Chasing ProgressBeyond measuring economic growth

The power of well-being 1

That’s why the year-on-yearperformance of the Gross DomesticProduct (GDP) continues todominate national policy andfascinate the media. But a newcomposite Measure of DomesticProgress (MDP) – designed to factorin the environmental and socialcosts of growth – highlights how faroff-track we might be in ourrelentless pursuit of GDP (Figure 1).The results are salutary:

• GDP has soared in the last 50 years;but MDP has struggled to take off atall.

• The divergence is especiallytransparent over the last 30 years:GDP increased by 80 per cent, butMDP fell sharply during the 1980sand has not yet regained its 1976peak.

• In spite of improvements in air andwater quality, environmental costshave risen by 300 per cent in the lasthalf century (Figure 3).

• Social costs have risen 600 per centin the same period with a staggering13-fold increase in the costs of crimeand a four-fold increase in the costsof family breakdown (Figure 4).

• The Labour Government has so farfailed to curb income inequality whichrose by a factor of seven during thelast 50 years.

• MDP bears a closer resemblance tolife-satisfaction data – which has notrisen for 30 years (Figure 5) – than itdoes to GDP.

• The ‘hidden’ costs of future climatechange and resource depletionconstitute a continuing threat to long-term economic stability.

In short, the persistent divergence of MDP from GDP raises difficultquestions for the Government’sSustainable Development Strategy,and casts serious doubts on themyth of economic progress.

Growth is on track…There’s little doubt about it: We areliving in an age of unprecedentedeconomic prosperity. The nationalincome has tripled, in real terms, inthe course of only half a century. Weare three times better off than ourgrandparents were and it shows.Higher incomes, warmer homes,wider choice, better communications,faster cars, newer gadgets: theseare the windfalls from anextraordinary surge in consumerspending over the last few decades.And like the election theme song onwhich this Government came topower, it really does seem like‘things can only get better’.

…but what about quality of life? But as everyone from MahatmaGandhi to cult pop-group the Black-eyed Peas (and even Tony Blair)has pointed out, more isn’t alwaysbetter. Too much food makes thenation obese. Burgeoning traffic leavesthe roads congested. More guns makeour streets unsafe. Endless choiceleaves us hurried and harried.Mountains of waste leave our tips over-flowing. Burning too much carbonthreatens our climate. Excessivecommercialism erodes social valueand strips our lives of meaning.No one can deny that we’rewitnessing an extraordinary period of economic prosperity. But

sustained growth is not the samething as sustainable growth, even ineconomic terms. And when it comesto environmental and social well-being, it isn’t growth so much as thequality of our lives and the health ofour environment that counts. TheLabour Government has explicitlyrecognised this. In the foreword tothe UK’s Strategy for SustainableDevelopment, entitled quite simply A Better Quality of Life, Tony Blairacknowledged:

‘We have failed to see how our economy, ourenvironment and our society are all one. Andthat delivering the best possible quality of lifefor us all means more than concentratingsolely on economic growth..’

The report argues that ‘achieving a better quality of life, now and forgenerations to come’ means meetingfour simultaneous objectives:

• Social progress that meets the needs of everyone.

• Effective protection of the environment.

• Prudent use of natural resources.

• Maintenance of high and stable levels of economic growth and employment.

Each of these objectives ischallenging in its own right. ThisGovernment came to power, in partat least, because the Tories failed todeliver on key social goals and leftwhole sections of the community outof the growth bonanza. Moreover,failures to protect the global climate,the ozone layer, water quality in ourrivers and air quality in our citieshave haunted successivegovernments for decades.

So how are we to set aboutachieving these demanding goals?Are they even achievablesimultaneously? This is theenormous challenge of sustainabledevelopment in the 21st Century, andit’s far from having been overcome.

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Chasing Progress2

Every society clings to a myth by which it lives; ours is the myth of economic progress.

Chasing Progress3

Measuring progress It is scarcely news, of course, thatGDP is not a very good measure ofprogress. Even in the 1960s, the lateSenator Robert Kennedy warnedthat the GDP:

‘is indifferent to the decency of our factoriesand the safety of streets alike. It does notinclude the beauty of our poetry or thestrength of our marriages, the intelligence ofour public debate or the integrity of our publicofficials. The [GDP] measures neither our witnor our courage, neither our wisdom nor ourlearning, neither our compassion nor ourdevotion to our country. It measureseverything, in short, except that which makeslife worthwhile.’

Economists and politicians alike havebeen slow to accept this indictment,and the relentless pursuit of GDP hasbeen a defining characteristic of UKpolitics over the last 50 years. That’swhy the Government’s Strategy forSustainable Development representssuch a profound departure fromconventional thinking. But havingaccepted, as Labour did, that growthby itself will not deliver quality of life,the question remains: how do wemeasure our progress towards thismore elusive goal?

One approach is to adjust existingmeasures of growth to account for a variety of costs and benefits notusually factored into them. As a stepin this direction, nef (the neweconomics foundation) has calculated a new ‘Measure ofDomestic Progress’ (MDP), designedto reflect our progress towardssustainable development by includingeconomic progress, environmentalcosts, resource depletion and socialfactors in a single composite measure(see What is MDP). Combinedtogether these contributions provide apowerful indication of trends over timein relation to the Government’ssustainability objectives.

But the results of the exercise makefor uncomfortable reading. Thefollowing key statistics illustrate agrowing divergence between GDPand MDP over the last half century:

• GDP per capita has tripled since 1950,but MDP has not yet doubled.

• GDP rose by 80 per cent since 1975alone: but MDP fell consistently during the1980s and has struggled to return to itsmid-1970s peak.

• The average growth rate in MDP was barelyhalf that of GDP over the last 50 years.

• Environmental costs have increased by300 per cent since 1950; and social costsby 600 per cent.

• MDP has staged something of a revival inthe last decade, growing faster than GDP attimes but progress appears to have falteredover the last two years of the study.

When it comes to assessing ourprogress towards the Government’ssustainability objectives, the MDP isa potentially useful tool because it ispossible to unpack the compositeindex into different sustainabilityfactors. Figure 2 shows a series ofadjustments subtracted in turn fromGDP to arrive at the MDP index.This analysis reveals that socialcosts, environmental costs andresource depletion have all played a significant part in depressing theindex below the GDP measure.

Cleaner and greener? Most striking of these effects is therole played by environmental costs.For long periods of time, theseconstitute the single largestadjustment to the measure. But howdoes this square with governmentclaims that our factories are moreefficient than they used to be, ourrivers cleaner, and our citiesgreener? As Figure 3 illustrates,these claims are partly true. In fact,environmental policies put in placefrom the 1970s onwards, howeverunpopular they may have been at

the time, have had a key role inreducing levels of polluting emissionsinto the atmosphere and into rivers.And as a result air pollution andwater pollution costs have declinedby around 50 per cent since the early 1990s.

But there is little room for complacencyhere. These important gains are over-shadowed by other moreintractable costs: the slow loss ofproductive rural land and naturalhabitats, the continuing depletion of mineral resources, and the rising‘hidden’ costs of climate change.

These hidden costs are differentfrom many of the other costsincluded in the MDP: we do not feeltheir impact now. The brunt of thesecosts will be borne by futuregenerations. Recent policies tocombat climate change will reducethe rate at which these future costsaccumulate. But our cumulative debtto future generations now stands650 per cent higher today than itwas in 1950 – even though it hasbeen ‘discounted’ here to take intoaccount the fact that the costs fallmainly in the future.

Our current attitude towards thesefuture costs is a bit like taking out anendowment policy to pay off amortgage and then forgetting to paythe premiums. As each year passes,the amount we ought to be puttingaside to make the eventualrepayment just goes on gettingbigger. One day it will be too late; themortgage company will repossessthe property. And at some point thecosts of climate change may deraileconomic stability altogether.

Lost in translation? So what about social progress? Are we any more successful in ourpursuit of this objective? Undeniably,we have seen signs of social

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Figure 3: Environmental costs of progress

Chasing Progress4

improvement over the last fewdecades. Aside from the higheraverage standard of living thateconomic growth delivers, longevityhas increased slightly andunemployment has fallen since the mid-1970s.

Paradoxically, however, for a rulingparty founded in social ideals andcommitted to reducing socialexclusion, the story is notunequivocally positive. Crime,inequality and the costs of familybreakdown (Figure 4) have all growndramatically over the period. And inspite of manifesto commitments tobe ‘tough on crime and tough on thecauses of crime’ and to protectvulnerable families and communities,the years of Labour rule have not yetmanaged to turn this trend around.

To be fair, some efforts were made.The Cabinet Office Social ExclusionUnit, for example, has put out reportafter report aimed at reducingpoverty, and tackling inequalities inaccess to important basic services.But the sad truth is that the loss incollective well-being associated withthe unequal distribution of ourincomes has increased by 600 percent over the period and shows noimmediate signs of abating underLabour rule.

Even this trend is dwarfed, however,by the 13-fold increase in crime overthe last 50 years. And here thepattern is even more worrying.Crime peaked in 1992 and coststhen fell consistently for seven yearsin a row. But after this brief respite,they began to rise again sharply,mainly as a result of a disturbingincrease in violent crimes.

Some kind of social progress isnoticeable in relation to familystability. The divorce rate peaked in1993, albeit at a level that was five

and half times the divorce rate in1950. In the subsequent decade, itappeared to stabilise and even fallslightly, leading to a decline in thesocial and psychological costsassociated with family breakdown.But even here, the last couple ofyears have witnessed a worryingreversal of the previous positive trend.

So what became of those Labourpledges? Is it just that more time isneeded before the impacts ofpolicies already in place begin totake effect? Is it that the manifestocommitments were nothing morethan ‘sound and fury’, signifyingnothing in terms of real progress? Or is it possible that something evenmore insidious is happening?

Chasing progressCould it be that economic growth, and our unquestioned allegiance to it, blind us to the social andenvironmental implications ofprotecting and promoting it? Tocreate more and more growth weneed more and more consumption.To achieve more and moreconsumption, we need to keepbuying more and more stuff. But whatif more and more stuff doesn’t lead tohappy families and fulfilling lives?

This is precisely the suggestion thatarises from yet another important setof data. Quantitative measures ofsubjective well-being (SWB) or ‘life-satisfaction’ have shown preciouslittle movement over the last 30 years(Figure 5), prompting some tospeculate that the pursuit of socialprogress is a little like trying to run upthe down-escalator. Or like the RedQueen in Lewis Carroll’s classicThrough the Looking Glass: we’rerunning faster and faster; but we seemto end up in exactly the same place.

Could it even be that the institutionalstructure of growth creation isincompatible with key dimensions ofsocial progress? Forty years ago,the economist Simon Kuznetsproposed that rising incomeinequality was an inevitableconsequence of the early stages ofeconomic growth. He predicted,however, that beyond a certainstage, inequality would begin to fallagain. The only trouble is it clearlyhasn’t; and perhaps it simply can’t.

Bolstering the economic miracle ofthe last 50 years now appears torequire continued access to cheapcredit, low taxation levels, and thewhipping up of material desires in theincreasingly affluent middle classes.But what happens when cheap creditencourages bad debt? What happenswhen low taxation restricts the publicpurse? And what happens whenunbridled materialism leads to thegradual erosion of social values?

There is, in the current climate, noreal alternative to economic growththat doesn’t involve the risk of evengreater hardships for the mostvulnerable in our society. And yet,perhaps what the history of the last50 years is telling us is that we haveto start thinking the unthinkable. Themyth of economic growth is frayed atthe edges and the promise of socialand environmental progress is one ofthe first casualties of its dereliction.

Beyond the mirageEvery society has a cultural myth bywhich it lives; ours is the myth ofeconomic progress. So long as thenational income continues to rise,we feel safe in assuming not justthat we are doing well, but that weare living better than our parents orour grandparents did; that we areprogressing – not just as individualsbut as a society.

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Chasing Progress5

In all probability most of us feel somecomfort in that belief. And whyshouldn’t we? One of the roles ofcultural myth is to furnish us with asense of meaning and providecontinuity in our lives. But a societythat allows itself to be steered by afaulty myth risks foundering on theshores of harsh reality. This is thedanger that the MDP is pointing ustowards: economic growth is runningunacceptable environmental risks,doesn’t guarantee social progress,and isn’t even making us any happier.

nef is not alone in highlighting thisissue. A recent Cabinet Office reporton life-satisfaction alerted theGovernment to the well-beingparadox: life-satisfaction is resolutelystatic in spite of continuing economicgrowth. Last year the SustainableDevelopment Commission (SDC)urged the Government to abandonsingle-minded pursuit of growth and‘re-define prosperity’. And as thisbriefing goes to press, the tinykingdom of Bhutan in the Himalayasis hosting an internationalconference to operationalise its ownconcept of ‘gross national happiness’(GNH) in place of GDP.

But what exactly can we do beyondhighlighting the issue? A clearstarting point would be toreformulate the sustainabilityobjectives (as the SDC proposes),and in particular to tease apart theobjective of maintaining fullemployment (which is clearlydesirable) from that of pursuinggrowth (which is problematic atbest). In addition, there arenumerous avenues for improvingsocial progress and promotingenvironmental protection which need not conflict with economicgoals, including:

• Reducing income inequalities andimproving access to basic services.

• Promoting social cohesion by supportinglocal community development.

• Speeding up the transition to a low-carbon society.

• Developing a long-term strategy for theprotection of rural land.

• Re-evaluating the impact of governmentpolicy signals on personal and social well-being and on community values.

• Encouraging and promoting pro-social andpro-environmental consumer behaviour.

• Establishing a protected ‘environmentalfutures’ fund to guard against the futurecosts of climate change.

Perhaps most importantly, there is aclear need to engage in a longer-term debate about the pursuit ofnational well-being, and to devisenew ways of promoting andmeasuring social progress. This mayor may not entail developing our ownconcept of GNH as Bhutan is doing.But if a country of barely two millionpeople who have never witnessedthe level of economic prosperityenjoyed by the affluent West isprepared to engage so creativelywith the subject of human well-being,then perhaps it is time that we did.

AcknowledgementsThis briefing note has been prepared byTim Jackson, an Associate of nef (thenew economics foundation) andProfessor of Sustainable Development atthe University of Surrey. It is based onnumerical analyses carried out by theauthor and colleagues at the Centre forEnvironmental Strategy in the Universityof Surrey. The author is particularlygrateful for help with data collection andcollation from Phil Sinclair and Nic Marks,and for editorial inputs from Hetan Shah,Andrea Westall, Nic Marks and AndrewSimms. nef would like to thank theEnvironmental Research Trust for thefunding which made this work possible.

What is MDP?The MDP is one way of approaching the difficultquestion: how can we measure our progress towards an improved quality of life? There are three mainapproaches to this problem.

The Government’s answer has been to establish a setof 147 separate indicators, measuring things like adultnumeracy and literacy, social investment as apercentage of GDP, crime levels, river quality,populations of wild birds, and so on, as well as the GDPitself. Recognising that such a huge set of indicators isunwieldy, the Government has selected 15 ‘headlineindicators’ from the larger set to represent differentaspects of its four strategic objectives. But even 15indicators can present potentially confusing messagesto policy-makers. What does it mean if seven of theindicators go upwards, and eight go downwards? Is thisbetter or worse than the case in which eight goupwards and seven go downwards? Does it depend onwhich go up and which go down? And how does ourrecent performance (the indicator set is after all only afew years old) compare with longer term trends over thelast 50 years?

A second approach is to measure various dimensionsof subjective well-being (SWB) such as life-satisfactionor happiness (Figure 5). This is a useful and valid wayof assessing some aspects of social progress. Inparticular, it can provide us with a psychological‘snapshot’ of the nation’s ‘mood’ at any one time.Extended measures of well-being, incorporatingdifferent psychological goals such as life fulfilment orpersonal development and accounting for broadersocial or environmental factors show considerable

promise for the future. nef is actively engaged indeveloping this agenda.

A third approach is to construct ‘adjusted’ economicindicators. The MDP falls into this third category.Adjusted economic indicators provide a singleperformance index by adapting conventional economicmeasures such as GDP or consumer expenditure toinclude social and environmental costs and benefitsthat normally lie outside the accounting framework. Avariety of attempts have been made to construct suchindicators over the last 20 years. These includeNordhaus and Tobin’s Measure of Economic Welfare,Daly and Cobb’s Index of Sustainable EconomicWelfare (ISEW), and the Genuine Progress Indicator(GPI) developed by the US-based lobby groupRedefining Progress. The MDP is modelled closely onthese developments and in particular on earlier workby the author and his colleagues to define a UK ISEW.Several additional developments have beenincorporated into this new measure and we have re-labelled it MDP rather than ISEW or GPI becausewe do not believe that a rising MDP either guaranteessustainability or ensures ‘genuine’ progress.

Like the earlier measures, MDP takes as its basisconsumer expenditure in the UK. It then adjusts thisbasis to account for a series of different factors whichaffect domestic progress towards sustainabledevelopment. The key differences between MDP andGDP are that in the MDP:

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• Spending to offset social and environmental costs (defensiveexpenditure) is taken out.

• Longer-term environmental damage and the depreciation ofnatural capital are accounted for.

• A number of economic adjustments associated with ensuringprudent investment and trade balances are made.

• Changes in the distribution of income are accounted for,reflecting the fact that an additional pound in the pocket meansmore to the poor than to the rich.

• A value for household labour is included.

Key differences between MDP and the ISEW are theinclusion in MDP of the costs of crime and familybreakdown, and some adjustments to themethodologies used to account for climate change and resource depletion, in response to criticisms of the earlier work.

Although based on economic assumptions and widelyavailable statistical data sets, the MDP is not a rigorouslydefined economic measure. Neither can it provide arobust reflection of quantitative changes in each of the147 indicators of sustainable development selected bythe Government. It is certainly not a guarantee thatBritain is on course for a sustainable future.

However, it does offer insights that cannot be gleanedfrom a disparate indicator set. In particular, it is clearthat the MDP does reflect the influence of policiesdesigned to affect social progress, economic growth,environmental protection and prudent use of naturalresources. In doing so, it allows us to present asystematic assessment of domestic progress towardssustainable development over a long period of time,and to compare this against GDP.

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Consumer expenditure +ve

Value of services from domestic labour +ve

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health and education +ve

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Net capital growth mainly +ve

Net international position mainly -ve

Effects of inequality in the distribution

of incomes -ve

Defensive private expenditures on health

and education -ve

Costs of commuting -ve

Costs of car accidents -ve

Costs of noise nuisance -ve

Costs of crime -ve

Costs of family breakdown -ve

Costs of personal pollution control -ve

Costs of air pollution -ve

Costs of water pollution -ve

Estimated costs of climate change -ve

Costs of ozone depletion -ve

Loss of natural habitats -ve

Loss of farmlands -ve

Depletion of finite natural resources -ve