undoubtedly remain a key measure of economic growth, not least because governments, markets and ordinary people are used to it. In any case, the OECD Better Life Initiative is designed to complement GDP-based indicators rather than replace them, by providing a human angle on how policies affect societies at large. Hopefully soon, countries, and the people who live in them, will have a better view of how they’re really doing.
Create your Better Life Index on www.oecdbetterlifeindex.org
For more on the Better Life Initiative and the OECD work on measuring progress and well-being, see www.oecd.org/progress
Stiglitz, Joseph (2009), “Progress, what progress?” in OECD Observer No 272 March.
©OECD Observer No 284, Q1 2011