Beyond GDP: Towards a composite

well-being indexThe case of the Green Economy Index

Anton Nahman, CSIR

Beyond GDP in Africa: Innovative Ideas for a

Regional Dashboard” University of Pretoria, 28-29 October 2014

Why the need to go beyond GDP?

• Only when the last tree has died, and the last river has been poisoned,

and the last fish has been caught, will we realize that we cannot eat money – Cree proverb

• "the welfare of a nation can scarcely be inferred from a measure of national income. If the

GDP is up, why is America down? Distinctions must be kept in mind between quantity and

quality of growth, between costs and returns, and between the short and long run. Goals for

more growth should specify more growth of what and for what” – Simon Kuznets, 1934

• "GNP counts air pollution and cigarette advertising, and ambulances to clear our highways of

carnage. It counts special locks for our doors and the jails for the people who break them. It

counts the destruction of the redwood and the loss of our natural wonder. It counts napalm

and nuclear warheads and armored cars for the police to fight the riots in our cities… Yet the

GNP does not allow for the health of our children, the quality of their education or the joy of

their play. It does not include the beauty of our poetry or the strength of our marriages, the

intelligence of our public debate or the integrity of our public officials. It measures neither

our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our

devotion to our country, it measures everything in short, except that which makes life

worthwhile” – Robert F. Kennedy, 1998

Beyond GDP – towards what?

• Various options for overcoming the limitations of GDP:

– Adjusting GDP (e.g. ISEW, MEW, GPI, ANS/GS)

– Supplementing GDP (with environmental and social indicators)

– Replacing GDP altogether (with a broader measure of well-being)

• Well-being is a broad, multi-dimensional concept – unlikely that a single

indicator will suffice

• It also means different things to different people in different contexts

• Well-being measure should ideally start with a bottom-up process of

stakeholder engagement to identify the relevant “components” or

“dimensions” of well-being (context-specific), and then to identify relevant

indicators of each

• E.g. in Bhutan: GNH made up of 9 ‘dimensions of well-being’ (e.g.

psychological wellbeing, culture, governance, community, living standards,

ecological, education, health); disaggregated into 33 indicators.

• These indicators are then integrated into the policy/project selection process

– must pass the GNH “test” in order to be approved

The CSIR study: Development of a green economy index

• Question: Why does GDP remain dominant, despite all of its limitations?

• Hypothesis: Besides vested interests in maintaining status quo, another

reason for the continued dominance of GDP is that it is (relatively) easy to

calculate, understand and communicate (single number)

• Policy/decision-making requires clear signals – too many indicators will give

contrasting messages

• So an alternative to GDP would need to have the same advantages

• Thus need a ‘dashboard’ or ‘composite index’ which summarises info from a

broad range of indicators in a simple way that is easy to communicate and

interpret

• So: Can we develop an index that is as easy to calculate, understand and

communicate as GDP, but that covers a much broader and more relevant

range of information?

The CSIR study: Development of a green economy index

• In our case, instead of the broad concept of well-being, we chose to develop

a composite “Green Economy Index” (study was funded through a broader

project on GE)

• However, a similar approach could potentially be adopted to develop an

index for the broader concept of well-being

• Objective: to construct a composite index for measuring performance of

national economies according to ‘green economy’ principles and criteria (i.e.

a green economy ‘alternative’ to GDP)

• GE = one that results in “improved human well-being and social equity,

while significantly reducing environmental risks and ecological scarcities. In

its simplest expression, a green economy is low carbon, resource efficient,

and socially inclusive” (UNEP, 2011)

• So is a multi-dimensional concept that would need to be measured using a

broad range of indicators (like well-being)

Composite Index

Dimension / indicator approach

PCI approach

Approach

• PCI (Principles, Criteria & Indicators) approach

• Developed rigorous conceptual model of the GE, consisting of 12

principles and 26 criteria

– relate to social, economic, environmental and governance dimensions

– includes both inputs/drivers and outputs/outcomes of a GE

• Identified over 500 existing indicators from numerous sources

• Reviewed and assessed indicators according to a number of selection

criteria

– Policy relevance (balanced coverage of key issues, easy to interpret,

transparent, comparable across countries and over time, adaptable to

different national contexts, can be disaggregated to component indicators);

analytical soundness and validity; measurability

• Selected an indicator (or in some cases a composite of multiple

indicators) associated with each GE criterion

PRINCIPLES CRITERIA INDICATORS

The green economy is a means for achieving sustainable

development

CROSS-CUTTING PRINCIPLESThe green economy measures progress beyond GDP using

appropriate indicators/metrics

The green economy respects planetary boundaries, ecological

limits and scarcity (absolute decoupling)

The green economy requires good governance (inclusive;

democratic; participatory; accountable; transparent; and stable)

and uses integrated environmental, social and economic

decision making

Good governance Average across the World Bank’s 6 Governance Indicators

Integrated decision making

*N/A (Cross-cutting criterion)

The green economy internalises externalities; stimulates green

investment, innovation and behaviour; and incentives

sustainable consumption

Remove harmful subsidies Fossil fuel subsidies as a % of GDP

Internalise externalities Environment-related subsidies as a % of total subsidies or GDP

Green investment Environment-related/renewable energy investment as a % of total

Green innovation Patents in environment-related technologies as a % of total

Sustainable consumption Ecological footprint (global hectares per capita)

The green economy invests in greening economic activity and

infrastructure

Sustainable production Organic farming area as % of total agricultural area

Green Infrastructure Share of renewable energy in Total Primary Energy Supply (TPES) (%)

The green economy is resource and energy efficient Energy efficiency Energy consumption per capita (gigajoules per capita per annum)

Water use efficiency Water withdrawals per capita (m3 per capita per annum)

Materials use efficiency Domestic materials consumption (per capita or per unit GDP)

The green economy is low carbon, low emissions, and zero

waste

Low carbon Greenhouse gas emissions per capita (tCO2e per capita per annum)

Zero waste Waste disposal per capita (kg per capita per annum)

Air quality Index based on indoor air pollution, particulate matter and SO2

emissions

Water quality Index based on Dissolved O2, Electrical Conductivity, pH, Phosphorus,

and Nitrogen

The green economy protects biodiversity and ecosystems Investment in natural capital Marine and terrestrial protected areas as a % of total territorial area

Biodiversity Proportion of species threatened with extinction

Ecosystems Area under agriculture and commercial forestry as % of total land area

The green economy delivers poverty reduction, well‐being,

livelihoods, social protection and access to essential services

Poverty alleviation Poverty gap at $2 a day

Meeting basic needs Average score over Millennium Development Goal (MDG) indicators

relating to adequate nutrition, water and sanitation

Investment in human capital Human Development Index (HDI)

Subjective well-being Self-reported overall life satisfaction

The green economy should create decent work and green jobs Job creation Employment to working age population ratio

Decent work Index of relevant International Labour Organisation (ILO) Decent Work

indicators

The green economy is equitable, fair and just – between and

within countries and between generations.

Intra-generational equity Gini coefficient of income distribution

Inter-generational equity Adjusted Net Savings (aka Genuine Savings) as % of Gross National

PRINCIPLES CRITERIA

The green economy is a means for achieving sustainable development

CROSS-CUTTING PRINCIPLESThe green economy measures progress beyond GDP using appropriate indicators/metrics

The green economy respects planetary boundaries, ecological limits and scarcity

The green economy requires good governance and uses integrated environmental, social

and economic decision making

Good governance

Integrated decision making

The green economy internalises externalities; stimulates green investment, innovation and

behaviour; and incentives sustainable consumption

Remove harmful subsidies

Internalise externalities

Green investment

Green innovation

Sustainable consumption

The green economy invests in greening economic activity and infrastructure Sustainable production

Green Infrastructure

The green economy is resource and energy efficient Energy efficiency

Water use efficiency

Materials use efficiency

The green economy is low carbon, low emissions, and zero waste Low carbon

Zero waste

Air quality

Water quality

The green economy protects biodiversity and ecosystems Investment in natural capital

Biodiversity

Ecosystems

The green economy delivers poverty reduction, well‐being, livelihoods, social protection and

access to essential services

Poverty alleviation

Meeting basic needs

Investment in human capital

Subjective well-being

The green economy should create decent work and green jobs Job creation

Decent work

The green economy is equitable, fair and just – between and within countries and between

generations.

Intra-generational equity

Inter-generational equity

International institutional reform

Criterion IndicatorGood governance Average across the World Bank’s 6 Governance Indicators

Remove harmful subsidies Fossil fuel subsidies as a % of GDP

Internalise externalities Environment-related subsidies as a % of total subsidies or GDP

Green investment Environment-related/renewable energy investment as a % of total

Green innovation Patents in environment-related technologies as a % of total

Sustainable production Organic farming area as % of total agricultural area

Green infrastructure Share of renewable energy in Total Primary Energy Supply (TPES) (%)

Sustainable consumption Ecological footprint (global hectares per capita)

Energy efficiency Energy consumption per capita (gigajoules per capita per annum)

Water use efficiency Water withdrawals per capita (m3 per capita per annum)

Materials use efficiency Domestic materials consumption (per capita or per unit GDP)

Low carbon Greenhouse gas emissions per capita (tCO2e per capita per annum)

Zero waste Waste disposal per capita (kg per capita per annum)

Air quality Index based on indoor air pollution, particulate matter and SO2 emissions

Water quality Index of Dissolved O2, Electrical Conductivity, pH, Phosphorus, and Nitrogen

Investment in natural capital Marine and terrestrial protected areas as a % of total territorial area

Biodiversity Proportion of species threatened with extinction

Ecosystems Area under agriculture and commercial forestry as % of total land area

Poverty alleviation Poverty gap at $2 a day

Meeting basic needs Average score over MDG indicators on adequate nutrition, water and sanitation

Investment in human capital Human Development Index (HDI)

Subjective well-being Self-reported overall life satisfaction

Job creation Employment to working age population ratio

Decent work Index of relevant International Labour Organisation (ILO) Decent Work indicators

Intra-generational equity Gini coefficient of income distribution

Inter-generational equity Adjusted Net Savings (aka Genuine Savings) as % of Gross National Income (GNI)

Approach continued

• Collected data on each of the 26 indicators for 193 UN member states

• 6 indicators and 49 countries were dropped from the sample owing to

systematic data deficiencies

• Initial assessment therefore conducted based on data on 20 indicators for

144 countries

• Imputed missing data using region- or income-level specific averages, as

appropriate

• Normalised raw data to scale of 0-10 (to account for different scales,

ranges and directional influence of different indicators), using min-max

approach:

– Where higher raw values are desirable: 𝑥𝑖′ =

𝑥𝑖 −min 𝑥

max 𝑥 −min 𝑥

– Where lower raw values are desirable: 𝑥𝑖′ =max 𝑥 − 𝑥𝑖

max 𝑥 −min(𝑥)

Approach continued

• Weighting of indicators:

– Necessary to reflect differences in importance of each component to the

concept as a whole, and to ensure appropriate balance across dimensions

– Should be based on extensive stakeholder engagement

– In this case, ‘stakeholders’ would include citizens of all countries, with vastly

differing contexts – universally applicable set of weights not possible

– Therefore assumed an equal weighting of indicators

– However, if intention is to develop a composite well-being index for Africa,

then weighting process would be appropriate and potentially achievable

• Aggregation of normalised scores across the indicators to composite

index score

• Ranking and disaggregation

Preliminary rankings – how does SA measure up?

Rank

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Switzerland 1 6.49 8.4 8.1 5.8 1.9 3.3 3.3 6.4 5.7 8.6 8.7 9.9 6.6 2.9 9.9 9.6 9.1 7.5 4.2 4.4 5.5

Austria 2 6.36 8.0 9.6 9.8 2.7 1.9 1.8 5.5 4.3 8.5 9.5 9.2 4.6 3.6 9.9 9.6 9.0 7.5 3.0 5.1 4.0

Sweden 3 6.32 8.6 8.0 7.7 3.4 0.0 0.0 7.1 5.1 8.3 9.6 4.0 7.4 7.4 9.9 9.6 9.2 7.5 3.2 5.8 4.7

Latvia 4 6.02 6.2 7.6 5.2 3.6 0.0 5.5 8.2 6.7 7.0 9.1 6.6 7.8 5.1 9.9 7.9 8.1 5.0 1.9 4.2 4.6

Norway 5 5.96 8.4 8.1 2.7 3.6 0.0 0.0 3.8 4.5 8.3 9.5 4.3 6.6 8.4 9.9 9.6 9.6 7.6 4.0 5.7 4.8

South Africa 137 3.81 5.5 5.8 0.0 1.1 6.3 4.1 7.3 3.7 3.7 8.4 2.8 2.0 0.0 7.1 7.0 6.3 4.7 0.0 0.0 0.4

Uzbekistan 140 3.58 2.4 0.0 0.0 0.2 7.7 6.6 0.0 5.1 3.5 3.8 0.9 5.4 2.0 5.6 8.6 6.5 5.1 2.4 3.9 1.8

Madagascar 141 3.53 3.6 6.9 0.0 8.6 3.6 9.2 0.0 6.9 5.0 4.8 1.0 0.0 1.5 0.0 0.0 4.8 4.4 7.3 2.6 0.4

Kazakhstan 142 3.53 3.8 3.0 0.0 0.1 4.6 0.1 0.0 2.1 3.3 4.3 1.0 5.6 0.8 9.9 9.0 7.5 5.5 4.6 5.2 0.0

Yemen 143 3.48 2.3 0.1 0.9 0.1 7.8 9.3 8.4 7.8 3.1 4.5 0.3 1.6 4.6 5.8 0.8 4.6 3.7 0.2 3.7 0.0

Turkmenistan 144 3.00 2.2 0.0 0.9 0.0 4.7 0.0 0.0 0.4 5.7 4.5 1.2 6.3 1.7 4.7 7.4 7.0 5.8 2.4 3.2 1.8

Lessons

• Results are sensitive to selection (and weighting) of indicators; and

quality of the data (outdated in some cases)

• Need to better differentiate between ‘input’ and ‘outcome’ indicators

• Overall score and rank are less important than progress over time and

scores on individual indicators (identifying strengths and weaknesses)

• Composite measures designed to be universally applicable are useful for

ranking/comparison purposes only

• Policy/decision making should be based on measures of well-being that

take into account what matters to people in that context – not on how well

we are doing on a global ‘league table’

• Need for thorough stakeholder engagement to identify and weight

dimensions & indicators / PCIs

• Should be able to be integrated into policy/project planning & decision

making processes (design, assessment and monitoring), at various levels

(national/provincial/local/project)

Conclusions

• Point here is not the specific PCI’s used in the GEI, but rather to

discuss a potential process that can be followed in developing a

dashboard or index of wellbeing for Africa

• Assuming that consensus can be reached on what constitutes

well-being in the context of Africa, and assuming that each

component or dimension can be measured by one or more

indicators, it is in principle possible to develop a composite well-

being index for Africa

• Similar process could perhaps be followed as was the case in

Bhutan – i.e. identify the dimensions of well-being (with

stakeholders) and identify or develop suitable indicators

• Could then be integrated into the policy/project decision making

process to ensure that all new proposed policies/ projects will in

fact contribute towards improving well-being

Thank you!

Questions / Discussion

Anton Nahman

Tel: +27 (0) 21 888 2403

Email: anahman@csir.co.za

Senior environmental economist

CSIR