Virtual Indicator Exhibition Virtual Indicator Exhibition

Adjusted Net Saving by Alexandra Sears and Giovanni Ruta, The World Bank

What is Adjusted Net Saving? subsistence. Resource dependence complicates the measurement of saving effort because deple- Adjusted net saving measures the true rate of tion of natural resources is not visible in standard saving in an economy after taking into account national accounts. The same is true for pollution investments in human capital, depletion of natu- damages to existing assets. ral resources and damages caused by pollution. Adjusted net saving, known informally as genu- Adjusted net saving overcomes this problem by ine saving, is an indicator aiming at assessing an measuring the change in value of a specifi ed set economy’s sustainability based on the concepts of of assets, excluding capital gains. If a country’s extended national accounts. net saving is positive and the accounting includes a suffi ciently broad range of assets, economic Positive savings allow wealth to grow over time thus theory suggests that the present value of wellbe- ensuring that future generations enjoy at least as ing is increasing. Conversely, persistently nega- many opportunities as current generations. In this tive adjusted net saving indicates that an econo- sense, adjusted net saving seeks to offer policy- my is on an unsustainable path. makers who have committed their countries to a “sustainable” development pathway, an indicator In addition to serving as an indicator of sustain- to track their progress in this endeavor. ability, adjusted net saving has several other advantages as a policy indicator. Adjusted net saving is derived from the standard national accounting measure of gross saving by • It presents resource and environmental making four adjustments: issues within a framework that fi nance and development planning ministries can (i) consumption of fi xed capital is deducted to understand. obtain net national saving; • It reinforces the need to boost domestic (ii) current public expenditure on education is savings, and hence the need for sound added to account for investment in human macroeconomic policies. capital; • It highlights the fi scal aspects of environ- (iii) estimates of the depletion of variety of ment and natural resource management, natural resources are deducted to refl ect since collecting resource royalties and charg- the decline in asset values associated with ing pollution taxes are basic ways to ensure extraction and depletion; effi cient use of environmental resources. (iv) deductions are made for damages from carbon dioxide and particulate emissions. History of the Indicator Gross national saving – Consumption of fi xed capital = Net National Saving + Education Expenditure The publication of the Brundtland Commission – Energy depletion – Mineral depletion – Net forest report in 1987 introduced a critical new dimen- depletion – Damage form carbon dioxide emissions sion to our conception of economic development – Damage from particulate emissions = Adjusted by raising the issue of sustainability of develop- net saving ment. The United Nations Conference on Environ- ment and Development (the Rio Conference) in The indicator is measured in percentage by 1992 helped to cement this understanding and dividing ANS by GNI. prompted most countries to commit to achieving sustainable development. Achieving sustainable development is at heart a process of creating and The Need for Adjusted Net Saving maintaining wealth.

Saving is a core aspect of development. Without Wealth is more than the value of produced assets. the creation of a surplus for investment, there is It includes natural resources, healthy ecosystems, no way for countries to escape a state of low-level and human resources. The measurement of com-

228 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Adjusted Net Saving as percentage of GNI

prehensive wealth falls entirely in the realm As part of this reporting effort, the World Bank of integrated economic and environmental ac- launched, Where is the Wealth counting or green national accounting – and of Nations? (World Bank, suggests that expanding our traditional nation- 2006), which offers new esti- al accounting measures of savings and wealth mates of total wealth, includ- could be an important step in guiding policies ing produced capital, natural for sustainable development. resources, the value of human skills and capabilities, and indicators Virtual The idea that saving, or changes in wealth, is updated measures of saving. crucial for sustainability is already present in Blueprint for a Green Economy (Pearce et al (1989)). But it is in Pearce and Atkinson (1993) Challenges that the concept is introduced formally.

We should be cautious in interpreting a posi- Indicator Exhibition Virtual Pearce and Atkinson combine published es- tive genuine saving rate. Some important as- timates of depletion and degradation for 20 sets from the analysis are omitted for meth- countries with standard national accounting odological and empirical reasons, which may data to examine true savings behavior. By this mean that saving rates are only apparently measure many countries appear to be unsus- positive. Challenges include: tainable because their gross savings are less than the combined sum of conventional capital • Lack of data (i.e. underground water, land depreciation and natural resource depletion. degradation, ﬁ sh stocks, diamonds) • Lack of methods (i.e. how can we put a value Hamilton and Clemens (1999) provide a theoret- on biodiversity) ical foundation and empirical evidence showing • Measurement errors that levels of saving are negative in a wide range of countries when the environment and natural resources are included in the savings measure. The Path to Sustainability Negative genuine saving is more than a theoretical possibility, therefore, and the evidence is The following graphs illustrate the directions that many countries particularly in Sub-Saharan Malaysia and Venezuela are taking on the path Africa are being progressively impoverished as a to sustainable development. result of poor government policies. In Malaysia, positive saving has been associat- The World Bank has a 35-year time series of ed with substantial growth leading the country ANS estimates which has permitted empiri- to become an important example of success in cal tests of whether net saving today does in East Asia. In Venezuela, negative saving rates fact translate into future increases in wellbe- have been associated with a poor rate of eco- ing. Ferreira and Vincent (2005) show that nomic growth. Between 1980 and 2006, the this relationship holds if the sample is limited country has experienced one of the slowest to developing countries only; Ferreira et al. growth rates in Latin America. (forthcoming) show that these results can be extended to incorporate the wealth-diluting effects of population growth. Adjusted Net Saving for Malaysia

50 Today, the World Bank publishes two important sources of indica- 40 tors that provide an annual snapshot of progress in the developing 30 world: The Little Green Data Book 20 and World Development Indicators. These indicators allow us to assess 10 the scope of the problems we face 0 1980 1990 2000 and measure progress in solving them. Both set of publications fea- Gross savings (% of GNI) Adjusted net savings (% of GNI) ture the ANS indicator. Net national savings (% of GNI)

229 19 & 20 November 2007 Virtual Indicator Exhibition

Adjusted Net Saving for Venezuela Additional Resources:

50 • Adjusted Net Saving Web Page 40 30 (World Bank) (ﬁ nd everything from tools, 20 papers, and data to manuals) 10 http://go.worldbank.org/3AWKN2ZOY0 0 • For a full set of publications on -10 Green Accounting please visit -20 -30 our Publications Site 1980 1990 2000

Gross savings (% of GNI) Adjusted net savings (% of GNI) Net national savings (% of GNI)

* For an Interactive Tool on obtaining the ANS References: for every country, please go to http://go.worldbank.org/7QFHSRIE40 • Ferreira, S. and J. Vincent, 2005. Genuine Savings: Leading Indicator of Sustainable Development? Economic Next Steps Development and Cultural Change 53(3):737-54. A number of efforts are currently underway to • Ferreira, S., K. Hamilton and J. Vincent, strengthen the measurement of adjusted net (forthcoming). Comprehensive Wealth saving. These include: and Future Consumption: Accounting for Population Growth. • Updating methods to estimate energy and World Bank Economic Review. mineral extraction costs and their evolution • Hamilton, K. and M. Clemens. 1999. over time. This is necessary to correctly mea- “Genuine Savings Rates in Developing sure the value of energy and mineral resource Countries.” World Bank Economic Review, depletion, which constitute a major deduction 13, No. 2, 333-56. to saving and a large source of rents for many • Pearce, D., A. Markandya, E. Barbier. 1989. developing countries. Extraction costs are not “Blueprint for a Green Economy.” usually available and must be estimated using London: Earthscan. scattered data from extractive companies. • Pearce, D. and G. Atkinson. 1993. “Capital Theory and the Measurement of • Adjusting for population growth. While nega- Sustainable Development: An Indicator of tive saving rates are an indication of unsustain- Weak Sustainability.” Ecological Economics ability, positive saving rates may be masking 8: 103-8. a potential source of unsustainabiliy if popula- • World Bank. 2006. Where is the Wealth of tion is growing fast enough. Population growth Nations? Washington, DC: The World Bank. dilutes the effect of capital accumulation as it • www.worldbank.org/environmentalindicators increases the number of people that share the country’s total wealth. Estimates of changes in wealth per capita are presented in World Bank (2006). Numbers for Ghana, for example, show that it is possible to have positive genuine saving but declining wealth per person.

Areas for which future work is needed include the improving of estimates of the investments in human capital. Genuine saving treats public education expenditures as an addition to the saving effort. However, current expenditure of $1 on education does not necessarily yield $1 of human capital. The calculation should capture the varying effectiveness of education expenditure, include private expenditure, and value the depreciation of human capital.

230 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Canadian Index of Wellbeing

Canadian Index of Wellbeing (CIW) by Lynne Slotek, CIW National Project Director

The Canadian Index of Wellbeing drive people to distraction, it’s no wonder that so A Transformational Initiative many Canadians are feeling that the rosy economic picture presented in the news is at odds indicators Virtual The Canadian Index of Wellbeing (CIW) is a new with what they know to be our everyday reality. and transformational initiative that will report on the quality of life of Canadians. It is our hope Even within the limited scope of the economy, that it will one day become Canada’s principle the GDP fails to distinguish between economic means of measuring genuine progress. activities that are beneﬁ cial and those that

are harmful to our overall wellbeing. The sale Indicator Exhibition Virtual The CIW will chart and provide unique insights of cigarettes and trans-fat-loaded fast foods, into how the lives of Canadians are getting for example, causes the GDP to go up, but no better or worse in areas that really matter to: one would really argue that this is good for our our health, our standard of living, the quality wellbeing. of our environment, the way we use our time, our education and skill levels, the vitality of our The CIW will treat benefi cial activities as communities, our participation in the demo- assets and harmful ones as defi cits. It will, for cratic process, and the state of our arts and example: culture. Most importantly, the CIW will shine • distinguish between good things like health a spotlight on how these important areas are and clean air, and bad things, like sickness interconnected. How, for example, changes in and pollution; income are linked to changes in health, or how community engagement and living standards • promote volunteer work and unpaid care- are connected. giving as social goods, and overwork and stress as social defi cits; The CIW is being built by the CIW Network – a partnership of national indicator experts and • put a value on educational achievement, practitioners together with business and civic early childhood learning, economic and leaders, and representation from government personal security, a clean environment, and and grass roots organizations across the country social and health equity; and in consultation with international experts. Our goal is to help refocus the political discourse in • encourage a better balance between in- Canada, reshape the direction of public policy, vestment in health promotion and spending pinpoint policy options and solutions that will on illness treatment. genuinely improve the wellbeing of Canadians, and give Canadians a tool to promote wellbeing with policy shapers and decision makers. Description of the CIW Model

The CIW will track changes in eight quality-of-life Why Canada Needs National Indicators domains. The development of each domain is under the leadership of world-class experts and In Canada, as in much of the world, the most backed by rigorous Canadian and international commonly cited measurement of progress is the peer review and public consultation. GDP but there is a growing awareness among Canadians that the GDP focuses on a narrow The following are the working deﬁ nitions that set of economic issues. By relying on such a have been adopted for each of the domains: limited perspective, it fails to capture many of the things that really matter to Canadians. As Living Standards measures the quality and the natural environment is depleted, the gap quantity of goods and services, both public and between rich and poor grows, chronic diseases private, available to the population, and the skyrocket, life for Canada’s Aboriginal peoples distribution of these goods and services within fails to improve, and the pressures of time stress the population.

231 19 & 20 November 2007 Virtual Indicator Exhibition

Healthy Populations measures the physical and mental wellbeing of the population — experiencing disease, dis- ability and delaying death, lifestyles people lead, and care people receive. Healthy Populations

Educated Populace measures the lit- Living Standards Community Vitality eracy and skill levels of the population, including the ability to function in various societal contexts and plan for and adapt to future situations.

Time Use Community Vitality measures the Civic Engagement CIW Composite Index strength, activity and inclusiveness of relationships among residents, private sector, public sector and voluntary organizations. Arts and Culture Educated Populace Ecosystem Health measures the state of wellbeing and integrity of the natural environment. This includes the sustain- Ecosystem Health ability of Canada’s natural resources and the capacity of ecosystems and water- sheds to provide a sustained level of ecological goods and services for the wellbeing of humans and other species. A Short History Civic Engagement measures the health of Canadian democracy. It addresses three aspects In 1999, The Atkinson Charitable Foundation (ACF), of public life and the governance of society: How a prominent Canadian foundation, recognized the engaged are citizens in public life and governance? need for a credible national voice to measure Do Canadian governments function in an open, the economic, health, social and environmental transparent, effective, fair, equitable, and accessi- progress of Canadians. The ACF convened a group ble manner? And are Canadians, their governments of index experts from across Canada, including and their corporations good global citizens? Statistics Canada, to discuss what it would take to create such a voice. Time Use measures the use of time, how people experience time, what controls its use, and how Following a number of years of public consulta- it affects wellbeing. tions, research and development, a pan-Canadian National Research and Development Working Group Arts and Culture (working concept and not a was established in May 2004, and from 2005-2007 defi nition) measures activity in both the very broad held annual two-day working meetings, and devel- area of culture, which covers all forms of human oped the CIW model. In November 2005, an initial expression, and in the much more focused area of model was presented to a workshop led by compos- arts, which includes performing arts, visual arts, ite index experts from the Joint Research Centre of media arts, and art facilities and institutes. the European Commission, and received favourable reviews. The model was further tested through two The domains will be blended into a composite rounds of cross-Canada stakeholder roundtables index that will provide a quick snapshot of whether in 2006 and 2007, and further modifi ed. overall Canadian wellbeing is changing for better or for worse. CIW reports will present detailed information on both the composite index and the Current Status individual domains. The CIW’s ‘basket’ of domains will be reported regularly with clarity about trends The CIW model will shortly be reviewed by inde- and interrelated stories (e.g., “While X is on the pendent validation groups consisting of national rise, it is interesting to note that Y is fl at, and Z is and international experts who have not been declining. Possible explanations include...”). involved with the project. Reports have been pre-

232 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Capability Index

pared on three domains: Living Standards, In the meantime, the CIW Network is viewed Healthy Populations, and Community Vitality. internationally as a global pioneer in developing These reports will also be reviewed by valida- a holistic, integrated approach to measuring tion groups and updated for release. Further wellbeing. Because of this position of leadership, development and reﬁ nement of the models for we are often invited to partner with experts in Educated Populace, Ecosystem Health and Time other countries and participate in international Use domains is underway. Work on the Civic conferences to help build this important global Engagement and Arts and Culture domains will movement. These connections are important begin in 2008. in raising the benchmark of research and data indicators Virtual integrity and changing the global dialogue about genuine progress. Our continued contribution on The Future the international scene will not only strengthen the CIW project in Canada, but at the same The CIW will be publicly launched at a high-proﬁ le time, give the project access to the best inter- event in the next year or so. national minds. Indicator Exhibition Virtual

Capability Index by Ingrid Robeyns, Radboud University Nijmegen, The Netherlands and Robert van der Veen, University of Amsterdam, The Netherlands

Need for a capability approach In opposition to this view, the utilitarian tradition to quality of life identifi es quality of life (or in effect synony- mously: well-being) with a metric of subjective Several approaches exist to conceptualise utility – which is often measured as happiness and measure ‘quality of life’ (as is refl ected in or alternatively life satisfaction. The happiness the large diversity of indicators in this Virtual indices in this Virtual Exhibition are examples Exhibition). What quality of life is, is not merely of the utilitarian approach. a philosophical issue. The practical implications of different theories on what constitutes quality The third approach understands life quality as of life lead to diverging recommendations on a set of capabilities, that is to say of real pos- what, if anything, government should undertake sibilities for people to function effectively in to promote it, and also give rise to distinct ideas diverse domains of social life, in accordance concerning the design of social and economic with their own views of the valuable life in institutions. Three theoretical approaches to terms of one’s ‘doing and being’. According quality of life can be distinguished that argue to the capability approach, the government is for a distinct interpretation of the substantive tasked to make available the resources which content of life quality. are necessary for the capabilities of individuals. This concerns both individual and collective The fi rst of these approaches is the liberal resources. We claim that on theoretical grounds resource approach: people need access to cer- the capability approach is to be preferred as the tain resources, in order to become capable of foundation for a measure of quality of life. At developing and pursuing their own conceptions the request of the Netherlands Environmental of the good life, by deploying their resource Assessment Agency (MNP), we have developed shares autonomously within the boundaries of initial ideas for a capability index that measures equitable social institutions. An example of an quality of life (see Robeyns and van der Veen, index representing a narrow view of resources 2007, http://www.mnp.nl/en/publications/2007/ is GDP. Sustainablequalityofl ife.html).

233 19 & 20 November 2007 Virtual Indicator Exhibition

Situating the capability approach are presented as outputs of the all-purpose means at the resource end. However, there are two dif- Figure 1 presents the causal relations between the ferences. First of all, capabilities and functionings three approaches to quality of life. are outputs that can be intersubjectively identifi ed only within a given society, in open discussion. We should debate and discuss their relevance, for the notion of life quality is not intercultur- ally and universally Figure 1: The direction of causal relations between determinable by philosophical refl ection. By con- resources, capabilities, and subjective well-being. trast, happiness, life satisfaction, or satisfaction on domains, are purely subjective outputs of persons’ resource utilisations. However, secondly, in so far as life satisfaction issues from the way in which The resource-based approach holds that the ‘qual- people experience their opportunities to function, ity of life’ is what people do with their resources. and their actual functioning levels, it is also a Questions about the content of the quality of life causal output of functionings and capabilities. For are not considered to be a legitimate task of the as fi gure 1 shows, functionings and capabilities are government, which needs to be neutral between situated as intermediating between resources and the divergent views that people have about the subjective well-being. good life. The government needs to restrict its care to guaranteeing access to collective resources and Next, it is important to note that capabilities -the to regulate entitlements to individual resources, real opportunities to function effectively can have and it ought not to impose its own views about a strong effect on life satisfaction, independently the appropriate use of those resources. of the satisfaction that people derive from their actual functioning. Even the secure knowledge The capability approach holds that resources are that certain opportunities are open to persons important inputs for the quality of life, but that the can have a positive effect on their happiness. The quality of life itself is captured by the functionings presence of these capabilities subsequently pro- and capabilities of individuals. In contrast to liberal- duces subjective well-being, quite apart from the ism, which doesn’t want to go beyond identifying choices that citizens actually make to divide their resources that can be used for a wide range of goals, time over political participation and other activi- the capability approach argues that a debate about ties that generate life satisfaction. The capability the general and specifi c opportunities to shape our approach thus allows that causal relations between lives surely lies within the legitimate domain of the resources and subjective well-being follow differ- government. The subjective well-being approach ent chains. Thus, even if one ultimately prefers a agrees with the view that resources are means for subjective approach to the quality of life, it may multiple goals, but in addition holds that the only still be important to examine functionings and neutral indicator for judging how well people fare capabilities, as is in fact being done in some of the in their achievement of those goals, is their life literature. A similar observation holds for those satisfaction. This is why the subjective well-being who prefer the resource-based approach to life situates quality of life at the righthand end of the quality. For it is by no means immediately evident causal scheme of fi gure 1. Thus the subjective what types of resources are actually required for approach holds that it is the government’s duty people to realize their own and diverse conceptions to advance ‘happiness’ or ‘life-satisfaction’, even of the good life. though not all variants endorse giving an absolute priority to the utilitarian master principle of maxi- mizing average life satisfaction. Against this, the Towards a capability index capability approach argues, on ontological grounds, that subjective well-being cannot be regarded as We propose the following list of capabilities in a the ultimate measure of the quality of life, but range of domains that we believe should be included should rather be seen as a (undoubtedly desirable) in a policy-relevant index of life quality (see Robeyns by-product. In the scheme in fi gure 1, capabilities and van der Veen, 2007, http://www.mnp.nl/en/ and functionings, but also subjective well-being, publications/2007/Sustainablequalityofl ife.html):

234 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Capability Index

remain far removed from an adequate capability- index of life quality. Since in this chapter we are primarily interested in a conceptual exploration, we assume that there are no constraints on the data that can be gathered.

Another insight from the existing literature concerns the character of the index itself: at what level of abstraction and aggregation would one indicators Virtual like to construct an index? One of the criteria an index should meet is that it be useful for policy design and evaluation. A capability-index which seeks to inform governmental policies should be formulated at a lower level of abstraction than

the very general dimensions that have typically Indicator Exhibition Virtual been worked out ni the literature.

State of play and work left for the future

Early attempts of concretising and If we consider all advantages and disadvantages quantifying the capability approach of the different approaches that were discussed in this chapter, our conclusion is that on theo- The literature on the capability approach evolves retical grounds the capability approach is to be rapidly: a survey written today may be outdated preferred as the foundation for a measure of the in six months from now. A recent survey of quality of life. However, it must be kept fi rmly empirical applications shows that at present, in mind that the empirical development of the no scholar even has worked out the theoretical capability approach is still in an early stage. It is foundations of a capability-index of life quality, possible that further research will reveal disad- let alone engaged in the work of operationaliz- vantages of a capability-based life quality-index ing and testing empirically such a quality index that are insuffi ciently appreciated at present. (Robeyns, 2006). Thus in the prevailing state The full construction of a capability-index will of the art, developing a capability-index is a still involve a lot of hard and detailed work. pioneering task. Nevertheless, current literature does offer two important insights. References The fi rst insight is that we need to distinguish between the design of an index based on exist- • Robeyns, I. (2006) The capability approach ing secondary statistics, versus an index con- in practice. Journal of Political Philosophy structed against a background of suffi cient time 17(3), 351-376. and resources to collect most of the data on the capability-domains. Existing empirical applica- • Robeyns, I. and van der Veen, R.J. (2007) tions are strongly determined by the available Sustainable Quality of Life: Conceptual, datasets, both with respect to the selection of Analysis for a Policy-Relevant Empirical capabilities, as well as the possibilities to mea- Specifi cation. MNP Report 550031006. sure capabilities rather than levels of realised Bilthoven and Amsterdam: Netherlands functionings. Almost all these applications work Environmental Assessment Agency and with datasets constructed with other purposes in University of Amsterdam, mind. This is a disadvantage. If we are limited http://www.mnp.nl/en/publications/2007/ by available datasets, then it is likely that we will Sustainablequalityofl ife.html.

235 19 & 20 November 2007 Virtual Indicator Exhibition

Comparing welfare of nations by Hans-Olof Hagén, Statistics Sweden

Why it is necessary to use composite indica- included in it, to explain the differences between tors and make sensitivity test of them: countries in economic standard and welfare has also been tested. Finally, it has been studied which In my paper 1 I have done an attempt to show how countries are most effective in creating economic a complex reality can be illustrated using differ- standards and welfare, respectively. ent statistical methods. The purpose of this report was not to exhibit the actual results of analysis, but rather to show the methods used to arrive at The indicator those results. The example chosen for analysis was a comparison of the level of welfare in OECD The fi rst part of the indicator is of course the eco- countries and the effi ciency of these countries to nomic resources in a country. I have argued that create a high economic standard and welfare for GNI is a better measure of that than GDP. But work their citizens. Because welfare is an extremely is not everything why I did try to assess the existing ambiguous concept, it is very diffi cult to measure. labour input in the different countries by determin- There are no given answers on the meaning of the ing how much has been set aside for leisure time concept of welfare, nor any explanations on how in the form of shorter work weeks, longer holiday to measure it. Attempts to do so are thus much leave, early retirement, housewives and other debated. In simple terms, a composite indicator reasons that people of working age are not part is a way of putting apples and oranges together of the labour force. However, other factors affect in order to decide which fruit basket is the most one’s well being besides consumption space and attractive. But this indicator can be problematic. leisure time. Of employed persons, Koreans take For example, to someone who only likes grapes, it the lead by far in working the most hours per year, doesn’t matter how many apples and oranges there and the Icelanders have the highest proportion of are in the baskets. Furthermore, many statisti- people of working age that are employed. However, cians also believe that only single variables can be people from Netherlands, Italy and France have on reported in a satisfactory way. But neither decision- the whole chosen to give up a signifi cant share of makers nor the general public wants a report that their potential economic standard by using a large looks like a huge catalogue where variable after share of this potential in leisure time. variable is listed page after page as a base for their understanding. Even though subjectivity is Not everything can be bought with money, even inevitable, they prefer to fi nd out which fruit basket though economic resources are very important in is probably the most interesting, rather than a list many areas. Health is one of these other factors. that states how many twenty or so different kinds How to measure people’s health is justifi ably a of fruit each basket contains. debatable subject. However, nearly all illnesses and health aspects affect length of life. In principle, In this analysis, the composite indicator that is we can maintain that there is another dimension created is an attempt to measure welfare in the to health other than survival and that dimension OECD countries. A sensitivity analysis of this cho- is suffering. Of course, no international statistics sen example has been conducted to study how the exist on such a subjective occurrence as reducing results are affected if certain partial components pain and increasing comfort, even if these occur- and extreme values are excluded. In addition, the rences would be of great signifi cance for well being signifi cance of different valuations of variables is as well as for welfare. In addition, these measures tested. The correlations between these components most likely also increase length of life indirectly, have also been studied, as well as the correlations just as many other factors that increase quality of between them and the measurement of welfare. life. The environment is also signifi cant for welfare. A composite indicator for the input has also been In the end, the environment is also a question of created. The signifi cance of different valuations of survival and affects all aspects of health. But the the various inputs for the ranking of the countries effects on health may only be visible a relatively has been studied for this index as well. The abil- long time afterwards, so it is a good idea to also ity of the input indicator and the factors that are include the environment in the concept of welfare.

1 http://www.scb.se/statistik/OV/OV9999/2004A01/OV9999_2004A01_BR_X100ST0415.pdf

236 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Comparing welfare of nations

This section discusses suitable indicators for the components, sub-components and extreme environment. The selected indicators show that values. An attempt to fi nd correlations between the geographically large countries with heavy the different indicators is also made. Here it is industry such as Australia, Canada and the only room for showing how robust the ranking US have by far the highest emissions of envi- order of countries is for changes in the weight ronmentally hazardous gases per inhabitant. system. To analyse the importance of which However, New Zealand and the Czech Republic weight that has been given to the different are at the other end of the scale. factors, a comprehensive sensitivity analysis has been done. In this analysis, the 8 different indicators Virtual In the end, the environment is also a question standardised indicators have been weighed with of survival and affects all aspects of health. random weights, after which of the different But the effects on health may only be visible a countries have been ranked according to the relatively long time afterwards, so it is a good value on their welfare index. This has been done idea to also include the environment in the con- for a million alternative weights. cept of welfare. The state of the environment Indicator Exhibition Virtual will then be a kind of early warning of health The program generates a list of the number of aspects and the quality of life in the future. times each country has been ranked with the Besides, the threat of a worsening environ- highest value on the welfare index, the second ment usually affects how we regard quality of highest value etc. down to the 27th place and life, long before it can be traced as an effect on the lowest value. To obtain an overall picture length of life. Besides health risks, a worsening of the results, a fi gure has been made showing environment can also deteriorate quality of life how often each country has come fi rst, among in other ways, while a good environment can the 3 best, among the 5 best, and fi nally the 10 be seen as quality of life in itself. All in all, it best. The choice of these limits is based on how is preferable to include the environment in the the structure of the actual results looked. design of this welfare indicator.

What is the cost of welfare? Sensitivity analysis, importance of choice of indicators A composite indicator for the input factor has also been chosen. Sensitivity for selected weights A sensitivity analysis of the welfare index has is tested in the same way as for the welfare been done by studying the effects of removing index. Further, the correlations between the

The robustness of the ranking of countries according to the welfare index for different weights for the sub-indices

237 19 & 20 November 2007 Virtual Indicator Exhibition

different components are analysed. The correlation shown clear effects of more developed IT use. between the components that can be said to form Combinations of organisational changes and IT indicators on the knowledge society; quality of the investments have produced results. labour force, formation of knowledge and IT use are strongly correlated. However, the quantitative There is a considerable variation in values of the wel- input of labour is independent of all these other fare indicator between different countries, even if they indicators. To determine if a country has succeeded have about the same value on the input indicator. in producing welfare effectively, the results must relate to the resources a country has invested to Korea, Iceland and the US are among those coun- obtain welfare. The vital resource is labour, and tries that have high values on the input index, but since there is comparable data for the share of the considerably lower values on the welfare index. population of working age, which is the relevant Meanwhile countries such as Italy and France have measure in this case, the choice is simple. However, high values on the welfare indicator with low inputs. in addition to quantity, quality is also signifi cant. Those countries that have obtained a relatively high The broadest available measure of quality of the welfare with small investments can be regarded labour force is the level of education of the labour as effi cient in this respect. An effective instrument force, measured in a number of ways. to fi nd out which countries belong in this category (and how far behind other countries are) is known Besides the level of education of the labour force, as the frontier production function. other formation of knowledge is also important. Therefore, other indicators such as research and development innovation activities are often The general conclusion included among the selected input indicators. In this example, R&D costs per inhabitant, adjusted The general conclusion of this analysis is that if we for differences in cost levels among countries (PPP want to compare the complex concept of welfare in adjusted), have been used. Another area of growth different countries, we must be ready to evaluate is IT development. The IT revolution is very impor- and compare factors of very different character. tant for development in many areas, even though Since there are no undisputable choices, different it is not directly evident that IT investments have evaluations and access to data can lead to more or led to larger production profi ts. This applies on a less separate conclusions of analyses of the same more aggregated level, but studies of individual phenomenon. For this reason it is very important enterprises or smaller groups of enterprises have for credibility of results that the data that is used

A frontier production function with the welfare indicator as the production variable and the input indicator as the input variable

238 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Corruption Perceptions Index

and choices that have been made are openly a more detailed analysis of separate phenom- reported. It is also important that a compre- ena is required. Then what has the analysis of hensive sensitivity analysis has been carried out the chosen example of a welfare index and the and is presented together with the main results. attempt to illustrate this measure in different Furthermore, it is worthwhile to point out that ways provided us with? First, a general reserva- the technique with random weights is a very tion must be made, namely that the conducted relevant and effective instrument in the sensi- analysis has in no way shown what the conse- tivity analysis of the weight system. Concerning quences would have been if other factors had comparisons of efﬁ ciency, the frontier production been included. It is of course possible to justify indicators Virtual function is also a good tool. with very good reasons why many other aspects of welfare should be included in this example. Finally, even if the composite indicators provides In general, it is also apparent that other factors a valuable base for preparing basic information besides those that create economic standard for political processes, we must realize that are important to study, if the goal is to obtain these results only give us an overview of one a high level of welfare (as has been deﬁ ned in Indicator Exhibition Virtual area. When forming concrete political measures, this example).

Corruption Perceptions Index by Transparency International

Aims and Objectives sure of corruption worldwide. It is one of the most quoted indices in the social science com- The Corruption Perceptions Index (CPI) is a munity and has provided an incentive to conduct composite index – a survey of surveys – that complementary local diagnostics. It responds to assesses and compares perceived levels of cor- a need among researchers, policy makers and ruption among public offi cials and politicians in others for global and comparative data refl ect- a wide range of countries around the world. The ing the views of people who infl uence decisions. CPI is produced annually, refl ecting the views By generating public debate and creating incen- of business people and country analysts from tive for reform, it has proved to be a power- around the world. ful awareness raising tool both at national and global levels. Many countries have used the CPI The overall objective of the CPI is to provide a as a starting point for launching reforms, and the global assessment of corruption and enhance worldwide anti-corruption movement has used it comparative understanding of levels of cor- as a powerful tool to advocate for change. ruption worldwide. It is an infl uential advocacy tool that stimulates worldwide media coverage, The CPI Method promotes public debate and drives demand for change. The CPI was the fi rst successful attempt The CPI draws on corruption-related data from to measure and compare corruption levels in a surveys of experts and business people carried wide range of countries, and has continued to out by a variety of independent institutions ex- do so since 1995. It has proven that corruption ternal to TI. The interviewed experts and busi- can be measured with a sound methodological ness people are both residents and non resi- instrument and has opened the way for further dents of the countries evaluated. A minimum corruption research of all kinds. of three surveys have been conducted for each country included in the CPI, which increases the reliability of each individual fi gure and low- CPI Achievements ers the probability of misrepresenting a coun- The CPI has greatly contributed toward putting try. In 2007, 180 countries were included in corruption on national and international agen- the CPI, achieving the greatest scope for the das. It is widely credited to be the main mea- index to date.

239 19 & 20 November 2007 Virtual Indicator Exhibition

The CPI gathers data from sources that span the United Nations Economic Commission for Africa last two years (for the CPI 2007, this includes and Global Insights. In 2007, resident business surveys from 2007 and 2006). In 2007 it was leaders evaluating their own country were part of calculated using data from 14 sources originat- surveys carried out by Institute for Management ed from 12 independent institutions. All sources Development, Political and Economic Risk Consul- measure the overall extent of corruption (fre- tancy and the World Economic Forum. quency and/or size of bribes) in the public and political sectors and all sources provide a ranking By combining the sources available through ro- of countries, i.e., include an assessment of mul- bust statistical methods, the CPI provides a rank tiple countries. of countries according to their level of perceived corruption. For more detailed information on the For CPI sources that are surveys, and where mul- methodology please visit http://transparency. tiple years of the same survey are available, data org/policy_research/surveys_indices/cpi/2007/ for the last two years are included to provide methodology. a smoothing effect. While for sources that are scores provided by experts (risk agencies/coun- The CPI scores countries on a scale from 0 to try analysts), only the most recent iteration of 10, with 0 indicating high levels of perceived cor- the assessment is included, as these scores are ruption and 10 indicating low levels of perceived generally peer reviewed and change very little corruption. In order to avoid the distorting effect from year to year. on scoring that could be caused by recent events such as exposure of corruption scandals, the Evaluation of the extent of corruption in coun- score combines expert assessments from the last tries is done by country experts, non resident two years. To qualify for inclusion in the CPI, data and residents. In the CPI 2007, the non resident must be well documented, provide a ranking of evaluations were performed by the following orga- countries and measure the overall extent of cor- nizations: Asian Development Bank, African Devel- ruption. This condition excludes surveys mixing opment Bank, Bertelsmann Transformation Index, corruption with other issues such as political in- World Bank - CPIA, Economist Intelligence Unit, stability or nationalism. All countries with enough Freedom House, Merchant International Group, qualifying sources are included in the index.

240 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Bribe Payers Index

CPI 2007 Results show that genuine political will and reform can lower perceived levels of corruption. The 2007 Corruption Perceptions Index looks at perceptions of public sector corruption in Other countries with a signiﬁ cant improvement 180 countries and territories – the greatest include Costa Rica, Croatia, Cuba, Czech Re- country coverage of any CPI to date – and is public, Dominica, Italy, FYR Macedonia, Roma- a composite index that draws on 14 expert nia and Suriname. Countries with a signiﬁ cant opinion surveys. It scores countries on a scale worsening in perceived levels of corruption in from zero to ten, with zero indicating high lev- 2007 include Austria, Bahrain, Belize, Bhutan, indicators Virtual els of perceived corruption and ten indicating Jordan, Laos, Macao, Malta, Mauritius, Oman, low levels of perceived corruption. Papua New Guinea and Thailand.

A strong correlation between corruption and The concentration of gainers in South East and poverty continues to be evident. Forty percent Eastern Europe testifi es to the galvanising ef- of those scoring below three, indicating that fect of the European Union accession process Indicator Exhibition Virtual corruption is perceived as rampant, are clas- on the fi ght against corruption. At the same sifi ed by the World Bank as low income coun- time, deeply troubled states such as Afghani- tries. Somalia and Myanmar share the lowest stan, Iraq, Myanmar, Somalia, and Sudan re- score of 1.4, while Denmark has edged up to main at the very bottom of the index. share the top score of 9.4 with perennial high- fl yers Finland and New Zealand. For more information

Scores are signiﬁ cantly higher in several Afri- For more information on the CPI, can countries in the 2007 CPI. These include please contact Juanita Riaño Namibia, Seychelles, South Africa and Swazi- at the TI Secretariat at land. These results reﬂ ect the positive prog- [email protected] ress of anti-corruption efforts in Africa and or +49 30 34 38 20 417.

Bribe Payers Index by Transparency International

Aims and Objectives bility between companies operating abroad and their home governments. The BPI highlights The BPI assesses the supply side of corruption, achievements and failures of governments to targeting policy makers in developed countries control the corruption by companies headquar- and emerging market economies. By measuring tered within their national borders when they the extent to which a state appears to engage operate abroad, and indicates, for their part, in corrupt business practices, it helps identify whether companies have successfully ensured where reforms and enforcement are needed. In that their employees comply with the highest turn, this helps advocates push for change. standards of business practice. Thus, it serves as benchmark for assessing enforcement. The BPI results demonstrate clearly which countries are paying bribes, and where. It provides the views of the private sector (re- The BPI Approach presentatives of local and foreign companies) on foreign bribery, based on their experience The Bribe Payers Index 2006 (BPI) is a ranking in a particular country of operation. Given the of 30 leading exporting countries according to criminalisation of bribery through laws and the propensity of their ﬁ rms to bribe abroad. It conventions such as that of the Organisation for is the most comprehensive survey of its kind, Economic Co operation and Development, the capturing the direct experience of business supply side of corruption in international bu- executives with foreign ﬁ rms paying bribes in siness transactions implies a shared responsi- their country. It asks business executives about

241 19 & 20 November 2007 Virtual Indicator Exhibition

the practices of foreign fi rms operating in their The BPI 2006 results country, specifi cally their propensity to pay bribes or to make undocumented extra payments. The BPI 2006 shows a considerable propensity of companies from all states to bribe when operating The BPI was fi rst released in 1999, with further abroad. Companies from the wealthiest countries editions in 2001 and 2006. The fi rst two editions rank in the top half of the index (indicating less of the survey scored 19 and 21 countries res- perceived tendency to bribe), with Switzerland pectively through surveys in emerging market leading the ranking at 7.8. However, companies economies. The 2006 edition ranked 30 leading from these countries tend to behave differently exporting countries by surveying respondents in when operating in OECD countries than in deve- more than 125 countries worldwide, the largest loping countries, where they still routinely pay and broadest sample to date. bribes. Companies from emerging export countries are perceived to be the most likely to pay bribes in order to win contracts abroad, with India, The BPI Method in 2006 China and Russia ranking among the worst.

The BPI 2006 is based on the responses of 11,232 business executives from companies in 125 coun- For more information tries to two questions about the business practices of foreign fi rms operating in their country. It was For more information on the CPI, carried out as part of the World Economic Forum’s please contact Juanita Riaño Executive Opinion Survey 2006. The combined at the TI Secretariat at Gross Domestic Product of the 125 economies co- [email protected] vered represents 98 percent of the world total. or +49 30 34 38 20 417. Please visit: The sample of respondents was representative of http://transparencyorg/policy_research/ the national business sector, both in terms of the surveys_indices/bpi share of production by industry, the size of company and the range of company types (domestic, foreign and partly state owned). Respondents were asked to rate the countries of origin of foreign-owned com- Rank Country / Territory BPI Score Number of Margin of error % of global panies doing the most business respondents (at 95 % confi dence) exports (2005) in their country on a scale of 1Switzerland 7.8 1744 0.12 1.2 1 (bribes are common) to 2 Sweden 7.6 1451 0.14 1.3 7 (bribes never occur). The 3 Australia 7.6 1447 0.14 1 answers were then converted 4 Austria 7.5 15600.130.5 5 Canada 7.5 18700.123.5 into a 10 point scale, in which 6UK 7.4 3442 0.09 3.6 10 represents the lowest pro- 7 Germany7.338730.09 9.5 pensity of companies to bribe 8 Netherlands 7.3 1821 0.123.4 9 Belgium7.2 1329 0.158.9 abroad. The ranking refl ects US 7.2 5401 0.07 3.3 the simple averages of respon- 11 Japan 7.1 32790.1 5.8 ses. 12 Singapore 6.8 1297 0.17 2.2 13 Spain 6.6 2111 0.12 1.9 14 UAE 6.6 1928 0.14 1.1 The countries ranked were: 15 France 6.5 3085 0.11 4.3 Australia, Austria, Belgium, 16 Portugal6.59730.180.3 Brazil, Canada, China, France, 17 Mexico 6.5 17650.152.1 18 Hong Kong 6.0 1556 0.16 0.4 Germany, Hong Kong, India, Israel6.0 1482 0.16 2.8 Israel, Italy, Japan, Malay- 20 Italy 5.9 2525 0.123.6 sia, Mexico, the Netherlands, 21South Korea 5.8 1930 0.132.8 Portugal, Russia, Saudi Ara- 22 Saudi Arabia 5.8 1302 0.17 1.8 23 Brazil 5.7 1317 0.16 1.2 bia, Singapore, South Africa, 24 South Africa5.6 1488 0.16 0.5 South Korea, Spain, Sweden, 25 Malaysia 5.6 13190.17 1.4 Switzerland, Taiwan, Turkey, 26Taiwan 5.4 1731 0.15 1.9 27Turkey 5.2 1755 0.150.7 the United Arab Emirates, the 28 Russia 5.2 2203 0.142.4 United Kingdom and the Uni- 29 China 4.9 3448 0.11 5.5 ted States. 30 India 4.6 2145 0.140.9

242 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Global Corruption Barometer

Global Corruption Barometer by Transparency International

Aims and Objectives included, a representative sample of the general public has been polled. Respondents are The Global Corruption Barometer is an opinion men and women aged 15+ and all samples survey of the general public that assesses the have been weighted to bring them in line with indicators Virtual perceptions of corruption and experience with national and global populations. In 2006, the bribery. The Barometer provides information Barometer survey was carried out between July on the extent of corruption across government and September of that year in 62 countries and and private sector institutions based on the territories. Nearly 60,000 respondents were responses of ordinary people, supplementing polled, including men and women. the views of experts presented in other sur- Indicator Exhibition Virtual veys. It can therefore show the credibility of The Barometer explores experience of citizens anti corruption efforts as seen through the eyes with petty bribery presenting which institutions of ordinary people. The Barometer is unique in and public services most affected by bribery, the sense that is the only worldwide public opi- the frequency of bribery, and how much peo- nion survey on perceptions and experience of ple pay. It also explores the public’s evaluation corruption that allows trends to be established of their government’s efforts to ﬁ ght corrup- over time. It does not rank countries, but ins- tion and assesses which institutions the public tead offers comparative results of countries, judge to be most corrupt and what aspects of regions and institutions as well as information their lives – political, personal or business – on trends in public perceptions of corruption. are most affected by corruption. Thus, it is a complement to TI’s other measurement tools, the Corruption Perceptions In- dex (CPI) and Bribe Payers Index (BPI). Global Corruption Barometer 2006 Results

The Barometer 2006 results indicate that ex- The Global Corruption Barometer Approach perience of bribery is widespread outside Eu- rope and North America, with the police being The Barometer survey is carried out for Trans- the institution most affected (See table 1 and parency International by Gallup International ﬁ gure 1). In Latin America for example, one as part of its Voice of the People Survey. It has third of respondents who had contact with the been published annually since 2003. The TI police had paid a bribe. Bribery for access to Global Corruption Barometer is a public opinion services is most common in Africa. The most survey. That means it is a poll of the general commonly bribed sectors in Africa are the po- public across the world and in each country lice, tax revenue and utilities.

Table 1 Countries most affected by bribery

More than 40 %Albania, Cameroon, Gabon, Morocco Bolivia, Congo-Brazzaville, Czech Republic, Dominican Republic, Greece, Indonesia, Kenya, Mexico, Moldova, 16-40% Nigeria, Paraguay, Peru, Philippines, Romania, Senegal, Ukraine, Venezuela Percentage of respondents Argentina, Bulgaria, Chile, Colombia, Croatia, that have paid a bribe in the 6-15 % Hong-Kong, India, Kosovo, Luxembourg, Macedonia, last 12 months Pakistan, Panama, Russia, Serbia, Thailand Austria, Canada, Denmark, Fiji, Finland, France, Germany, Iceland, Israel, Japan, Malaysia, Netherlands, Norway, 5% or less Poland, Portugal, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Turkey, United Kingdom, USA Source: Transparency International, Global Corruption Barometer 2006

243 19 & 20 November 2007 Virtual Indicator Exhibition

As in past years, public perceptions are that poli- For more information tical parties and parliaments are the most corrupt institutions, followed by business and police. The For more information on the CPI, please contact public regards governmental efforts to curb cor- Juanita Riaño at the TI Secretariat at ruption inadequate in most countries. Only 22 per [email protected] or +49 30 34 38 20 417. cent of respondents worldwide evaluated their go- Also please visit http://transparency.org/ vernment’s actions as ‘effective’ or ‘very effective’. policy_research/surveys_indices/gcb

Figure 1 Worldwide bribery: respondents who have had contact and paid a bribe, by sector (%) 60%

t 50% c onta c

h 40% e it b w ri b 30% aid a p ondents p ave h 20% at h t

entage of res 10% c er P 0% Total sample Africa Latin America NIS SE Europe North America EU+

Source: Transparency International, Global Corruption Barometer 2006

National Integrity Systems (NIS) Scoring System by Transparency International

What is the NIS scoring system? have considered developing an NIS scoring system of some kind. While the current NIS Country The NIS scoring system is a new tool that is being Studies provide important benchmarks for the developed by Transparency International. The NIS success of anti-corruption efforts, they offer only scoring system will provide a quick summary look narrative analysis that can be specialised and at the strengths and weaknesses in a country and cumbersome to absorb. Scores that rate the dif- will facilitate comparisons within a country over ferent NIS pillars in a country will provide clear, time. It will not produce a ranking of countries, nor understandable information that will improve the will it replace the NIS narrative Country Studies; use of narrative NIS studies. instead, it will provide complementary information that, in conjunction with the narratives, will Other organisations already produce quanti- be an even more effective tool for advocacy and tative indicators on governance at the country awareness raising. level. Examples include the World Bank governance indicators, Global Integrity’s integrity indicators and Freedom House’s Countries at the Why create an NIS scoring system? Crossroads. However, TI’s network of National Chapters and our focus on anti-corruption gi- Since TI began producing NIS Country Studies ves us a unique niche in this ﬁ eld. We have the in 2001, the TI Secretariat and many chapters opportunity to produce a scoring system that

244 Beyond GDP: Measuring progress, true wealth, and the well-being of nations National Integrity Systems Scoring System

is generated by and for the countries under Overview of the Scoring Model consideration, focused on the aspects of a governance system that make it most vulnera- Those who implement the scoring system will ble to corruption. use the same methods to obtain the data that are used to prepare traditional NIS Country In addition, TI will be responding to the interest Studies: a combination of desk research, in- among donors in governance assessments. NIS dividual consultation and focus groups. Ex- studies are already used by donors in their de- perience has shown that the very process of velopment work, but countries such as Britain doing research in this participatory way can indicators Virtual and the Netherlands have recently been com- generate the kind of communication and coo- missioning their own governance assessments peration that in itself can improve the system to meet their own needs. Moreover, donors are under evaluation. This process will be enhan- increasingly interested in quantitative assess- ced by the introduction of the scoring system, ments that enable comparative work and help which presents an added opportunity for en- target reform programmes. In order to stay gaging stakeholders. Indicator Exhibition Virtual relevant in this changing landscape, TI needs to capitalise on our knowledge and experience The scoring model under development will have to produce a useful tool that brings our impor- two components. First, a standard model will tant perspective to the governance debate. be developed, comprised of broad categories (a derivation of the NIS pillars) that can be applied in any country. Second, a unique country (or Process for Development regional) model will contain the individual questions for gathering data in the country under The process for development of the NIS sco- examination. Detailed guidelines will help Chap- ring system began in 2006 with consultation ters to develop their own country model accor- across the TI movement. Responses confi rmed ding to their national situation. The researchers that Chapters have interest in such a tool, but will assess the country model questions, which that the scoring system should be limited to in turn will provide the data points necessary to comparisons within a region and avoid a new calculate scores in the standard model. Quality international ranking. Chapters also stressed control will be done at the TI-Secretariat. that the scores should not be divorced from the narrative reports; the scores and the re- Chapters will also have the option of going fur- ports should complement each other. ther than the guidelines proposed and adapting the country model in a number of different Building on this baseline, TI-S is working with ways. Chapters can include different informa- National Chapters, external experts and a tion and local data sources in their country scoring consultant to design a robust scoring model, as well as different questions or even methodology that also refl ects the priorities new NIS pillars. and needs of the TI National Chapters. In the latest stage of the process, consultants from The data collected from each country will be the Madagascar offi ce of Pact – an NGO based stored in an electronic database that will be in Washington DC committed to capacity buil- made public upon completion. This can be ding of local leaders and organisations – wor- utilised to present the data in different ways, ked with TI to produce the initial draft of the such as charts or graphs. It will also facilitate scoring model. The draft will be reviewed by exchange of information. a methodology committee, bringing together scoring and issue experts. For more information The model will then be piloted in Guatemala and Panama. Subsequent modifi cations will be For more information on the NIS scoring made before the scoring system is launched system, please contact Sarah Repucci in 2008. at the TI Secretariat at [email protected] or +49 30 34 38 20 661.

245 19 & 20 November 2007 Virtual Indicator Exhibition

Promoting Revenue Transparency Project by Sophie Buxton, Transparency International

The Importance of Revenue Transparency Promoting Revenue Transparency Project in the Extractive Industries The Promoting Revenue Transparency (PRT) Proj- Revenues from the extractive industries are an ect supports the transparent and accountable important source of income for the governments management of revenues generated from the of many developing countries. However, much extractive industries as a step towards reversing of this wealth does nothing to reduce high lev- the ‘resource curse’ and ensuring such revenues els of poverty and improve the lives of citizens. directly benefi t society. The Project seeks to raise Rather than fostering economic growth and de- awareness in both government and the private velopment, high revenues from the extractive in- sector of the various steps required for reve- dustries have often fuelled corruption, economic nue transparency to be achieved, sustained and stagnation, inequality and confl ict. This paradox mainstreamed. By providing robust standards for has been labelled the ‘resource curse’. revenue transparency and tools to measure progress in this fi eld, companies and governments There is a growing recognition that the transpar- engaged in the extractive industries are encour- ent and accountable management of revenues aged to improve transparency and accountability from the oil, gas and mining industries helps to to citizens and investors. ensure that natural resource wealth is translated into societal well-being and sustainable develop- The Promoting Revenue Transparency Project has ment. Corruption and mismanagement breed in three specifi c objectives: opacity, and the resulting instability in countries of operation is bad for business, damaging com- 1. To measure revenue transparency perfor- panies’ reputations and resulting in lower inves- mance and diagnose areas for improve- tor returns. ment. 2. To develop broad standards for revenue Transparency can help change the extractive re- transparency. source curse into a blessing by facilitating and 3. To support the use of the revenue trans- improving the accountability of companies and parency standards and measures of perfor- governments to their investors and citizens. En- mance by companies, rating agencies, inves- suring access to information about how much tors, government regulators and civil society. money governments are receiving from extractive industry revenues empowers citizens to hold The project will measure and compare the degree their governments accountable, monitor how the of revenue transparency among selected compa- money is spent and lobby for responsible public nies, host countries (resource rich) and home spending. Greater accountability should limit bad countries (where the companies are based) in the practices and the mismanagement of extractive oil, gas and mining sectors. The PRT project will industry revenues, which all too often fuel corrupt produce the following reports: elites and deepen social confl ict. If properly man- aged, revenues from natural resources provide a 1) A Companies Report, covering 42 companies basis for poverty reduction, economic growth and and their operations in 21 countries in 2007 sustainable development. 2) A Host Governments Report, covering approximately 10 countries, expected in 2008 The Promoting Revenue Transparency Project 3) A Home Governments Report, expected in 2008 makes clear that publishing key data on extractive industry operations on a country by country These reports will focus on the oil and gas indus- basis is both in the interests of corporations and tries. A feasibility study of extending these re- supports sound accountability by host govern- ports to the mining industry is planned for 2008. ments. The Project is part of a growing international multi- stakeholder movement of governments, companies, investors and civil society which seeks to

246 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Promoting Revenue Transparency Project

promote improvements in transparency and companies concerned is now drawing to a close accountability in natural resource revenue and the report is in the pre-publication stage. management. Participants of this movement recognize that revenue transparency improves broader governance, strengthens the invest- Companies covered: ment climate in which business operates, and provides a necessary condition for achieving Amerada Hess (USA) • Aramco (Saudi Ara- sustainable development. bia) • BG (UK) • BHP Billiton (Australia) • BP (UK) • Chevron Corporation (USA) • China indicators Virtual National Petroleum Corporation (China ) The Companies Report • CNOOC (China) • Conoco Philipps (USA) • Devon Energy (USA) • Eni SpA (Italy) The Companies Report 2007 applies a method- • Exxon Mobil Corporation (USA) • Gaz- ology which allows an assessment to be made prom (Russia) • GEPetrol (Equatorial Guinea) of revenue transparency policies, practices and • Inpex (Japan) • Kazmunaingaz (KMG) Indicator Exhibition Virtual management systems of oil and gas companies (Kazakhstan) • Kuwait Petroleum Corpo- in their upstream operations. The research is ration (Kuwait) • Lukoil (Russia) • Mara- based on publicly available information. The thon (USA) • National Iranian Oil Compa- method incorporates aspects of the context of ny (Iran) • National Nigerian Petroleum operation that may support or hinder compa- Company (NNPC) (Nigeria) • Oil and Natural nies’ performance on revenue transparency. Gas Corporation Limited (ONGC) (India) The framework applied serves as a measure- • Nexen (Canada) • Pertamina (Indonesia) ment tool which demonstrates the steps which • Petro China Company Limited (China) companies can themselves undertake to further • Petrobrás (Brazil) • Petrocanada (Canada) improve revenue transparency. • Petróleos de México (Mexico) • Petróleos de Venezuela (PDVSA) (Venezuela) • Petro- Multi-stakeholder engagement and consulta- liam Nasional phd (Petronas) (Malaysia) tion has been a crucial elements in the process • Qatar Petroleum (Qatar) • Repsol YPF (Spain) of producing the report and is critical to the • Rosneft (Russia) • Shell (The Netherlands) advocacy aspects of the project. The project • Sinopec (China) • Société Nationale des incorporates multi-stakeholder input through Pétroles du Congo (SNPC) (Congo) • So- the participants in its Working Group and its nangol (Angola) • Sonatrach (Algeria) broader Reference Group, which include in- • Statoil (Norway) • Talisman Energy (Can- dustry experts, company representatives, civil ada) • Total (France) • Woodside Petroleum society activists and members of the EITI sec- (Australia) retariat. The engagement of the companies covered by this research has been sought by: Countries of Operation: 1) Opening channels for communication and exchange on the PRT project and its prog- Algeria – Angola – Azerbaijan – Brazil – China ress, including ongoing opportunities for – Congo Brazzaville – Equatorial Guinea – India dialogue about changes needed and ave- – Indonesia – Iran – Kazakhstan – Kuwait – nues to address issues and concerns. Malaysia – Mexico – Nigeria – Norway – Qatar 2) Creating space for companies to provide – Russia – Saudi Arabia – US – (and Gulf of their input from the earliest stages, includ- Mexico) – Venezuela ing the methodology and framework revision. 3) Seeking participation of companies in the The Host Governments Report Working Group of the Project. 4) P roviding an opportunity for companies to The PRT Project is currently working on the check the data gathered on them for ac- initial stages of a Host Governments Report curacy. which will focus on government transparency regarding extractive industry revenues in The Companies Report covers 42 oil and gas countries where extraction is taking place. It companies and their operations in 21 different is designed to create local ownership and to countries, as listed in full below. The year-long promote engagement and participation of local process of research and engagement with the stakeholders, particularly governments.

247 19 & 20 November 2007 Virtual Indicator Exhibition

Data gathering and analysis will be performed The two parts of the report measure company by country implementers (TI National Chapters, performance and home government regulation. Publish What You Pay (PWYP) coalition members or other organisations) selected according to pre- Promoting Revenue Transparency is the new established criteria in consultation with the Work- phase of the project and is being implemented by ing Group of the project. A pilot project will be Transparency International, in partnership with fi rst be implemented in 2 countries. The full list of the Revenue Watch Institute. Building on the pre- countries to be covered has yet to be confi rmed. vious work in this area, the initiative also com- plements the efforts of the Extractive Industries Transparency Initiative (EITI). It includes those History of the concept aspects of transparency and anti-corruption relevant to revenue transparency, and contributes Measuring Transparency was fi rst conceived by to sustaining awareness of the responsibility of Save the Children UK and developed in collabora- both companies and governments to implement tion with investors, independent consultants, rat- EITI commitments and encouraging them to go ings agencies and other members of the Publish beyond these. What You Pay NGO coalition. In 2005, Save the Children UK produced the fi rst reports on revenue For further information please refer to Promoting transparency, “Beyond the Rhetoric: measuring Revenue Transparency at www.transparency.org revenue transparency in the oil and gas industry”1. or address queries to [email protected]

1 See “Beyond the Rhetoric: Measuring Revenue Transparency -Company Performance in the Oil and Gas Industries”. This assessed 25 companies and their revenue transparency performance in Angola, Azerbaijan, Indonesia, Nigeria, Timor Leste and Venezue- la. “Beyond the Rhetoric: Measuring Revenue Transparency – Home Government Requirements for Disclosure in the Oil and Gas Industries” assessed the regulatory performance of Australia, Canada, France, Italy, the Netherlands, Norway, the UK, USA, South Africa and Russia. Both are available electronically at: http://www.transparency.org/policy_research/surveys_indices/promoting_revenue_transparency

Core Set of Indicators by Ove Caspersen, European Environment Agency

The Core Set of Indicators are stable, but not static, and that give answers to selected priority policy questions. These indi- In 2004, the European Environment Agency (EEA) cators should, however, be considered alongside launched a core set of indicators http://themes. other information if they are to be fully effective eea.europa.eu/IMS/CSI. This exercise was carried in environmental reporting. out with three main objectives in mind, namely to: The core set comprises 37 indicators covering six • Provide a manageable and stable basis for indi- environmental themes (air pollution and ozone cator-based assessments of progress against depletion, climate change, waste, water, biodiver- environmental policy priorities; sity and terrestrial environment) and four sectors • Prioritise improvements in the quality and cov- (agriculture, energy, transport and ﬁ sheries). erage of data ﬂ ows -improvements that will enhance comparability and certainty of information and assessments; Criteria • Streamline contributions to other indicator initiatives in Europe and beyond. The indicators in the core set were selected from a much larger set, on the basis of criteria widely used When establishing and developing the core set, elsewhere in Europe and by the OECD. Particular the Agency was guided by the need to identify a attention was given to the relevance for policy small number of policy-relevant indicators that priorities, objectives and targets, the availability

248 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Core Set of Indicators

of high-quality data over both time and space, Information Management and the application of well-founded methods for indicator calculation. The EEA takes its responsibility as an information provider seriously, emphasising quality Using the core set assurance of the data used. We also ensure that users know about the uncertainties related to The core set, and particularly its assessments the data and indicators, both in terms of the and key messages, is targeted mainly at policy rationale and concept behind the indicator and makers at the EU and national level who can use when it comes to the quality of the input data. indicators Virtual the outcomes to inform on progress with their This high degree of transparency enables users policies. EU and national institutions can also to judge the quality of the information. It also use the core set to support streamlining of data adds to the credibility of the assessments made fl ows at the EU level. Environmental experts can on basis of the data, even when these are made use it as a tool for their own work by using the by bodies other than the EEA. underlying data and methodologies to do their Indicator Exhibition Virtual own analysis. They are invited to look at the The Agency strives to improve the quality and set critically, give feedback and so contribute availability of environmental information and to future EEA core set developments. has an ongoing programme of developing tools and support to facilitate use of environmental General users will be able to access the core information, by civil servants, researchers, policy set on the web in an easily understandable way, makers and the public at large. and use available tools and data to do their own analyses and presentations. Two examples from the core set indicators Decoupling from main reports 1. Progress in management The core set is updated when data becomes of contaminated sites (CSI 015) available. This is linked to the cycles of the countries’ data reporting rather than to the Key policy question: How is the problem publishing timetable of the Agency’s big reports of contaminated sites being addressed (for more, see the reporting obligations data- (clean-up of historical contamination and base ROD, http://rod.eionet.europa.eu/index. prevention of new contamination)? html). This means that the EEA has access to an information base that is available for several According to recent estimates, there are presently purposes (e.g. speeches, other reports, brief- approximately 250 000 sites with contaminated ings) and which can be used at short notice soil requiring cleanup in the EEA member coun- to underpin timely input into policy debates. tries - and this number is expected to increase. It also means that the EEA member countries Potentially polluting activities are estimated to have access to comparative information when have occurred at nearly 3 million sites (includ- needed for their own state of the environment ing the 250 000 sites already mentioned) and reporting cycles and policy needs. investigation is needed to establish whether remediation is required. If current investigation The other benefi t of maintaining an independent trends continue, the number of sites needing information base is that if the offi cial review and remediation will increase by 50% by 2025. acceptance of the data is separated from the assessment -the assessments have more impact By contrast, more than 80 000 sites have been as the discussion will tend to focuses on what cleaned up in the last 30 years in the coun- might be causing the trends and results, rather tries where data on remediation is available. than on whether the data are correct or not. The range of polluting activities (and their relative importance as localised sources of soil con- This was the main reason for the success tamination) varies considerably across Europe. and impact of the EEA scorecard compar- However, industrial and commercial activities ing environmental country performance and as well as the treatment and disposal of waste progress that was published as part of the are reported to be the most important sources. report The European Environment – State and National reports indicate that heavy metals and Outlook 2005, http://reports.eea.europa.eu/ mineral oil are the most frequent soil contami- state_of_environment_report_2005_1/en. nants at investigated sites, while mineral oil and

249 19 & 20 November 2007 Virtual Indicator Exhibition

Overview of progress in the management 2. Renewable energy consumption of contaminated sites in Europe (Ver. 1.00) (CSI 030)

Key policy question: Are we switching to Remediated Sites 80.7 renewable energy sources to meet our energy consumption?

Contaminated Sites 245.9 The share of renewable energy sources in primary (estimate) energy consumption is increasing slowly in the EU 27 – from 4.4% in 1990 to 6.7 % in 2007. This has

Potentially helped to reduce otherwise higher greenhouse gas Contaminated Sites 1823.6 emissions. However, rising overall energy consumption in absolute terms is offsetting some of the environmental benefi ts from more use of renewables. Potentially Polluting Activity Sites 2965.5 (estimate) The strongest increase comes from wind and solar energy; although their combined share in 0 500 1000 1500 2000 2500 3000 renewable energy consumption still stands at less Number of sites in 2006 (x 1000) than 6%. In absolute terms, about 80% of the increase is accounted for by biomass, which takes Source: EIONET priority data fl ows on contaminated sites, Turkey: NATO/CCMS-Turkey, 2006; United Kingdom: Environment Agency of a share of more than two thirds of all renewables. England & Wales, 2005. Hydropower has been falling in the past years as a result of lower rainfall and its share stands at chlorinated hydrocarbons are the most frequent about 22% of renewable energy consumption. contaminants found in groundwater. A consider- Signifi cant progress will be needed to meet the able share of remediation expenditure, about 35% indicative target of a 12 % renewables share for on average, comes from public budgets. Although the EU by 2010. The European Council of 8-9 considerable efforts have been made already, it will March 2007 endorsed a binding target of a 20 % take decades to clean up a legacy of contamination. share of renewable energies in overall EU energy consumption by 2020.

Breakdown of industrial and commercial activities causing local soil contamination Contribution of renewable energy sources to primary energy consumption in the EU-27, Greece 1990-2005 Malta

Switzerland 7.0

Romania 6.5 6.0 Solar Lithuania 5.5 Bulgaria tion (%) 5.0 Serbia Wind mp 4.5 Czech Republic

onsu 4.0 c

Croatia y 3.5 Geothermal Hungary 3.0 energ

Norway y 2.5 ar

Latvia m Hydro

ri 2.0 p Slovakia Industrial production 1.5 and commercial services Estonia 1.0 Biomass and Municipal waste ares in

treatmen and disposal Sh FYR of Macedonia 0.5 waste Industrial waste Italy treatment and disposal 0.0 Mining Belgium Oil industry 1990 1995 2000 2005 Austria Power plants Source: EEA, Eurostat. Sweden Military Storage Spain Transport spills on land Denmark Others

Finland Source: EIONET priority data ﬂ ows Luxembourg on contaminated sites 0% 20% 40% 60% 80% 100%

250 Beyond GDP: Measuring progress, true wealth, and the well-being of nations European Benchmark Indicators

Share of renewable energy in primary The EEA core set is highly structured around energy consumption (%) 1990-2005 the DPSIR analytical framework (Driving forces, Pressures, State, Impact 1990 1995 2000 2001 2002 2003 2004 2005 and Responses) and is supported EEA 5.5 6.2 6.9 6.8 6.8 6.9 7.2 7.6 EU-27 4.4 5.1 5.8 5.9 5.8 6.0 6.4 6.7 by a large information base con- EU-15 4.9 5.3 5.9 6.0 5.8 6.0 6.4 6.7 taining expert knowledge, as well Belgium1.4 1.4 1.3 1.5 1.5 1.92.1 3.5 Bulgaria 0.6 1.6 4.23.6 4.44.95.25.6 as qualitative and quantitative informa- Czech Republic 0.2 1.5 1.5 1.7 2.1 3.44.04.1 tion. This currently includes about 500 indicators Virtual Denmark 6.7 7.6 10.8 11.4 12.4 13.5 15.1 16.2 Germany 1.6 1.92.83.03.43.6 4.04.8 indicators, data viewers for greenhouse Estonia 4.58.8 10.8 10.4 10.39.5 10.6 11.2 gases, ozone, water and air emissions. Ireland 1.6 1.5 1.8 1.7 1.9 1.82.1 2.6 Greece5.05.35.04.54.7 5.1 5.1 5.2 The Agency focuses on providing geo- Spain 7.05.55.7 6.6 5.5 7.0 6.5 6.1 referenced information that allows peo- France 7.0 7.5 7.0 7.1 6.4 6.4 6.3 6.0 Italy 4.24.85.25.55.35.9 6.8 6.5 ple to seek information from their local

Cyprus 0.42.1 1.8 1.8 1.7 1.7 1.92.0 area, for example in the ozone and Indicator Exhibition Virtual Latvia 13.1 27.534.334.1 34.533.1 36.036.3 Lithuania 2.05.7 9.28.48.1 7.98.08.8 water viewers mentioned above and Luxembourg 1.3 1.4 1.5 1.3 1.4 1.4 1.6 1.6 the recently launched environmental Hungary1.82.42.1 1.93.43.43.7 4.2 Malta 0.00.00.00.00.00.00.00.0 technology atlas, http://technologies. Netherlands 1.4 1.6 2.42.42.6 2.6 2.93.5 ew.eea.europa.eu/atlas_map. Austria 20.222.023.222.222.2 19.320.820.5 Poland 1.6 3.94.24.54.6 4.54.7 4.8 Portugal18.8 16.3 15.4 15.7 14.0 17.1 14.9 13.4 The EEA has also developed tools to Romania 4.25.9 10.99.39.8 10.0 11.7 12.8 Slovenia 4.6 9.4 12.3 11.5 10.9 10.3 11.6 10.6 support environmental education and Slovakia 1.6 2.92.83.93.7 3.33.94.3 training, and is committed to develop- Finland 19.021.223.922.421.920.923.023.2 Sweden 24.926.031.428.326.325.325.829.8 ing, testing and communicating new United Kingdom 0.50.9 1.1 1.1 1.2 1.3 1.5 1.7 and best practice approaches to creating Turkey18.5 17.4 13.1 13.2 13.4 12.7 13.2 11.9 Iceland 64.9 67.6 71.4 73.2 72.8 72.8 72.3 73.0 environmental assessments. Norway 53.248.951.044.051.7 38.337.7 40.4 Source: EEA, Eurostat. For more information Other information available through the EEA to support assessments. http://themes.eea.europa.eu/IMS/CSI

European Benchmark Indicators (EBI) by Edward Vixseboxse, Netherland's Environmental Assessment Agency (MNP)

Why we need the European Benchmark mance in this way, within an enlarged European Indicators? Union, facilitates the improvement of policy effectiveness in a Member State and stimulates With the knowledge that there is a growing learning from the success of frontrunners. need for comparative indicators to measure Member State’s environmental performance, To sum up, the EBI is a tool by which environ- MNP has developed the European Benchmark mental performance within and between Mem- Indicators (EBI) to draw comparisons between ber States can be measured and compared, Member States. on a 100+ indicator environmental indicator database. Datasources are many-sided and The indicator database is primarily meant for include among other organizations: Eurostat, decision makers, but is also useful for the gene- World Bank, the European Environment Agen- ral public and scientists. Measurement of perfor- cy (EEA) and the World Resources Institute.

251 19 & 20 November 2007 Virtual Indicator Exhibition

Description of the EBI History of the EBI initiative

MNP has composed an indicator set of existing The fi rst version of the EBI was published in 2006 indicators that refl ects the environmental perfor- after 1 ½ years of research in concepts, method’s mance on different themes and issues within the and existing indicators initiatives. economic and social setting of a country. Especially within an European Union of 25 there is need for Information and downloads on the EBI webarticle, nuance. The environmental performance of coun- database (MS Excel) and background article (pdf) tries can be very different because of differences can be found at the following web addresses: in e.g. demography and economic structure. http://www.mnp.nl/en/publications/2006/Euro- peanBenchmarkIndicators.html Through the EBI the user is able to judge national environmental performance in a better way and within the proper country context. The air Current successes and key challenges quality of the Netherlands is e.g. below average for the EBI and heavily infl uenced by, among other things, the high car and population density. Performance Since introduction the EBI tool is getting more judged by the deployment of clean air technology and more popular. After media attention in Europe on the other hand gives exactly the opposite result: (Ends daily), the US (Crosslands Bulletin) and the the Netherlands performs better than average. Netherlands (Dagblad de Pers 2007, Milieu 2007) the database is increasingly being used by media, Practically speaking, the EBI indicators have been general public and scientists. divided into two parts. First a socioeconomic profi le, that should put environmental performance Foreseen in 2008 is the fi rst major update and re- into proper perspective. Indicators refl ects e.g. vision of the EBI. The EBI will also be integrated in countries’ economic performance, -structure and MNP’s environmental data-compendium through social characteristics. Where possible, each indi- 7 environmental dossiers. That is to say: biodi- cator covers data on the present situation and a versity, air-quality, water quality, climate change, trend from the past. waste, natural resources and ‘government & enterprise’. Second, an environmental profi le, that has been based on the OECD Pressure-State-Response (PSR) framework. Within themes as Air Quality Future steps, needs and prospects and Climate Change, performance is measured on the basis of environmental pressures, – tech- The main focus for the future is to keep the EBI nology –quality and progress towards Interna- updated, adjusted to changing environmental po- tional Commitments. licy perceptions and adapted to new availability of environmental data on issues not covered before. Existing aggregated indicators, like the Growth A dynamic and challenging task as a structured Competitiveness Index (Xavier Sala-I-Martin, availability, processing and publishing of environ- Columbia University) and the Ecological Footprint mental data has a far less long history compared (Wackernagel and Rees) can be and are indivi- to (socio) economic data. dual indicators in the EBI. Such composite indicators have the advantage that they provide an overall ranking of a country but also have quite a few disadvantages. The EBI individual indicator scores are not aggregated to a composite index as this is an area of methodological controversy.

Thus, the MNP indicator set is a product of a quite pragmatic method of working and ﬁ nds its rationale in the creation of a collection of “environmental policy stories”, like Climate Change, Air Quality and Biodiversity.

252 Beyond GDP: Measuring progress, true wealth, and the well-being of nations European Benchmark Indicators

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253 19 & 20 November 2007 Virtual Indicator Exhibition

Member States’ performance on the environmental dossiers: air quality, climate change and biodiversity through indicators taken from EBI

254 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Ecological Footprint

Ecological Footprint by Mathis Wackernagel, Global Footprint Network

Why we need the Ecological Footprint Ecological Footprint adds up these ecosystem areas to measure total human demand on na- One fundamental requirement for sustainabi- ture. In other words, Ecological Footprint ana- indicators Virtual lity is using renewable resources slower than lysis builds on “mass fl ow balance,” and each nature can replenish them. Societies who do fl ow is translated into the ecologically produc- not meet this minimum condition run ecological tive areas necessary to support these fl ows. defi cits. Ecosystems have a limited ability to supply us

To know whether we meet this requirement, with natural resources (this is based on factors Indicator Exhibition Virtual and to properly manage our ecological assets, such as available water, climate, solar energy, we need to measure our use of nature. We technology and management practices). This is need resource accounts that keep track of called biocapacity. When a population’s Ecologi- how much nature we have versus how much cal Footprint exceeds its biocapacity, biological we use. Ecological accounting operates like resource ‘overshoot’ occurs. fi nancial accounting: it tracks available capital, revenues and expenditures. As with fi nan- Global Footprint Network calculates the Ecolo- cial assets, it is possible to spend more of our gical Footprint of nations on an annual basis. ecological assets than are being regenerated From this data we undertake global analysis. – for some time. But such overspending deple- Overshoot measured on a global scale is an tes the natural capital and cannot be sustained indicator of unsustainability. Data shows that in the long term. Continued ecological defi cit humanity’s resource demands and waste pro- spending leads to environmental bankruptcy, duction began to exceed planet Earth’s ability eroding economies, lessened quality of life and to meet this demand around 1986. Today hu- societal instability. manity exceeds the planet’s ability to provide biological resources by 30 percent – thereby In short, like any successful business that dipping into the natural capital stock. While keeps track of revenues and expenditures, so- the world average capacity was 1.8 hectares ciety needs robust accounts of its demand on, per person, the world average Footprint was and supply of, ecological assets. This is what 2.2 hectares per person. In contrast, the ave- Ecological Footprint accounts offer. rage Footprint in EU-27 was 4.7 hectares per person against a biocapacity of 2.2 hectares per person. Description of the Footprint

The Ecological Footprint is EU-27 Footprint and biocapacity, 2003 an indicator that measures people’s demand on nature. This demand includes both the resources we consume as well as the waste we produce. We obtain these resources from forests, cropland, ﬁ sheries, and grazing land, among other ecosystems. The built environment com- promises the land’s ability to provide biological resources. Additionally, ecosystems absorb and assimilate the waste we produce as a result of resource consumption. The

255 19 & 20 November 2007 Virtual Indicator Exhibition

National Ecological Footprint accounts can also History of the concept inform us about local or regional ecological performance. An Ecological Footprint Assessment of The original Ecological Footprint methodology re- the European Union sponsored by the European sulted from collaboration between Dr. Mathis Wac- Environment Agency and published by WWF kernagel and Dr. William Rees at the University of International shows, for instance, that Europe British Columbia in Vancouver, Canada. The pu- has an Ecological Footprint more than twice its blication of their book “Our Ecological Footprint: biocapacity (http://www.footprintnetwork.org/ Reducing Human Impact on the Earth” in 1996 newsletters/gfn_blast_europe05.html). This means made the concept more widely accessible. that more than half of the ecosystem area on which Europe depends is outside of Europe. Europeans Global Footprint Network was founded in 2003 with have about twice the Footprint of what is available the goal of advancing the scientifi c rigor and practi- per person world-wide (and this available bioca- cal application of the Ecological Footprint, and ma- pacity also needs to support wild species that are king the Ecological Footprint as prominent a metric competing with people for food and space). All of as the Gross Domestic Product (GDP). Global Foot- the EU members have per person Footprints above print Network is made up of a 23-member advisory what is globally available. All but three – Sweden, board of leading scientists and politicians, an offi ce Latvia, and Finland – are running a national eco- in Oakland, one in Switzerland, and, soon, one in logical defi cit by using more than what is available Brussels. More than 75 organizations, spanning six within their boundaries. The Ecological Footprint of continents, have become formal Global Footprint Europe has increased by almost 70% per person Network partners. The Ecological Footprint is now since the 1960s (see fi gure below). in wide use by governments, communities, and businesses to set targets and monitor their ecological performance.

The adoption of the Ecological Footprint as a trusted sustainability metric depends upon the scien- tiﬁ c integrity of the methodology, consistent and rigorous application of the methodology across analyses, and on results being reported in a straightforward and non-mis- leading manner. To meet these goals, Global Footprint Network and its partners have created a consensus-based committee process for improving the method and for developing international Ecological Footprint Standards (www.footprintstandards.org).

As underlined in many publications, the Ecological Examples of current activities Footprint measures merely one aspect of sustainability: the availability of, and the human de- The tool is getting increasingly popular: a sim- mand on, Earth’s regenerative capacity. Other ple Google search yields hundreds of thousands measures are needed to complement this tool for of websites discussing the Ecological Footprint. assessing social well-being, depletion of non-re- The effort of advancing this accounting tool is newable resources, inherently unsustainable acti- also increasingly recognized. For instance, Glo- vities such as the release of persistent pollutants, bal Footprint Network is the recipient of a 2006 or the degradation of ecosystems. Skoll Award for Social Entrepreneurship. Global Footprint Network is one of only 10 organizations honoured with the USD 1,000,000 prize paid over three years, in recognition of the most innovative and effective approaches to resolving critical social issues.

256 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Ecological Footprint

The Footprint is also entering new arenas. solutely right (because it will take signifi cant For instance, work with the Swiss Agency for investments), and you are absolutely wrong Development and Cooperation applies Foot- (because it is profoundly necessary). print analysis to human development in Africa (www.footprintnetwork.org/africa). Future possibilities New tools are available to calculate the Foot- print. For businesses, for instance, www.foot- The method of calculating the Ecological Foot- printer.org or TBL3 (http://www.bottomline3. print continues to be refi ned under the scienti- indicators Virtual com), and for UK municipalities REAP (http:// fi c guidance of the National Accounts Commit- www.sei.se/reap/index.php). tee, housed by Global Footprint Network. For detail regarding the key aspects of the metho- A number of government organizations have dology targeted for future work see Kitzes et active Footprint initiatives, for instance EPA Vic- al. (http://www.brass.cf.ac.uk/uploads/fullpa- toria in Australia (http://www.epa.vic.gov.au/ pers/Kitzes_et_al_M65.pdf). Indicator Exhibition Virtual ecologicalfootprint), the city of Calgary (http:// www.calgary.ca/footprint), Wales (http://www. Updates to the fi rst edition of Footprint stan- footprintwales.org) or Scotland (http://www. dards are in the works and expected to be scotlandsfootprint.org). Various countries have released in late 2008. The next step is to initiated research collaborations with Global establish a certifi cation system for standards- Footprint Network to strengthen the Footprint compliant applications. analysis of their country: Switzerland, Japan, Belgium, and the United Arab Emirates. DG In 2005, Global Footprint Network launched its Environment has commissioned a study on “Ten-in-Ten” campaign with the goal of institu- how to use the Ecological Footprint for poli- tionalizing the Ecological Footprint in at least cy assessments – the fi nal report should be ten key nations by 2015. The aim of this pro- available by the end of the year. gram is to have ecological accounting be given as much weight as economic accounting and WWF has committed to help humanity reduce for the Ecological Footprint to become as pro- its Footprint to the size of one planet Earth by minent a metric as the Gross Domestic Pro- 2050. If you think this is radical, you are ab- duct (GDP).

257 19 & 20 November 2007 Virtual Indicator Exhibition

(environmentally) Sustainable National Income (eSNI) by Roeﬁ e Hueting, Foundation SNI

The need for eSNI So in view of the widespread perception that NI indicates economic welfare and success and even Standard national income (NI) is in politics, news- that production has to grow for fi nancing envi- papers and most economic literature identifi ed ronmental conservation, we greatly need an NI with economic growth and economic success. adapted for environmental losses, alongside the However, according to economic theory econom- standard NI, in order to counter this wrong per- ic success can solely mean increase in welfare ception. (the satisfaction of wants derived from our deal- ings with scarce means). Welfare is dependent on This is the (environmentally) Sustainable Nation- more factors than the production and its growth al Income (eSNI). The eSNI is the only indicator as measured in NI. Examples are: labour condi- which (1) is directly comparable with standard tions, income distribution, employment, and, of NI because it is estimated in accordance with the course, the possible uses c.q. environmental func- conventions of the System of National Accounts tions of our non-human made physical surround- (SNA), (2) relates the measurable physical envi- ings (the environment). The latter encompasses ronment (‘ecology’) with subjective preferences renewable and nonrenewable resources, includ- (economy) as shown in Figure 2, (3) provides the ing bio diversity and the life support systems of distance between the actual (NI) and sustainable our planet. Humanity is completely dependent on (eSNI) production level in factor costs and (4) these non-human made environmental functions. shows the development of this distance in the Since the use of functions is going more and more course of time and thus shows whether or not at the expense of other functions, environmental society is drifting further away from environmen- functions have become by defi nition scarce goods, tal sustainability defi ned as keeping vital environ- indeed the most fundamental scarce goods hu- mental functions available for future generations. manity disposes of. Loss of one or more vital func- Therefore the eSNI is indispensable information tions leads to a drop in production (see Figure 1). for society and policy.

In standard economic theory producing is de- ﬁ ned as adding value. This value is added to the Description non-human made physical surroundings. Conse- quently, environmental functions that are indis- Environmentally SNI in a given year is deﬁ ned as pensable for human life, including production, re- the maximal attainable production level by which main outside the measuring of standard NI. This vital environmental functions remain available is logical because water, air, soil, plant and animal for future generations, based on the technology species are not produced by humans. available at that year (the OECD has accepted

Figure 1 Actual standard national income observations (ya, ﬁ ctitious example) compared with the net national income (y) on three optimal paths, calculated with a dynamic environmental economic model. The red path (index b, business as usual) approximates the actual path (index a) by assuming incomplete expression of preferences for the environment. These preferences are assumed to be completely expressed on the sustainable path (index s) and the transition path (index t). The point

By indicates the level of national income y on path b in

the year of investigation; Sy is the corresponding point on the sustainable path s. The path b drops dramatically because of the loss of one or more vital environmental functions, as happened already in some regions (http:// www.millenniumassessment.org/en/condition.aspx).

258 Beyond GDP: Measuring progress, true wealth, and the well-being of nations eSNI

this defi nition http://stats.oecd.org/glossary/ ‘space for growing food crops’ and ’space for detail.asp?ID=6587). Thus the eSNI provides natural ecosystems such as forests’ with the information about the distance between the function ‘space for growing bio-fuel crops‘; the current and a sustainable situation. The length function ’regulating the water fl ow of e.g. for- of the period to bridge this distance, that is the ests’ (that prevents fl ooding) with the function transition period towards a sustainable situa- ’forests for harvesting wood’. tion, is limited only by the condition that vital environmental functions must not be damaged The availability of functions, or, in terms of the irreversibly. In combination with the NI, the SNA, their volume, decreases from ‘infi nite’ indicators Virtual eSNI indicates whether the part of the pro- (abundant with respect to existing wants) to fi - duction that is based on unsustainable use of nite, that is falling short. As a result, the shadow the environment is increasing or decreasing. price of environmental functions rises, and with Because of the precautionary principle, future it their value, defi ned as price times quantity, technological progress is not anticipated in from zero to an ever-higher positive value. This the calculation of eSNI. When constructing a rise in value refl ects a rise in costs. To deter- Indicator Exhibition Virtual time series of eSNI’s, technological progress mine the extent of the loss of function, we must is measured after the event on the basis of know the value of the function. Since environ- the development of the distance between the mental functions are collective goods that are eSNI and standard NI over the course of time. not traded on the market, supply and demand When this distance increases, society is drift- curves have to be constructed. Without data ing farther away from environmental sustain- on both preferences as well as on opportunity ability, and vice versa. costs, determination of value is impossible.

In our physical surroundings, a great number The estimated costs of measures necessary of possible uses can be distinguished, which to restore functions, that rise progressively are essential for production, consumption, per unit of function restored, can be seen as breathing, et cetera, and thus for human ex- a supply curve, because the measures sup- istence: environmental functions, or in short: ply the availability of functions. We call this functions. As long as the use of a function does the cost-effectiveness curve or the elimina- not hamper the use of an other or the same tion cost curve, because it refers to measures function, so as long as environmental func- that eliminate the pressure on the environ- tions are not scarce, an insuffi ciency of labour, ment. Except in the case of irreparable dam- that is intellect or technology, is the sole fac- age, this curve can always be constructed. The tor limiting production growth, as measured in measures consist of technological measures, standard NI. As soon as one use of a function stimulating direct shifts such as from private is at the expense of another or the same func- car to bicycle and stimulating birth control. For tion (by excessive use), though, or threatens non-renewables elimination measures take the to be so in the future, a second limiting factor form of developing and bringing into practice is introduced. The emergence of competition alternatives such as solar for fossil fuels. between functions marks a juncture at which functions start to fall short of meeting existing Preferences for environmental functions, on wants. Competing functions are by defi nition the contrary, can only partially be determined, scarce and consequently economic goods. In a since these can be expressed only very partially situation of severe competition between func- via the market, while willingness to pay tech- tions, in which we live today, labour is not only niques cannot yield reliable data precisely for reducing scarcity, and thus causing a positive vital functions. Their expression via the mar- effect on our satisfaction of wants (welfare), ket and budget mechanism is blocked by so but it is also increasing scarcity, thus causing called blockages or barriers (www.sni-hueting. a negative effect on welfare. The same holds info). Therefore it is not possible to construct for consumption. So today production not only a complete demand curve. In order to provide adds value (viz. goods for consumption) but the necessary information, assumptions about also nullifi es value (by damaging environmen- preferences have to be made. In the physical tal functions). Examples of competing func- environment these assumptions take the form tions are: the function ’air, water and soil as of physical standards. See Figure 2. It follows dumping ground for waste’ with functions like from the previous sentences that (1) these ‘air for physiological functioning‘, ‘drinking wa- standards have to be clearly distinguished ter‘ and ’soil for raising crops‘; the functions from whether or not people are willing to at-

259 19 & 20 November 2007 Virtual Indicator Exhibition

tain them and (2) they contain information and percent of the production level or national income are by no means actual political target setting. (www.sni-hueting.info).

Figure 2 Translation of costs in physical units into This corresponds with the production level in the early seventies. Consequently our production level is two times higher than the level that can be sustained for future generations. In the period 1990-2000 the distance between NI and eSNI increased by thirteen billion euro. (http://ivm5. ivm.vu.nl/sat/?chap=14)

History

The concept of eSNI has been designed by dr. Roefi e Hueting and has been worked on since the mid 1960’s, since 1990 together with ir. Bart de Boer. Central in the theory is the concept of environmental function. A diffi cult problem has been to establish the value of these functions and conse- costs in monetary units: s = supply curve or marginal elimination cost curve; d = incomplete demand curve or quently the costs of their loss in order to arrive at marginal benefi t curve based on individual preferences an NI adapted for loss of environmental functions. (revealed from expenditures on compensation of func- In his cum laude dissertation New Scarcity and tions, on restoration of physical damage due to loss Economic Growth (1974) and later publications of function e.g. the ‘hydrological regulation’ function Hueting arrives at the conclusion that this prob- resulting in erosion, and so on); d’ = ‘demand curve’ lem is insolvable, that consequently the correct based on assumed preferences for sustainability; BD = prices of market goods are equally unknowable, distance that must be bridged in order to arrive at sus- but that the indispensable information for policy tainable use of environmental functions; area BEFD = weighing can be given on the basis of estimates of total costs of the loss functions, expressed in money; factor costs and making assumptions about pref- the arrows indicate the way via which the loss of envi- erences. This ‘solution’ of the valuation problem ronmental functions recorded in physical units is translated into monetary units. holds true and is applicable for both not in GDP recorded environmental losses and other shortcomings of GDP. It is widely accepted, never disputed One possible assumption is prevailing prefer- and can for instance be found in the article that he ences for sustainable use of vital environmental wrote together with Nobelist Jan Tinbergen for the functions, which takes the form of a rectangular, Rio conference in 1992: ‘GNP and market prices: curve d’ in Figure 2. This assumption is legitimate wrong signals for sustainable economic success because governments and institutions all over the that mask environmental destruction’ (Tinbergen world have stated support for this. is one of the founders of the GNP/GDP indicator in the 1930’s and has strongly supported Hueting’s The cost-effectiveness calculations and the stan- efforts to estimate a fi gure alongside the GDP, dards are input in an economic model that has as right from the start in the mid 1960’s). output among other things the level of eSNI and the prices of products in a sustainable situation, with The work on eSNI received the Global 500 Award, strongly changed price ratio’s between environ- the royal honour Offi cer in the Orde of Oranje ment burdening (much higher real prices) and less Nassau and a nomination by Jan Tinbergen for the burdening products (about the same real prices). Sasakawa Prize. International symposia on eSNI were organised at the Royal Academy of Art and A fi rst rough estimate of the eSNI for the world Sciences in Amsterdam, by the OECD in Paris and in 1991 by Tinbergen and Hueting arrives at fi fty by The World Bank in Washington D.C. At the lat- percent of the production level of the world: the ter occasion the book ‘Economic Growth and Valu- world income (www.sni-hueting.info). Estimates ation of the Environment: a Debate’, dedicated to for The Netherlands by a co-operation of Statis- eSNI and with comments on eSNI by the world’s tics Netherlands, the Institute of Environmental most outstanding environmental economists such Studies and the Netherlands Environmental as Daly, Pearce and Beckerman, was handed by Assessment Agency also arrived at about fi fty minister Pronk to WB president Wolfensohn in

260 Beyond GDP: Measuring progress, true wealth, and the well-being of nations EU set of Sustainable Development Indicators

2001 (http://info.worldbank.org/etools/bspan/ Future PresentationView.asp?PID=494&EID=235). In the SEEA manual of the UN Statistical Ofﬁ ce Plans are elaborated in notes for (1) model im- is written: “Much of the initiative to look at an provements, (2) the set up of, among other alternative path for the economy rather than a things, deﬁ ning the measures and estimating different measure of the economy came from their costs to arrive at sustainable use of soil the work of Hueting in the late 1960’s and the that prevents erosion, one of the serious prob- early 1970’s. He introduced the concept of lems in developing countries and (3) eSNI es- environmental function referred to throughout timates in other countries e.g. Germany and indicators Virtual this manual, explaining how pressure on func- some developing countries. Representatives of tions leads to scarcity or competition for these The World Bank and the OECD have insisted functions (…).” (http://unstats.un.org/unsd/ on this. Although the Dutch Parliament has envaccounting/seea.asp). asked for funding this and the Dutch government has promised to do so, subsidies have

An estimate of eSNI for the world was made not been granted. The theory and elaboration Indicator Exhibition Virtual in 1991. Estimates of eSNI for The Nether- of the eSNI has received international scien- lands are made for the years 1990, 1995 and tiﬁ c recognition. It is the eldest and most com- 2000. A multidisciplinary team of biologists, plete environmental indicator as follows from chemists, physicists, electrical engineers and e.g. the four points mentioned in the Section economists worked for nearly forty years on ‘Need’. It provides information not given by the eSNI and the environmental statistics it any other indicator. However, because of lack is based on. of funding further development of the eSNI is hardly possible. Hopefully the European Union will help to change this situation.

EU set of Sustainable Development Indicators (SDIs) by Laure Ledoux, European Commission, Eurostat

The need for a European set of SDIs Measuring progress towards objectives and targets is an integral part of the renewed strat- The renewed sustainable development strategy. Eurostat is foreseen to produce a moni- egy identifi es seven key challenges which are toring report every second year, based on the seen as threats to achieving the overall long- EU set of SDIs, which underpins the European term objective of improving the quality of life Commission progress report. and well-being on earth for present and future generations. While it could be argued that there is some interest in having an aggregated Historical context measure of well-being, it is also important to measure the different elements that infl uence In 1996, the United Nations Commission on it over time, as they are not perfectly substi- Sustainable Development (UNCSD) proposed a tutable. Through identifying key challenges to list of indicators, linked to the thematic chap- sustainable development, the strategy implic- ters of Agenda 21, to be tested, developed and itly identifi es what are these key infl uences on used by governments. Eurostat contributed to well-being and the threats to long term devel- the international testing phase and issued two opment. The EU set of sustainable develop- publications drawing from the UN list of indica- ment indicators (SDIs) is designed to monitor tors. the related objectives and targets.

261 19 & 20 November 2007 Virtual Indicator Exhibition

Following the adoption of the EU sustainable de- The SDI set also describes indicators which are velopment strategy in Gothenburg in June 2001, not yet fully developed but which would be nec- a task force was established to develop a com- essary to get a more complete picture of prog- mon response from the European statistical sys- ress, differentiating between indicators that are tem to the need for indicators on sustainable de- expected to become available within two years, velopment. The Commission endorsed a fi rst set with suffi cient quality (‘indicators under develop- of 155 indicators based on this work in February ment’), and those to be developed in the longer 2005. Some 98 indicators from this list formed term (‘indicators to be developed’). the basis of the fi rst monitoring report published by Eurostat in December 2005. Upon the expiry Figure 1: The SDI pyramid of the mandate of the task force at the end of 2005, a working group on sustainable development indicators (SDIs) was set up, composed of both statistical and policy representatives at na- Level 1 Lead objectives tional and EU levels. Following the mandate of the renewed strategy, the review of this fi rst set Level 2 SDS priority objectives was carried out by the Commission in close cooperation with the working group on SDIs, with Level 3 Actions/ Explanatory variables the objective of adapting the 2005 SDI set to the renewed strategy, taking into account recent sta- Contextual indicators Background tistical developments.

Description of the reviewed SDI set Current success and key challenges The purpose of the SDI set, as seen in the strategy, is to ensure an adequate assessment of prog- National sets of sustainable development indica- ress with regard to each particular challenge. The tors in EU Member States and the rest of the world reviewed set therefore specifi cally aims at mea- may differ from the EU SDI set, refl ecting different suring progress towards the objectives and tar- policy priorities, and different levels of availability gets of the sustainable development strategy. of statistics. There is however some added value in measuring the same objectives with the same The SDI framework is based on ten themes, re- indicators to allow for meaningful cross-country fl ecting the seven key challenges of the strategy, comparisons. The EU SDI set is already guiding as well as the key objective of economic prosper- this convergence process to a certain extent. ity, and guiding principles related to good governance. The themes follow a general gradient from The Eurostat monitoring report provides a factual the economic, to the social, and then to the envi- analysis of progress focusing on trends and dis- ronmental and institutional dimensions. They are tances to targets (fi gure 2). Evaluation is based further divided into subthemes to organise the on quantitative rules applied consistently across set in a way that refl ects the operational objec- indicators, and visualised through weather sym- tives and actions of the sustainable development bols that illustrate whether changes are favour- strategy (see table 1). able in the context of sustainable development objectives (fi gure 3). The reviewed set of SDIs retains the three-storey pyramid structure of the 2005 set. This distinction The fi rst progress report on the sustainable de- between the three levels of indicators refl ects the velopment strategy has used sustainable devel- structure of the renewed strategy (overall objec- opment indicators extensively, demonstrating the tives, operational objectives, actions) and also re- usefulness of factual and objective assessment sponds to different kinds of user needs, with the as a background for policy analysis. The combi- headline indicators having the highest communi- nation of a policy relevant set of indicators with cation value (see fi gure 1). The three-levels are rigorous analysis based on independent statistics complemented with contextual indicators, which is key in this context. do not monitor directly the strategy’s objectives, but provide valuable background information for the analysis.

262 Beyond GDP: Measuring progress, true wealth, and the well-being of nations EU set of Sustainable Development Indicators

Table 1: Themes, Sub-themes and headline indicators

HEADLINE THEMES SUB-THEMES INDICATORS

Innovation, Socio-economic Economic competitiveness, Growth rate of GDP Employment

development development and eco-efﬁ - per inhabitant indicators Virtual ciency

Sustainable Resource use Consumption Production consumption Resource productivity and waste patterns patterns and production

Monetary po- Indicator Exhibition Virtual Social verty Access to labour At-risk-of-poverty rate Education inclusion and living market after social transfers conditions

Demographic Old-age income Public Finance Employment rate Demography changes adequacy sustainability of older workers

Health and Healthy life years and Determinants of health life expectancy at birth, Public health health inequalities by gender

Greenhouse Climate change Climate gas emissions Energy and energy change Consumption of renewables

Social and Sustainable Transport environmen- Energy consumption Transport prices transport growth tal impacts of by transport transport

Common Bird Index Natural Freshwater Fish catches Biodiversity Marine Land resources resources ecosystems use outside safe biological limits

Financing for Global Global Globalisation Ofﬁ cial Development sustainable resource partnership of trade Assistance development management

Policy cohe- Good Openness and Economic rence and ……. governance participation instruments effectiveness

Figure 2: Example of individual indicator presentation in the 2007 monitoring report

263 19 & 20 November 2007 Virtual Indicator Exhibition

Figure 3: Conclusions table in the 2007 monitoring report Evaluation of changes in the headline indicators (from 2000) SDI theme Headline indicator EU-27 evaluation of change Socioeconomic development GDP per capita Greenhouse gas emissions 1 Climate change and energy Consumption of renewables

Legend: Sustainable transport Energy consumption of transport 1 favourable change/ Sustainable consumption and production Resource productivity on target path Common birds 2 no or insuffi cient change Natural ressources Fish catches 2 unfavourable change/ far from target path Public healthHealthy life years 1 insuffi cient data/ : EU aggregare not available Social inclusion Risk of poverty: 1 Evaluation based on EU-15 Demographic changes years and over Employement rate of older workers Usual EU aggregates 1 2 not applicable Global partnership Offi cial development assistance

Future developments rationale of maintaining stocks of ﬁ nancial, natural, human, and social capital to preserve oppor- The Commission, with the assistance of the work- tunities for the well-being of next generations. ing group on SDIs, is committed to constantly This should yield useful insights for the selection review the situation regarding the development and interpretation of sustainable development in- of new and better indicators. This development dicators. work will contribute substantially to further improve the homogeneity of the set of indicators. In response to current policy needs, Eurostat is also in the process of launching a feasibility study A joint UNECE/OECD/Eurostat working group on on a well-being indicator, by reviewing the mer- statistics for sustainable development is current- its and shortcomings of existing approaches and ly assessing the use of the Capital approach to examining the feasibility of selected indicators at measure sustainable development, based on the EU level.

The Human Development Index (HDI) by Amie Gaye, UNDP Human Development Report Ofﬁ ce

Why an alternative measure to Gross Domestic growth enhances human development depends Product (GDP) on how that growth is generated and used. The economic growth paradigm neglects important Gross Domestic Product (GDP), which is the stan- aspects of development, such as income inequal- dard measure of a nation’s total economic activity ities, unemployment, and disparities in access to has been a dominant measure of a country’s level public goods and services like health and edu- of development for a long time and was assumed cation. For economic growth to enhance human to translate directly into improved human well be- development, it should provide an opportunity ing. However, while growth-oriented policies may to enhance workers’ knowledge and skills along increase a nation’s total wealth, whether or not with opportunities for their efﬁ cient use, provide

264 Beyond GDP: Measuring progress, true wealth, and the well-being of nations The Human Development Index

better job opportunities and support greater The scores for the three HDI components are democracy at all levels of decision-making. then averaged in an overall index. The HDI is Thus, the growth paradigm does not capture currently calculated for 177 countries and ar- adequately the multi-dimensionality of devel- eas for which data are available. opment. While the concept of human development is much broader than this composite measure, What is the Human Development Index the HDI offers a powerful alternative to GDP (HDI)? as a summary measure of human well-being. indicators Virtual It provides a useful entry point into other rich The HDI serves as a frame of reference for information contained in the indicator tables both social and economic development. It is covering a wide range of human development a summary measure for monitoring long-term issues presented each year in the Human De- progress in a country’s average level of human velopment Reports. development in three basic dimensions: a long Indicator Exhibition Virtual and healthy life, access to knowledge and a decent standard of living. It sets a minimum What the HDI reveals and a maximum for each dimension, called goalposts, and shows where each country stands The HDI reveals that some countries do bet- in relation to these goalposts, expressed as a ter on human development with relatively low value between 0 and 1. GDPs per capita. For example, Italy’s GDP per capita is only about two-thirds of that of the The life expectancy component of the HDI United States but the two countries have simi- is calculated using a minimum value for life lar HDI values (see Figure 1). expectancy of 25 years and maximum value of 85 years. This is because even with HIV/AIDS Figure 1: GDP vs. HDI; it is unlikely for life expectancy at birth to fall comparing Italy and USA below 25 years.

The knowledge component of the HDI is measured by adult literacy rates and the combined gross enrolment ratio in primary, secondary and tertiary education, weighted to give adult literacy more importance (two-thirds). While at the national level it is unlikely for any of the knowledge indicators to assume a zero value, at disaggregated levels, it is possible for some population sub-groups to score very low on the indicators. For this reason, the lower end of the goalpost is set at 0 and the upper end at 100 per cent.

For a decent standard of living, which is measured by GDP per capita in purchasing power parity (PPP) US Dollar terms, the goalpost for minimum income is $100 (PPP) and the maximum is $40,000 (PPP). GDP per capita is converted into PPP terms to eliminate differences in Source: HDRO web site http://hdr.undp.org national price levels in order to make standards of living comparable across countries. Disaggregating the HDI by income quintiles for countries for which representative data are In the calculation of the HDI, a logarithm of available is also revealing. For instance, the income is used to reﬂ ect the diminishing impor- gap between the value for the richest 20 per tance of income with increasing GDP. This is cent and the poorest 20 per cent of households premised on the belief that people do not need in the United States is about 17 per cent. This an inﬁ nite amount of money for a decent qual- is similar to the gap between average HDIs ity of life. for the United States and Cuba respectively.

265 19 & 20 November 2007 Virtual Indicator Exhibition

In other words, while the richest 20 per cent in the nature, distribution and quality of economic the United States would be at the top of the HDI growth. It became clear that economic growth league table, the poorest 20 per cent would be alone is not an adequate yardstick for a country’s at the same human development level as people level of development. The need for a conceptual living in Cuba (see Figure 2). shift and alternative policy options that create a balance between economic growth and protection Figure 2: Human development index of the interest of poor and marginalised members by income groups of society became imperative.

The HDI, which was introduced in the ﬁ rst Human Development Re- port published in 1990, was a response to this demand. The idea of a composite index that measures socio-economic progress was conceived by Mahbub ul Haq a re- nowned economist, whose vision was to come up with one measure which is as crude as the GDP, but “not as blind to social aspects of human lives as the GNP is”.

Limitations of the HDI

Like any other composite index, the HDI suffers a limitation of not capturing all the different dimensions of human development. Data availability poses a major challenge to capturing other important dimensions of human development such as po- Source: 2006 Human Development Report litical freedom, environmental sustainability and degree of people’s self respect. The variation in HDI value marked by unequal opportunities and capabilities calls for public poli- Secondly, the HDI is not designed to assess pro- cies aimed at equalizing opportunities and choic- gress in human development over a short-term es. Apart from the moral imperative to overcome period because some of its component indicators extreme inequalities in income, access to edu- are not responsive to short-term policy changes. cation and health, inequalities pose a threat to Thus, the index partially measures past achieve- national and global securities. ments as the components are made up of both stock and ﬂ ow variables.

History of the human development concept Future Possibilities For decades, the economic growth paradigm do- minated the national development discourse. Since its introduction in 1990, the HDI’s analyti- However, in the 1980s unemployment levels es- cal framework, methodology and data have been calated; and access to social services deteriora- subjected to rigorous scrutiny. Some of the ma- ted in many countries including some industria- jor criticisms have led to major reﬁ nements of lised countries while at the same time, economic the methodology and component indicators but production was expanding. In other words, high the index continues to evolve. For example, the rates of economic growth did not automatically HDI by income groups, calculated for 15 coun- translate into improved human well-being. During tries (13 developing and 2 developed) with data the same period, some countries were registering and published in the 2006 HDR, points to a need improvement in human well-being with modest for bringing out inequalities in HDI for evidence- economic growth. These raised questions around based planning. This is one area that the HDRO

266 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Index of Individual Living Conditions

would like to extend to as many countries as There are also discussions around capturing data availability would allow. the environment dimension of human development either as part of the HDI or as a new in- Another future plan is to construct a separate dex. However, these discussions are at a very HDI for women and for men to better present early stage and data availability will inform gender inequalities in human development. any the ﬁ nal decision. But this depends on reliable data on income for women and for men. Virtual indicators Virtual

Index of Individual Living Conditions Indicator Exhibition Virtual by Heinz Herbert Noll, GESIS, Social Indicators Research Centre

The Index of Individual Living Conditions data from the European Community Household Panel Study, which was established in 1995 and The Index of Individual Living Conditions pre- discontinued in 2001. However, the variables used sented as part of the European System of Social to calculate the Individual Living Conditions Index Indicators (EUSI) is a composite index aiming have been selected with a view to be included to give a summary view of the quality of living into the EUSILC – the follow-up database to the conditions in a single measure. The Index allows ECHP – as well. Thus, depending on the avail- to easily and unequivocally assess the living ability and accessibility of the EU-SILC microdata conditions of a population – which are multi- sets, the index will be updated for years beyond dimensional by nature – and to compare them 2001 and will also be calculated for EU member across countries and across time. It measures states not represented in the ECHP. progress in the improvement of living conditions of the European citizens beyond GDP. Since this index, contrary to others, is based on microdata Development of Living Conditions on personal and household level, the Living in EU -Countries Conditions Index can be broken further down and thus allows to compare the situation of The index currently allows to monitor the devel- subgroups (e.g. age groups, men and women, opment of average individual living conditions educational level) within a population. for a number of EU member countries for the period from 1995 to 2001. Chart 1 shows the generally high level of living conditions in Europe Composition of the Index of Individual (with scores between 3.4 in Portugal and 4.1 in Living Conditions Denmark), but also the discrepancy between northern and southern countries of Europe. The The Living Conditions Index is supposed to con- development across time displays a general dense and simplify the complexity of information slight improvement of living conditions, while the provided by the multitude of single indicators distance between the countries has decreased in the European System of Social Indicators only marginally. As soon as the Living Conditions addressing the various dimensions of living con- Index can be calculated on the basis of the ditions comprehensively. In order to present EU-SILC data, the scope can be extended to all a representative measure of individual living 27 EU member countries, which allows to moni- conditions, the index is calculated as the mean tor and assess the whole range of living condi- score of seven subindices, all ranging from 1 tions in Europe, i.e. not only differences between to 5: Income and standard of living, housing, northern and southern, but also between eastern housing area, education, health, social relations and western countries. Also, the change over and work. The Living Conditions Index thus also time, including processes of convergence and varies between 1 (worst) and 5 (best). Up to divergence, and the success of EU cohesion poli- now, the calculation of the index is based on the cies can be further monitored and assessed.

267 19 & 20 November 2007 Virtual Indicator Exhibition

Chart 1: Individual Living Conditions Index 1995-2001

Chart 2 presents the index values for two coun- are pretty similar in both countries: In Denmark tries, Italy and Denmark, in 2001, but broken and in Italy the better educated and higher in- down by a few socio-demographic characteristics. come groups are also enjoying better general The possibility to do this is a major advantage of living conditions than less educated and poorer an index based on individual survey data. The people, the employed are better off than the un- chart shows very clearly that living conditions employed or inactive, the middle aged are better overall turn out to be better in Denmark, but the off than the young and the elderly or the divorced patterns of group differences in living conditions and widowed are worse off than the married or

Chart 2: Index of Individual Living Conditions: Denmark and Italy, 2001

268 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Index of Individual Living Conditions

singles. Overall the ﬁ gures seem to indicate however deﬁ ned by the member states of the that the index brings about plausible and reli- European Union. Depending on data availability able results. Of course one could also do all time series start at best at the beginning of kinds of statistical analyses, e.g. calculations the 1980s. Most of the indicators time-series of correlations or regressions, which is another are broken down by various sociodemographic major advantage of an index based on indi- variables. Also regional disaggregations at the vidual survey data, like the Individual Living NUTS-1 level are being offered whenever pos- Conditions Index. sible and meaningful. At its present stage the European System of Social Indicators offers indicators Virtual time-series data for more than 600 indicators The European System of Social Indicators from 9 out of the projected 13 life-domains. The system will subsequently be completed and The Index of Individual Living Condition is an continuously be updated. integrated part of the European System of Social

Indicators. Within this system it is considered as The European System of Social Indicators Indicator Exhibition Virtual a summary measure of the objective living con- is based on data sources ensuring the best ditions for life as a total. The European System of possible level of comparability across coun- Social Indicators has initially been developed as tries and time. The data sources used include an EU-funded project (EuReporting) within the international aggregate ofﬁ cial data, e.g. from TSER program and was then institutionalised as Eurostat, the OECD or the WHO, as well as part of the German Social Science Infrastructure microdata from crossnational surveys, e.g. Services (GESIS). from the European Community Household Panel (ECHP), the European Social Survey (ESS), the The European System of Social Indicators has Eurobarometer studies or the International Social been developed with a view to be used to continu- Survey Programme (ISSP). To some extent, the ously monitor and analyse quality of life, social indicator system reverts to national data, too. cohesion and sustainability as well as changes in the social structure of European societies The European System of Social Indicators and the European Union. Since it is supposed addresses social scientists, policy makers at the to be a concept driven system, the selection of national and the supranational level, university indicators is based on a conceptual framework and school teachers, students as well as journal- that distinguishes eight principal dimensions of ists. The database is considered to be particu- welfare measurement and general social change larly useful for all kinds of comparative research and covers 13 life domains: on the development of quality of life, social cohesion, sustainability, social structures and • Population, Households and Families value orientations within and across the coun- • Transport tries covered. Moreover, the European System • Leisure, Media and Culture of Social Indicators constitutes an important • Social and Political Participation database for the policy making processes as a and Integration tool to monitor progress in the achievement of • Income, Standard of Living, national and international policy goals. and Consumption Patterns • Education and Vocational Training • Health For more information see: • Housing • Labour Market and Working Conditions www.gesis.org/eusi • Social Security • Public Safety and Crime • Environment • Total Life Situation

The indicators system provides time series data for more than 30 nations: the EU member states, Switzerland, Norway, as well as Japan and the United States as two major reference societies. The primary focus of the indicators system is

269 19 & 20 November 2007 Virtual Indicator Exhibition

Genuine Progress Indicator (GPI) by John Talberth, Redeﬁ ning Progress

Sustainable Development and the Genuine other green GDP accounting systems all involve Progress Indicator three basic steps. Computation usually begins with estimates of personal consumption expenditures, An updated methodology and application which are weighted by an index of inequality in in policy settings (http://www.rprogress.org/ the distribution of income to refl ect the social costs sustainability_indicators/genuine_progress_indicator. of inequality and diminishing returns to income htm) received by the wealthy. Additions are made to account for the non-market benefi ts associated with volunteer time, housework, parenting, and other What is the Genuine Progress Indicator? socially productive time uses as well as services from both household capital and public infrastruc- During World War II gross domestic product (GDP) ture. Deductions are then made to account for accounts were introduced to measure wartime purely defensive expenditures such as pollution production capacity. Since then, GDP has become related costs or the costs of automobile accidents the world’s most ubiquitous indicator of economic as well as costs that refl ect the undesirable side progress. It is widely used by policymakers, econo- effects of economic progress. Deductions for costs mists, international agencies and the media as the associated with degradation and depletion of natu- primary scorecard of a nation’s economic health and ral capital incurred by existing and future genera- wellbeing. Yet, as we know from its creator Simon tions are also made at this stage. Table1 provides a Kuznets the GDP was never intended for this role. line by line summary of these adjustments in 2004 It is merely a gross tally of products and services for the U.S. GPI, the latest year for which data are bought and sold, with no distinctions between available. By making these adjustments, the GPI transactions that enhance well being and those corrects the defi ciencies of GDP by incorporat- that diminish it. Instead of distinguishing costs ing aspects of the non-monetized or non-market from benefi ts, productive activities from destruc- economy, separating welfare enhancing benefi ts tive ones, or sustainable ones from unsustainable from welfare detracting costs, correcting for the ones the GDP simply assumes that every monetary unequal distribution of income, and distinguishing transaction adds to social well-being by defi nition. between sustainable and unsustainable forms of In this way, needless expenditures triggered by consumption. crime, accidents, toxic waste contamination, pre- ventable natural disasters, prisons and corporate fraud count the same as socially productive invest- What Improvements Were Made in 2006? ments in housing, education, healthcare, sanitation, or mass transportation. It is as if a business tried The GPI 2006 Update makes a number of improve- to assess its fi nancial condition by simply adding ments and additions to the basic GPI methodology up all “business activity,” thereby lumping together fi rst developed in the late 1990s. These improve- income and expenses, assets and liabilities. ments can be grouped under two broad headings: new data sources and new calculations. Examples Beginning with the seminal work of Daly and Cobb of new data sources include the Bureau of Labor (1989) there have been several attempts to develop Statistics’ American Time Use Surveys (ATUS) in alternative national income accounting systems 2003 and 2004. The new ATUS data was used to that address these defi ciencies. Collectively, these improve our calculations of the value of house- systems measure what is commonly referred to work, parenting, and volunteering. As another as “green” GDP. Major objectives of these green example, we incorporated new research from the GDP accounting systems are to provide a more U.S. Forest Service on logging related erosion and accurate measure of welfare and to gauge whether deforestation. We also used new data as well as or not an economy is on a sustainable time path. new valuation studies to assign costs to farmland, Two of the most popular green GDP systems are wetland, and forest losses. the Index of Sustainable Economic Welfare (ISEW) and the Genuine Progress Indicator (GPI). While The GPI 2006 update also includes calculations that methodologies differ somewhat, the ISEW, GPI, and did not appear in our previous GPI publications. One

270 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Genuine Progress Indicator

calculation is the non-market benefi ts associated • Globalization has exported America’s vast with higher education – benefi ts that amount to manufacturing infrastructure overseas and $16,000 per year per college educated worker. with it a source of productive investments. We expanded our deforestation estimates to As a result, an increasing share of foreign in- include economic damages associated with loss vestment in the U.S. today is used to fi nance of roadless areas, ancient forests in the Pacifi c consumer debt and government spending for Northwest and Alaska, and loss of loblolly pine tax breaks and the wars in Iraq and Afghani- forests in the Southeast. We also added carbon stan. This puts us in the position of being a emissions damage to refl ect the ever-increasing net borrower. Net borrowing today is a record indicators Virtual costs of global warming. A complete column $254 billion, a cost overlooked by GDP. by column explanation of these improvements appears in the full report. • The GDP counts all $600 billion plus spent on wars each year as a benefi t – despite the fact that over half of all Americans disap-

Key Results from the 2006 Update prove of the war and decry its daily toll on Indicator Exhibition Virtual American families, our long term security, Figure 1 shows GPI account trends for the the environment, Iraqi and Afghanistan so- 1950 – 2004 period. The results are alarming. cieties, and our international reputation. While per capita GDP has risen dramatical- The GPI recognizes that this spending is de- ly – from $11,672 in 1950 to $36,595 today, fensive – at best it helps maintain the status per capita GPI has stagnated in the $14,000- quo, at worst, it is a liability on our future. $15,000 range since the late 1970s. This implies In any case, it should not be counted to- that since the late 1970s, the benefi ts of eco- wards progress. nomic growth have been entirely offset by rising inequality, deteriorating environmental condi- • The increase in the number of college gradu- tions, and a decline in the quality of our lives. ates in the population is increasingly paying Key fi ndings of our 2006 update include: off in the form of many non-market benefi ts such as increases in the stock of knowledge, • Drought, fl oods, sea level rise, and severe worker productivity, civic participation, job storms exacerbated by global warming are market effi ciency, savings, research and de- taking their toll on the U.S. economy. Con- velopment activities, charitable giving, and servatively, we estimate the costs of our car- health. These benefi ts amount to roughly bon emissions on existing and future genera- $828 billion each year. tions to be just over $1 trillion per year. • Volunteerism is on the rise, and represents • Income inequality is at its greatest level some of the most valuable work performed since 1950. The income distribution index in our country. The GPI estimates the val- – which measures income inequality – in- ue of volunteer work in America to be over creased by 20% since 1968, the year the $130 billion. On a per capita basis, the value nation’s income was distributed most equi- of work performed by churches and syna- tably. When growth is concentrated in the gogues, civic associations, neighborhood wealthiest income brackets it counts less groups, and non-profi ts rose from $202 in towards improving overall economic welfare 1950 to $447 today, implying that over the because the social benefi ts of increases in past few decades, Americans have become conspicuous consumption by the wealthy more generous with their time. are less benefi cial than increases in spending by those least well off. So a dollar of economic growth today counts far less than it Towards National Programs on Genuine did when our income distribution was more Progress Accounts equitable. RP is seeking government and NGO partners • Urban sprawl gobbles up prime farmland, to launch national level Programs on Genuine increases commute times, exacerbates ur- Progress Accounts to make GPI a regular com- ban air, water, and noise pollution, and in- ponent of national and sub-national economic creases accident rates. We estimate the performance measurement, program and project costs of urban sprawl to be over $1.1 trillion assessment, higher education curricula, and each year. economic media coverage. National and sub-

271 19 & 20 November 2007 Virtual Indicator Exhibition

national GPI accounts would Figure 1: GPI vs. GDP Time Trends be supported by ongoing non-market valuation studies coordinated at major universities and NGO institutes. While national level leadership is important, as with climate change, it may well be that local government leadership will be the key driver of change. Thus, we seek partners who can help develop GPI adapta- tions at the local level and demonstrate GPI’s relevance in multiple policy settings such as debates over land use, taxes, living wages, and localization.

Table 1: U.S. GPI Contributions and Deductions (2004)

Contributions Amount (Billions) Personal consumption expenditures $ 7,588.60 Weighted personal consumption expenditures (adjusted for inequality) +6,318.41 Value of housework and parenting + 2,542.16 Value of higher education + 827.98 Value of volunteer work+131.30 Services of consumer durables +743.72 Services of streets and highways + 111.55 Net capital investment (positive in 2004, so included in contributions) + 388.80 Total positive contributions to the GPI: $ 11,063.92

Deductions Amount (Billions) Cost of crime - $ 34.22 Loss of leisure time -401.92 Costs of unemployment and underemployment - 176.96 Cost of consumer durable purchases - 1,089.91 Cost of commuting - 522.61 Cost of household pollution abatement - 21.26 Cost of auto accidents - 175.18 Cost of water pollution - 119.72 Cost of air pollution -40.05 Cost of noise pollution - 18.21 Loss of wetlands -53.26 Loss of farmland -263.86 Loss of primary forest cover - 50.64 Depletion of non-renewable resources - 1,761.27 Carbon emissions damage - 1,182.82 Cost of ozone depletion - 478.92 Net foreign borrowing (positive in 2004, so included in deductions) - 254.02 Total negative deductions to the GPI: $ 6,644.83

Genuine Progress Indicator 2004 $ 4,419.09 Gross Domestic Product 2004 $ 10,760.00

272 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Happy Life Years

Happy Life Years (HLY) by Ruut Veenhoven, Erasmus University Rotterdam, The Netherlands

Need for a measure of quality of life Measure of Happy Life Years in nations indicators Virtual How can we assess how long and happy peo- How to assess how well a nation is doing? One ple live in a country? This can be done com- way is to look at the quality-of-life of the peo- bining data on average happiness assessed in ple who live there. This view is gaining promi- surveys of the general population with data on nence, both among policy makers and the longevity taken from civil registration. general public. This begs the question what Indicator Exhibition Virtual quality-of-life is precisely and how that can be Happiness measured comprehensively. Happiness is how much one likes the life one lives. Since this is something people have in mind, it can be measured using single direct Assumed quality-of-life questions. An example of a survey question on happiness is: Quality-of-life in nations is commonly mea- Taking all together, how satisfi ed or dissatisfi ed sured by taking stock of conditions that are are you currently with your life as a whole? believed to make for a better life, such as eco- 1 2 3 4 5 6 7 8 9 10 nomic affl uence, full employment and educa- Dissatisfi ed Satisfi ed tion. Measures of such conditions are added in an index, like the Human Development Index Longevity (HDI) or the Index of Social Progress (ISP). How long people will live in a country can be estimated on the basis of longevity of people Items in such indexes are typically things that are who have passed away. Statisticians call this on the political agenda and as such these indexes life expectancy. inform about progress on the way chosen. Yet these indexes do not tell us whether we are on the Happy Life Years = Life expectancy at birth x right track, that is, whether these policy achieve- 0-1 happiness ments really improved the lives of citizens. Still Suppose that life expectancy in a country is 60 another problem is that such measures typically years. If everybody were perfectly happy in assume that more is better and do not inform us that country (average score 10), people would about an optimum, e.g. how many years of edu- live 60 Happy Life Years in that country. If the cation is optimal for a good life. average score is 5 the number of Happy Life Years is obviously lower, in this case 60 x 0,5 = 30. If life expectancy is also 60 years but Apparent quality of life average happiness 8, the number of happy life years is 48 (60 x 0,8). Another approach is to assess how well people thrive in a society. The focus is then on the outcomes of life, rather than on the preconditions. Large differences in Happy Life Years How well an organism thrives is typically re- across nations fl ected in its lifetime. In higher animals, thriving refl ects also in affective experience and hu- Theoretically, this indicator has a broad varia- mans are moreover able to estimate how well tion; HLY is zero if nobody can live in the coun- they have felt over longer periods of time. try, and will be endless if society is ideal and its inhabitants immortal. The practical range is These estimates of how we feel most of the about 50 years, the highest number of Happy time are at the basis of the appraisal of how Life Years is observed in Switzerland (63.9) happy we are. Hence in the case of humans, and the lowest in Zimbabwe (11.5). thriving refl ects both in how long and how happy they live.

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Gains in Happy Life Years over time in EU8, This illustrates the above difference between as- Japan and the USA sumed quality of life and apparent quality of life.

Happiness has risen in slightly in most developed nations since the second half of the 20th century Societal Qualities and Happy-Life-Years and life-expectancy has grown substantially. As a in 67 nations in the 1990s result, the number of Happy Life Years has grown remarkably. Correlation with HLY Condition in nation Wealth Zero Con- N order trolled Wealth • Purchasing power +.73 - 67 per head Freedom • Economic +.71 +.38 64 • Political +.53 +.13 63 • Personal +.61 +.31 45 Equality • Inequality -.10 +.37 62 in incomes • Discrimination -.46 -.12 51 of women Trend lines for 16 nation available at: • Inequality in -.64 -.37 54 http://worlddatabaseofhappiness.eur.nl/hap_ happiness (SD) nat/ﬁ ndingreports/TrendReport2007-2.pdf Brotherhood • Tolerance +.72 +.43 55 • Trust in compatriots +.20 +.20 37 Happy Life Years sensitive for things that policy makers can improve • Voluntary work +.40 +.31 53 • Social security +.34 -.27 34 There is a system in the differences in Happy Justice Life Years across nations. About two-third of the • Rule of law +.65 +.20 64 large differences in HLY across nations can be ex- • Respect of plained by societal variation in economic afﬂ u- +.60 +.20 60 ence, freedom, equality, brotherhood and justice. civil rights The table below presents correlations with indica- • Corruption -.73 -.32 40 tors of these matters. Explained variance 66% 60

All variables in the table are things over which Source: Veenhoven, R. (2005) policy makers have some control. So the data Apparent quality of life: How long and happy people live leave no doubt that policy matters for ﬁ nal quality of life and also indicate what matters most. Economic afﬂ uence still stands out as a mayor factor, but ‘tolerance’ and ‘rule of law’ appear to be quite important as well.

Yet not everything deemed desirable appears to go with more happy life years. For instance, income- inequality rather appears to be positively related to HLY and social security spending negatively.

274 Beyond GDP: Measuring progress, true wealth, and the well-being of nations The Happy Planet Index

Happy Life Years in nations in the early 2000s

Top Middle range Bottom > 60 years ± 40 years <25 years Switzerland 63,9 Philippines 44,1 Moldova 23,7 Denmark 62,7 South Korea 43,8 Uganda 23,3 Virtual indicators Virtual Iceland 62,2 Iran 41,4 Angola 17,6 Austria 61,0 Hungary 40,0 Tanzania 15,2 Australia 60,7 Morocco 37,9 Zimbabwe 11,5

Full list of 95 nations available at:

http://worlddatabaseofhappiness.eur.nl/hap_nat/ﬁ ndingreports/RankReport2006-2b.htm Indicator Exhibition Virtual

Literature

• Veenhoven, R. (1996) Available at: http://www2.eur.nl/fsw/ Happy life-expectancy: A comprehensive research/veenhoven/Pub2000s/2005j-full.pdf measure of quality-of-life in nations. Available at: http://www2.eur.nl/fsw/ • Social Indicators Research, vol. 71, pp. 61-86 research/veenhoven/Pub1990s/96b-full.pdf World Database of happiness, continuous register of scientiﬁ c research on subjective • Social Indicators Research, enjoyment of life Erasmus University Vol. 39, 1 – 58, Veenhoven, R. (2005d) Rotterdam, The Netherlands. Apparent quality of life: How long and Available at: http://worlddatabaseofhappi- happy people live. ness.eur.nl

The Happy Planet Index prepared by Sam Thompson, Nic Marks, Saamah Abdallah, nef (the new economics foundation); Ed Matthews, Friends of the Earth UK nef (the new economics foundation) a Lon- Background don-based think-tank, introduced the Happy Planet Index (HPI) in July 2006 as a means Although GDP is routinely used as a proxy for of comparing the progress of nations toward standard of living, it was never intended to the goal delivering high levels of experienced function as one and its founders explicitly cau- well-being within the constraints of equitable tioned against this interpretation. Two familiar and responsible resource consumption. Inde- critiques relate to: 1) insensitivity to income pendently, at around the same time, the IUCN distribution, and thus potentially to extreme (The World Conservation Union) called for a inequality, within a country; and 2) failure to metric capable of measuring “the production distinguish expenditure that is incurred in cor- of human well-being (not necessarily material recting or compensating for undesirable events goods) per unit of extraction from or imposi- – both collective (e.g. natural disasters, wars) tion upon nature” – the HPI does just that. The and personal (e.g. acute health problems, ﬁ rst HPI report, published by nef, with the sup- family breakdown). port of friends of the earth UK in 2006 covered 178 countries across the globe. A second, in- However, a further two – equally important – depth report focusing exclusively on Europe, limitations of using GDP as a measure of hu- was released in 2007. man progress need to be highlighted. Firstly,

275 19 & 20 November 2007 Virtual Indicator Exhibition

such an interpretation implies that GDP should correlate with experienced well-being at the national level, such that – all else being equal – aggregate experienced well-being will increase as the economy grows. As ﬁ rst shown by Easterlin (1974) and repeatedly since, this is not generally true in practice. GDP thus seems to be ﬂ awed as a proxy for experienced welfare.

Secondly, GDP doesn’t account for the natural environment; there are no internalised costs of environmental damage and pollution and it treats depletion of stocks of natural capital as income. previous GDP alternatives in that it makes no use To quote the economist Herman Daly, “it treats of income or income-adjusted measures. Rather, the earth as if it were a business in liquidation”. it treats the economy as just one amongst several In short, GDP is a very poor indicator of sustain- mediating processes within a larger system. able welfare. HPI takes the stock of the planetary resources Most attempts to refi ne GDP to take better ac- that sustains life and supports all human activities count of both lived experience and sustainability as the fundamental input. The ultimate output is have taken one of two approaches: adjusting and the goal of all human endeavours – experienced supplementing. In the former, GDP has been ad- well-being. To the extent that wealth, material justed to take account of costs attributable to in- possession, technology and so on are important, equality, environmental damage and expenditure it is because they contribute to this ultimate goal. due to negative events, as well as the “hidden” Conceptually, the HPI is a measure of input-out- value of unpaid and voluntary work. Probably the put effi ciency – it indicates well-being produced best-known example is the Index of Sustainable per unit of resource consumption. Economic Welfare (ISEW). The second approach has been to use GDP data “as is”, but to combine Experienced Well-being it with explicit welfare measures such as health HPI= Resource Consumption and education; the most widely-known example is the UN’s Human Development Index (HDI). How the HPI is calculated Both approaches improve on GDP, but neither fully meet the challenge of refl ecting both lived The HPI uses Dutch sociologist Ruut Veenhoven’s experience and environmental sustainability. concept of Happy Life Expectancy (HLE) – a com- And, it is increasingly clear that we are run- bination of subjective life satisfaction and objec- ning up against very real environmental limits. tive life expectancy (Veenhoven 1996) – for its Unless we are able to move towards a position measure of experienced well-being. To calculate where we begin to live within the environmen- a nation’s mean HLE, ratings of subjective life tal budget that the planet has to offer we face satisfaction (on a scale of 0-10) are multiplied ecological bankruptcy in the form of crises like by mean life expectancy at birth and divided catastrophic climate change, and the loss of by 10. The resulting scores represent, in effect, conditions on Earth that are convivial to human happiness-weighted life expectancy. Veenhoven life. To avoid this we need a new compass to describes this as an “ultimate output measure”, help navigate the extreme challenges of sharing because it incorporates both “apparent” and “as- a volatile world. sumed” quality of life.

The bottom half of the equation, resource con- Introducing the Happy Planet Index (HPI) sumption, uses Carbon Footprint per capita. This is expressed in terms of the land area required to The HPI is multi-dimensional and composed of dis- support the plant life needed to absorb and se-

tinct variables that each reﬂ ect a different aspect quester CO2 emissions from fossil fuels used by a of the human condition. However, it differs from country, given its levels of consumption. The mea-

276 Beyond GDP: Measuring progress, true wealth, and the well-being of nations The Happy Planet Index

sure takes account of “embodied” carbon associated with the production of goods including imports.

Calculating the HPI requires three discrete steps. Firstly, the data is normalised so that the variances in the top and bottom halves of the equation are made equal. Then, indicators Virtual experienced well-being is divided by resource consumption. Thirdly, to make interpretation easier, the resulting scores are transformed onto a 100 point scale, using a theoretical maximum score de- Indicator Exhibition Virtual termined on the basis of plausible “ideal” performance on the three component variables. good well-being outcomes but only at extremely high environmental costs.

What the HPI shows As planetary resources have become increasingly constrained over the years, it might be To the right is a scatterplot of Happy Life Years hoped that this would have been accompanied against Carbon Footprint for countries of Eu- by an upwards trend in HPI, reﬂ ecting increas- rope. The top-left corner of the graph is where ing efﬁ ciency. In fact, as the graph on the countries should aspire to be – maximising left shows, this has not been the case in the well-being and minimising footprint. countries of Europe for which reliable longitu- dinal data exists. Rather than increasing, the HPI scores of the nine oldest EU members are around 10 per cent lower now than in 1961 (the earliest point where adequate data is available).

Value of the HPI

As a metric of sustainable welfare, the HPI provides a radical alternative to existing GDP- based indicators. The ﬁ rst HPI report (nef, 2006) showed that some countries around the world achieve similar lev- AT: Austria - BE: Belgium - BG: Bulgaria - CH: Swizerland - CY: Cyprus - CZ: Czech Republic - DE: Germany els of experienced well-being DK: Denmark - EE: Estonia - ES: Spain - FI: Finland - FR: France - GR: Greece - HU: Hungary - IE: Ireland IS: Iceland - IT: Italy - LT: Lithuania - LU: Luxembourg - LV: Latvia - MT: Malta - NL: Netherlands whilst exerting much less en- NO: Norway - PL: Poland - PT: Portugal - RO: Romania - SE: Sweden - SK: Slovakia – SL: Slovenia UK: United Kingdom vironmental pressure. For instance, Costa Rica’s per capita Strikingly, it is the Scandinavian nations who carbon footprint is less than a quarter that of are closest to achieving this goal and hence the average European nation, and yet levels of score highest on the HPI. These nations have subjective well-being and life expectancy are wellbeing outcomes that are amongst the both higher. highest in Europe, yet relatively low per capita Footprints. By contrast, many countries in Results of the European analysis – reviewed Eastern Europe fail to provide good levels of brieﬂ y above – demonstrate clearly that in a well-being, whilst others in the West achieve world of real environmental limits and climate

277 19 & 20 November 2007 Virtual Indicator Exhibition

change, much of Europe is squandering the Future plans world’s resources on drastically diminishing returns. Moreover, the trends over time are in the In addition to updating and reﬁ ning the Global wrong direction. HPI, we are currently exploring opportunities for estimating the HPI at a state-by-state level in the Unlike a focus on ever increasing GDP growth, US and at a regional level in China. HPI provides a clear road-map to a sustainable and equitable future. More information

Impact www.happyplanetindex.org www.neweconomics.org The fi rst HPI report has been downloaded from www.foe.co.uk www.happyplanetindex.org around a million times. It received extensive print and broadcast media coverage across the world, in countries References: as far afi eld as Japan, Denmark and Colombia. The European HPI report, released a year later, • Abdallah S, Thompson S and Marks N (in was widely covered in the European press. The press) ‘Estimating worldwide life satisfaction’ HPI has been presented at a number of academic Ecological Economics. conferences and a paper based on elements of • nef (2006) The (un)Happy Planet Index: the HPI methodology will shortly be published in An index of human well-being and environ- Ecological Economics (Abdallah et al, in press). mental impact (London: nef). • nef (2007) The European (un)Happy Planet Index: An index of well-being and carbon The HPI has also attracted considerable political effi ciency in the EU (London: nef). interest. Earlier in 2007, the UK’s Conservative • Veenhoven R (1996) ‘Happy life expectancy: party referred to the HPI in their Quality of Life a comprehensive measure of quality-of-life in report and came close to recommending it as a nations’ Social Indicators Research 39, headline indicator for the UK government. Mean- pp. 1–58. while, several Local Government Authorities in the • The global HPI (nef, 2006) used the full UK and other regional/local agencies in Europe Ecological Footprint for its calculations. have expressed interest in calculating city-and region-level HPIs.

JFS Sustainability Vision and Indicators by Kazu Kobayashi, Japan for Sustainability

Why we need JFS Sustainability Vision and To what degree do individual initiatives and Indicators achievements by each ministry, corporation, mu- nicipality, NGO and citizen contribute to a collec- In Japan, a number of environmental-related ef- tive advancement towards an environmental sus- forts and initiatives are underway by a Variety of tainable society? players. Some say, as a whole, the level of activities in this ﬁ eld could be among the most ad- As a result of these efforts, is Japan closer to vanced in the world. Yet regrettably, these posi- sustainability, compared to the year before? Have tive endeavors are not strong enough to reverse we moved forward and closer even by an inch? the trends of global warming, environmental de- Or somehow have we moving backwards, farther struction and pollution, which steadily continue from sustainability? with no apparent end in sight.

278 Beyond GDP: Measuring progress, true wealth, and the well-being of nations JFS Sustainability Vision and Indicators

In order to make answers to these questions ranging discussion on how to build a sustain- visible, we at JFS envision deﬁ ning indicators able society in Japan, and speciﬁ cally, promote and work little by little to draw a big picture the adoption of a comprehensive national sus- of a “Vision of a Sustainable Japan” or “The tainability strategy. shape of a sustainable country.” • Nature: 16.4 (1990) up to 24.0 (2005) Greater People do something only after they realize those awareness still needs to be acted on. problems. We aim at raising the people’s aware- • Economy: 37.6 (1990) down to 18.2 (2005) ness by visualizing and quantifying the “Vision Worst decline; massive debt threatens future indicators Virtual of a Sustainable Japan.” We hope the indicators generations will give an opportunity for many people to look • Society: 43.4 (1990) down to 35.4 (2005) at the “Overall Picture of Sustainable Japan”. SRI, women’s participation up, traditional industry down. • Well-being: 67.6 (1990) down to 56.4 (2005)

Description Overall high ﬁ gures tainted by high suicide Indicator Exhibition Virtual rate. We have chosen 20 headline indicators for sustainability based on an analysis of over 200 data sets in several sustainability-related categories. This is the ﬁ rst ever numerical evaluation / trial calculation of national sustainability for Japan. Results show a score of 33.5 points for 2005 in relation to a hypothetical perfect score of 100 projected for 2050. Japan’s score for 1990 was 41.3 points, meaning sustainability in Japan has declined about 19% since 1990.

Though these are still trial calculations, they delineate the gap between the ideal and the reality of sustainability in Japan. JFS’s aims are to point out the problem, evoke a wide-

Figure 1: Overview of the Project

Sustainability

Five value compositions of Sustainability

Fairness across Time Capacity and Resource

Diversity

Fairness across Space Human will and Networking

+ Consideration of Japan's speciﬁc circumstances

Vision for sustainable Japan (four areas of sustainability)

Overall Framework (relationship between the ﬁve value compositions and four areas)

Measuring Sustainability of Japan by 20 indicators (4 areas X 5 headline indicators)

Selection of indicators / Screening

Nature Economy Society Well-being

Classiﬁed into 4 Areas About 200 Sustainability data constellation

http://www.japanfs.org/en/view/index.html

279 19 & 20 November 2007 Virtual Indicator Exhibition

MDG Dashboard of Sustainability by Jochen Jesinghaus, European Commission

Why we need the Dashboard What exactly is the Dashboard of Sustainability? The complexity of societies in the 21st century requires an adequate information system. As Europeans, Over ten years ago, in 1996, IISD convened the we are proud of our democratic system. However, a Consultative Group on Sustainable Development functioning democracy needs citizens who under- Indices (CGSDI1) with the “overarching goal .. to stand what their governments are doing. help arrive at an internationally accepted Sus- tainable Development Index (SDI)”. After four Currently, public debates on government perfor- years of intensive debate, the dashboard meta- mance are driven by two overwhelmingly domi- phor was adopted: Steering a society into the 21st nant indicators: The GDP growth and the unem- century needs a dashboard, i.e. a panel of instru- ployment rates. Strangely enough, GDP growth ments that allows the “pilots” to monitor all essen- is not even used in its original sense “we got tial trends. It took some more years to translate 2% richer, hooray!” – in fact, practically all in- the idea into an operational instrument; the ﬁ rst terpretations of GDP growth in the media relate prototype Dashboard was presented at the 2002 to labour market prospects, i.e. economists and Johannesburg World Summit on Sustainable De- journalists interpret a high GDP growth rate as a velopment (WSSD). Since then, many new fea- chance to get lower unemployment in the next tures have been added, and many indicator sets two or three years. have been translated into the Dashboard format.

This media focus on GDP growth and unemployment At present (November 2007), a Google phrase is unhealthy for democracy. With the Dashboard search for “Dashboard of Sustainability” (DoS) yields software, we have developed a tool that makes a about 1,000 page hits, and about one-hundred for wealth of new indicators accessible. Today, some “MDG Dashboard”. Most pages refer implicitly to the 250 “key indicators” can be downloaded from DoS as some kind of “Global Sustainability Index”. Eurostat’s Sustainable Development and Structural Actually, the story is a little bit more complex: The indicators website. However, journalists and ordi- DoS is both a software tool for displaying complex nary citizens will ﬁ nd it virtually impossible to get indicator sets, and the application of this tool to one simple answers to their questions from the 250+ particularly important indicator set, i.e. the United data tables found there. Nations Commission on Sustainable Devel- opment indicators. Below is a colour-coded map The Dashboard puts such “indicator batteries” into (green is good, red is bad) showing what happens a meaningful tree structure, aggregates their scores when we aggregate the 60 UN CSD indicators to a in a simple, transparent way, and displays them “Global Sustainability Index”. in a user-friendly “street light colours” format; in addition, it gives the user at all times the option to “drill down” to the deepest level of detail. Here are the elements of the “Dashboard language” for presenting complex indicator sets:

1. the size of a segment reﬂ ects the relative importance of the issue described by the indicator; 2. a colour code signals performance relative to other countries: green means “good”, red means “bad”; 3. the central circle (PPI, Policy Performance Index) sum- marizes the information of the component indicators.

This “language” may seem a straight-jacket for many indicators; however, it is the only way to present very heterogenous indicators in a common format. The three SD pillars shown here are illustrative: the software is ﬂ exible and can accommodate other structures, e.g. the eight Millennium Development Goals.

280 Beyond GDP: Measuring progress, true wealth, and the well-being of nations MDG Dashboard of Sustainability

Very good good fair average bad very bad serious Virtual indicators Virtual Virtual Indicator Exhibition Virtual

The colours shown on the map are obtained mental, institutional), the sum of the scores is as follows: We calculate for each of the 60 in- divided by the number of indicators. The overall dicators a score from 0-1000 points, using the score is the sum of the “pillar scores” divided formula Score=1000*(x-worst)/(best-worst). by four. Example “Life expectancy in the U.S.”: best=80.7 (Japan), worst=38.1 (Sierra Leone); for a val- The example of the UN CSD set demonstrates ue of 76.8 years, the U.S. receive 907 points: the difﬁ culties that indicator experts encoun- P=1000*(76.8-38.1)/(80.7-38.1). For each of ter when trying to measure “Sustainable De- the four SD pillars (economic, social, environ- velopment”: Would you agree with the overall

Sustainable Development Index for United States 2000

Social Environment Economic Institutional

Other Pesti- Phos- Faecal Energy Nuclear SD Poverty Child Child Crowding GDFI Internet mortality immuni- GHG cides phorus coliform use waste indicator zation coverage

Life Forest Coastal Key Renewable Equity Contra- Crime CFCs CAB Recycling Telephones expectancy ception area population eco-systems energy

Unemploy- Sani- Primary Population Urban Wood Aqua- Protected Ext Energy Car use R&D expenditure ment tation schools growth air harvesting culture area Debt efficiency

F/M Safe Secondary Deserts & Water Mammals Municipal Disasters, Urbanization Cropland ODA SD strategy wages water schools arid land use & birds waste human cost

Child Health Hazardous SD Disasters, Literacy CO Fertilizer Squatters BOD GNP Materials weight care 2 waste membership economic damage

Since the overall results shown on the map above may or may not meet the intuitive expectations of the audience, we show to the left the breakdown for the United States (with CO2 and energy use as particularly weak issues).

1 Alan AtKisson (Redeﬁ ning Progress), David Berry (Director of the Interagency Working Group on Sustainable Development Indica- tors, U.S. Government), Arthur L. Dahl (Coordinator, UN System-wide Earthwatch, UNEP), Edgar E. Gutierrez-Espeleta (Director of the Development Observatory at the University of Costa Rica), Allen Hammond (Director of the Indicator Program at the World Resources Institute, WRI), Peter Hardi (Director of IISD Indicators Program, CGSDI co-ordinator), Jochen Jesinghaus (European Commission, Eurostat & JRC), the late Donella H. Meadows (lead author of “Limits to Growth”, the 1972 report to the Club of Rome), Bedrich Moldan (Chairman UN CSD-9 and former Czech Republic Environment Minister), Yuichi Moriguchi (Head, Resources Manage- ment Section, Social and Environmental Systems Division, National Institute for Environmental Studies, Japan), Adil Najam (Boston University, Associate Director of the MIT-Harvard Program on Public Disputes at the Program on Negotiation, Pakistan/USA), and John O'Connor (former Head of the World Bank’s indicator team).

281 19 & 20 November 2007 Virtual Indicator Exhibition

One key feature of the Dashboard is the analysis of linkages between indicators – for example

between income and CO2 emissions. Sweden scores “good” for “Income per capita” (Y axis, 761 points for 26400 Atlas method GNP (US$ of 2000)) and

“good” for CO2 (X axis, 766 points). In contrast, Czech Republic gets a “critical” for “Income per capita” (Y=110 points for 5140 Atlas method GNP (US$ of 2000)) and

“average” for CO2 (X=766 points). Note that Sweden, a country with pretty cold climate, manages to combine high wealth with low

CO2 emissions.

structure, i.e. the four pillars of SD? Would you based on the new CSD set; therefore, for didactic agree with the indicator set (e.g. nuclear waste, purposes we still keep the old CSD set online. recycling, energy use as “economic” indicators)? After the 2000 Millennium Summit, a new set Do you trust the data – for example, would you of indicators emerged as a global standard: The have expected the U.S. in the green zone for “car Millennium Development Goals indicators. use”? The Dashboard is a powerful tool, but it re- Nowadays, the downloadable Dashboard package veals merciless the weak points of indicator sets, contains this new set of approx. 60 indicators for simply by displaying them in a format that users over 200 countries and 15 years. The data come can understand. directly from the MDG site of the United Nations Statistics Division, and we update them every The graphs above have been created “on the ﬂ y” one or two months. Apparently, the MDG Dash- based on 2000 data compiled by John O’Connor, board is a popular alternative to downloading former Head of the World Bank’s environmental an 8 MB Excel spreadsheet: a Google search for indicators division. In the meantime, the data Millennium Development Goals Indicators puts have become pretty stale, and UN CSD has ad- the MDG Dashboard on rank 2, directly behind opted a new set of 50 “core” indicators struc- the ofﬁ cial UN MDG site but before UNDP, OECD, tured by 14 themes: 1. Poverty, 2. Natural haz- WHO, World Bank and a number of other promi- ards, 3. Economic development, 4. Governance, nent institutions. On the next page an example 5. Atmosphere, 6. Global economic partnership, from the MDG Dashboard: 7. Health, 8. Land, 9. Consumption and production patterns, 10. Education, 11. Oceans, seas and coasts, 12. Demographics, 13. Freshwater, State of play & next steps 14. Biodiversity. The Dashboard’s Wikipedia page lists over 20 There is little hope, though, that anybody will translated indicator sets. New features are still perform in the near future a data compilation being added to the software, e.g. an interactive

282 Beyond GDP: Measuring progress, true wealth, and the well-being of nations MDG Dashboard of Sustainability

Millennium Development Goals Index for India most recent year

Eradicate Gender equality Combat HIV- Ensure Universal Child Improve maternal extreme poverty and empowerment AIDS, malaria & environmental primary education mortality health and hunger of women other diseases sustainability

Income Primary Girls Maternal HIV/ SD Decent Youth Women Women CMR Immunisation poverty education literacy in secondary employment mortality AIDS policies housing and natural

parliament indicators Virtual resources

Grade Girls Girls Malaria Nutrition IMR Reproductive Biodiversity 5 primary tertiary and health Tuberculosis

Child Maternal Contra- HIV Protected Improved Secure Pop Poorest AIDS Tuberculosis Malaria Tuberculosis Forest CO2 mal- mortality ceptives Condoms know- area UNFCCC Area drinking tenure below 1$ 20% nutrition orphans prevalence bednets deaths married at school hrs men ledge water women men sources Indicator Exhibition Virtual

Adult Births Persons HIV DOTS Malaria DOTS CO Ozone Improved Poverty Condoms detection 2 gap malnutrition attended living with knowledge treatement treatment CDIAC depletion sanitation HIV/AIDS hrs women facilities women

Not surprisingly, the MDG set differs a lot from the CSD set, with less focus on environmental and more focus on social and economic issues. The Dashboard displays detailed info for each indicator when hovering over the respective label. Example: Births attended by skilled health personnel: 42.5 %; Source: UNICEF estimates; 390 points for India 2000; Valuation: "bad", Rank 94 of 119; best South Korea, worst Ethiopia; Estimated. The last word, “Estimated”, is one of over 20,000 footnotes included in the MDG Dashboard.

browser interface for the MDG set. Currently, Contact: the team at JRC tries to translate most of Eu- rostat’s 250+ Sustainable Development and Jochen Jesinghaus, Structural indicators into the Dashboard for- European Commission, mat, using a tree with four Agenda 21 style DG JRC G-9 TP 36/170, main pillars, each containing seven sub-indi- Via Enrico Fermi 1, I-21020 Ispra (VA); ces, each hosting on average seven indicators. email: [email protected] This structure will accommodate 4*7*7=196 indicators, and serve as a “Virtual Labora- tory” for studying possible options for going “Beyond GDP”, i.e. for challenging GDP growth with an adequately detailed “Societal Progress Indicator”.

283 19 & 20 November 2007 Virtual Indicator Exhibition

The Natural Capital Index framework (NCI) by Ben ten Brink, Netherlands Environmental Assessment Agency (PBL)

As any successful business that keeps track of ‘Species abundance ‘ (number of individuals of a revenues and expenditures, society needs robust species) has turned out to be a far more sensiti- accounts of its ecological assets. That is what the ve, more measurable and a more accurate indica- Natural Capital Index framework accounts for tor of biodiversity loss than the more traditional next to complementary indicators such as change species-richness indicator. The CBD has selected in the extent of ecosystems, the Red list and the ‘species abundance’ as a key indicator to evalua- ecological footprint. te the progress towards the 2010-target.

The Natural Capital Index framework (NCI), developed as a contribution to the implementation of the Convention on Biological Diversity (CBD), was designed to answer the questions “How much biodiversity remains?”, “What are the causes of loss?” and “What can we do about it?” for policy-makers and public. NCI measures human impact on biodiversity and has been implemented in national, regional and global assessments. It is not so much The Natural Capital Index framework (NCI) one single –fi xed-indicator but merely a fl exible indicator framework which can be tailored to the The challenge is to create a tangible, powerful specifi c scale, available data, and demand. composite indicator that accurately describes the above process for meeting policy requirements. Furthermore, this indicator must be relevant and Which process to indicate? appealing for policy development, quantitative, sensitive, affordable, measurable and universally The rate of biodiversity loss has been accelera- applicable. Finally, it should represent the entire ting rapidly throughout the industrial era. Accor- ecosystem and must be linkable with socio-eco- ding to the Global Biodiversity Assessment, spe- nomic scenarios to make projections. For these cies are now becoming extinct at 1,000-10,000 reasons NCI considers biodiversity as “natural times the natural rate. However, extinction is just capital”, containing all original species with their the fi nal step in a long process of ecosystem de- corresponding abundance. gradation, in which a decline in the abundance of many original species is accompanied by the Given its two main components, as mentioned abo- increase in the abundance of a few other, often ve, NCI is defi ned as the product of the size of the human-favoured, species. This we call the homo- remaining ecosystem (quantity) and its quality. genisation process. NCI = ecosystem quantity (%) x ecosystem quality (%) This trend has two main components: i) loss of habitats, or “ecosystem quantity”, resulting from the The NCI can be established for natural areas such conversion of natural areas into agriculture and as forests, inland waters and grasslands, as well built up land and ii) loss of ecosystem quality due as for man-made areas such as agricultural land to factors such as climate change, pollution, ha- and urban areas. Ecosystem quantity is calcula- bitat fragmentation and over-exploitation. In the ted as a percentage of the total area (% area fi gure below, the grey cutouts illustrates the ha- of the country or region). Ecosystem quality is bitat loss, while, in the remaining natural areas, calculated by counting the average abundance of the decline in ecosystem quality is shown by the a core set of characteristic animal and plant spe- decreasing abundance of many original species. cies. Quality is defi ned as the ratio between the Notice the initial increase in the species richness. current situation and baseline state (percentage

284 Beyond GDP: Measuring progress, true wealth, and the well-being of nations The Natural Capital Index framework

100% 100% 100% 100% Ecosystem Quality Quality 70% quality 25%

0%100% 0%100% 0% 100% Ecosystem QuantityQuantity

quantity indicators Virtual of the baseline). The three diagrams “ecosys- lated baseline, set in pre-industrial times” or a tem quantity and ecosystem quality” above “low-impact baseline” as being the most ap- show how the process of ecosystem degrada- propriate. The baseline i) allows aggregation tion can be visualised using the Natural Capital to a high level, ii) makes ﬁ gures within and

Index. If for example 50% of the natural area between countries comparable, iii) is a fair and Indicator Exhibition Virtual remains, with a quality of 50%, than the NCI is common denominator for all countries, being 25%. This means that the average abundance in different stages of economic development, of the original species is 50% of the natural or and iv) is relevant for all habitat types. Simi- low-impacted state, and so on. To avoid mas- larly, agricultural ecosystems are compared king, signiﬁ cant increased populations of ori- with the traditional agricultural state as the ginal species are truncated at 100%, although baseline, actually before industrialisation of they should actually have a negative score. agricultural practices started. Exotic or invasive species are not part of the indicator, but their impact is represented by It has to be stressed that the baseline is not the decrease in the abundance of the original the targeted state. Policy-makers choose their species they replace. The NCI ranges from 0 to ecological targets somewhere on the axis 100% representing an entire deteriorated and between 0 and 100%, depending on the po- intact ecosystem, respectively. The dimension litical balance between social, economic and is ‘mean species abundance of the original spe- ecological interests. cies’ or brieﬂ y an species abundance’ (MSA).

Smart sampling Baselines needed

Ecosystem quality cannot be determined without defi ning a baseline. Baselines are starting points for measuring change from a certain state or date. They are common practice for such items as medical care, economic development and climate change. Since there is no unambiguous natural baseline point in history, and all ecosystems are also transitory by nature, a baseline must be established at an arbitrary but practical point in time. Because it makes the most sense to show the biodiversity change when human infl uence was acce- lerating rapidly, the fi rst CBD Liaison Group on How can ecosystem quality be determined in a Biodiversity Indicators recommends “a postu- practical and affordable way? It is neither necessary nor possible to monitor all species. A representative cross-section of characteristic species suffi ces to describe – the above men- Present Target tioned-the uniformity process of the entire ecosystem. For each species, quality is calculated as the ratio between the current state Measures and the minimum baseline value. Ecosystem 0% 100% baseline quality is a function of the abundance of species relative to the baseline. Ecosystem structure

285 19 & 20 November 2007 Virtual Indicator Exhibition

variables such as ‘area coral reef and canopy co- Netherlands, together covering more than 75% ver’ can be used as substitute in case of lack of of the area of natural ecosystems and displaying data on species abundance. This selection and medium quality. Forests, heath and inland lakes averaging method is similar to that for economic are examples of smaller areas with a lower qua- indicators, such as the retail price index, a re- lity. In the diagram alongside the x-axis has been presentative selection of products monitored in enlarged in order to see the contribution of the a subset of stores, the so called “shopping bag”. smaller ecosystem types. Subsequently, the changes in prices are also averaged and weighted; this is because a price in- A snapshot of NCI values taken in the year 2000 crease in bread cannot simply be averaged with a does not provide suffi cient information for policy- price increase in cars. makers. What happened in the past, what were the main causes, what can be done to restore biodiversity in an effi cient manner? The NCI for How much Natural Capital is left Dutch natural ecosystems has declined rapidly in in The Netherlands? the last hundred years. Much of the area was lost in the fi rst half of the century, while ecosystem The quantity of natural aquatic and terrestrial quality decreased, especially in the second half ecosystems in the Netherlands has declined to of the century. A scenario analysis shows that the 40% of its total territory, while the average qua- Natural Capital Index may improve from 18% up lity of these ecosystems is estimated at a modest to even 27% over a 30-year period, which repre- 44%. The resulting NCI is thus 18%, the product sents a signifi cant increase in natural capital. of quantity and quality. So roughly speaking, 18% of the average abundance of the original species remains in comparison with the baseline state. History of Natural Capital & Future trends The NCI for agricultural land is 17%. in The Netherlands

The contribution of the various natural ecosystem types to the Dutch Natural Capital is presented in the ﬁ gure below. Quantity and quality are given for each ecosystem type. Marine and large fresh-water ecosystems are very important in the

286 Beyond GDP: Measuring progress, true wealth, and the well-being of nations The Natural Capital Index framework

How much Natural Capital is left (ten Brink, 2000). The GLOBIO model is a joint in the World? cooperation between the Netherlands Environ- mental Assessment Agency (MNP), UNEPWCMC If there are no data on species abundance and UNEP-GRID Arendal in conjunction with available a pressure-based NCI may be used many partner institutes. GLOBIO has been im- as substitute. The underlying assumption is plemented for example to UNEP’s Global En- that the higher the pressure on biodiversity the vironment Outlooks, the CBD Global Biodiver- lower the probability of a high mean species sity Outlooks (GBO), and OECD’s Environment abundance of the original species (MSA). The Outlook and Strategy. The maps below show indicators Virtual GLOBIO model contains global cause-effect re- the calculated MSA in 2000 and 2050 and the lationships between agriculture, forestry, clima- global NCI over the period 1700-2050 (95% te change, N-deposition, fragmentation and in- ->63%) (CBD technical series no. 31, 2007). frastructure and MSA, based on more than 700 publications (Alkemade et al. 2007). For each Contact: grid cell the considered pressure values are ad- Indicator Exhibition Virtual ded and calculated into a MSA value. The NCI at Netherlands Environmental Assessment global and regional levels is the sum of the MSA Agency (PBL) of the underlying grid cells, in which each squa- [email protected] re kilometre of every biome is equally weighted 0031-30-2742210

287 19 & 20 November 2007 Virtual Indicator Exhibition

(Regional) Index of Sustainable Economic Welfare (ISEW) by Prof. Tim Jackson, RESOLVE, University of Surrey, UK, Nat McBride, Independent Consultant, Saamah Abdallah, nef (the new economics foundation)

Few people would now disagree that we need to In summary: move beyond GDP if we are to make any meaningful assessment of society’s overall well-being. ISEW = Personal consumer expenditure In particular, we need measures which will ac- – adjustment for income inequality count for changes in societal welfare and envi- + public expenditures ronmental impacts. (deemed non-defensive) + value of domestic labour Clearly, any credible alternative to GDP will have & volunteering to pass tests of rigour and objectivity. It will also + economic adjustments probably be asked to impart a simple message – defensive private expenditures about the direction of progress to a general audi- – costs of environmental ence. Delivering this simple headline trend must degradation happen without losing focus on the constituent el- – depreciation of natural capital ements of the indicator. If the fi rst question is “Are we really making progress?” then the second is: “Where are we doing well, and where do we need Why monetarise – and how? to try harder?” There is a danger in replacing GDP with any other one-dimensional measure, even if the replace- What is the ISEW? ment is more in tune it with our current understanding of well-being. But replacing GDP with a The Index of Sustainable Economic Well-being is suite of indicators covering a range of disparate an adjusted economic indicator which attempts factors also has problems. How do you compare to incorporate costs and benefi ts not traditionally different metrics? How do you balance the loss measured in monetary terms. It brings together a of 500 jobs against an increase of 10mg nitrates wide range of economic, social and environmen- per litre of river water? Is it preferable to reduce tal issues into one analytic framework. Time series 600 tonnes of carbon dioxide, or avoid 16 car ac- data are drawn from robust sources, typically from cidents? Although there are problems inherent in government statistics. Non-monetary statistics are monetarising certain social or environmental costs converted to cash values based on unit costs from and benefi ts – establishing a unit cost sometimes credible government or academic sources. involves subjective valuations – this does offer a coherent framework for the kind of holistic analy- The basis for the index is consumer expenditure. sis needed to guide policy. For each component of Positive and negative adjustments are made to this the ISEW where unit cost estimates are required, basis to account for a series of social, economic and we draw on the relevant literature to establish environmental factors. For example, the values of suitable working values. For instance, the costs household labour and volunteering are added to the of climate change are based on a Treasury / DE- index, together with public expenditure on health FRA meta-survey of the literature on the social and education. On the negative side, the ISEW sub- cost of carbon. Air pollution costs are based on tracts environmental costs associated with habitat average costs taken from several studies which loss, localised pollution, depletion of nonrenewable assess their impacts on health, buildings, crops resources and climate change; social costs associ- and natural habitats. ated with crime, divorce, commuting and unequal income distribution; and the health costs of accidents on the road and in the workplace. Some ad- A brief history of monetarised indicators ditional adjustments are made to account for net capital growth and net international position. These In 1972, Nordhaus and Tobin published a land- may be positive or negative depending on the par- mark paper entitled Is Growth Obsolete?, in which ticular economic situation in each year. they constructed a ‘measure of economic welfare’

288 Beyond GDP: Measuring progress, true wealth, and the well-being of nations

(MEW) by adjusting GDP to account for certain progress against other regions. The R-ISEW economic and social factors. They concluded was developed with the backing of the UK Re- that GDP still represented a robust indicator of gional Development Agencies, with particular well-being. When Nordhaus re-examined the support from the East Midlands Development question from an environmental perspective in Agency (emda). emda commissioned a think 1992 (Is Growth Sustainable?), he discovered piece from nef in late 2004, on the relationship that the new MEW began to diverge signifi - between well-being, quality of life and regional cantly from GDP. development, which led to a pilot R-ISEW for the East Midlands in 2005, developed with the indicators Virtual The ISEW was fi rst posited by Daly and Cobb University of Surrey. emda incorporated the R- in their 1989 book For the Common Good. ISEW into their Regional Economic Strategy as They laid down the framework of consumer the top level indicator of progress towards their expenditure plus services from the informal vision of a “fl ourishing region”. In the National economy, plus public expenditure on certain Audit Offi ce’s 2007 performance assessment public goods; economic corrections to account of emda, the development of the R-ISEW was Indicator Exhibition Virtual for capital fl ows; and deductions for ‘defen- welcomed as a positive and innovative step. sive’ expenditures on social and environmental problems. The original model was revised Over the next two years, nef and the Univer- a little in 1990 by Cobb and Cobb to address sity of Surrey constructed R-ISEWs for fi ve some criticisms of the original methodology. other regions, and in 2007 a complete suite Since then, ISEWS have been produced for was calculated for all English regions, plus an countries as different as the USA, Thailand and ISEW for the whole of England on the same Chile. The ISEW has proven particularly pop- basis. For the fi rst time, R-ISEWs were calcu- ular for European researchers, and has now lated for all the regions of one country, using been constructed for a number of countries exactly the same methodology, allowing direct and regions. To date, the list includes Austria, comparisons to be made between them. The Belgium, Germany, Italy, the UK, Wales, Scot- R-ISEW revealed that traditionally ‘wealthier’ land, Sweden and several English regions. An regions are not always performing better than attempt at constructing an ISEW for Lombar- poorer ones in terms of sustainability. Howev- dia in Italy was made in 2006 by a Milanese er, it did not simply reduce cross-regional dif- research institute with nef assistance, but ferences. Some poorer regions perform much has now been put on hold due to limited data better than others. availability. Yorkshire Futures, the Regional Intelligence In each case, some revisions to the original Network for Yorkshire and the Humber, are Cobb and Cobb methodology have been made keen proponents of the index, noting that it to tailor the indicator to specifi c national re- would be “an opportunity missed… if the ISEW quirements or data sources. In Thailand for is not seriously incorporated into policy and instance, an estimate of the social cost of sex planning procedures.” tourism was included. In 1994, Jackson and Marks produced the fi rst UK ISEW for nef (the new economics foundation) and the Stock- Results of the English ISEW holm Environment Institute. This was updated by Jackson and colleagues at the University The structure of the ISEW allows two levels of of Surrey in 1997 and again in 2004 – when analysis. In the fi rst graph overleaf, the ISEW the updated version was released as the MDP for England is plotted against GVA showing a (Measure of Domestic Progress). simple headline trend: growth in both measures, but with a wide and growing gap between ‘conventional’ and ‘real’ progress. In Measuring regional progress: the second graph, a more detailed story un- the R-ISEW folds, in which some components of the ISEW are enjoying progress and others are deterio- Together with the University of Surrey, nef rating. This second graph also illustrates the has recently pioneered the development of a relative importance of different components in regional variant of the ISEW. The R-ISEW al- the overall ISEW. lows individual regions within a nation to monitor progress within the region and compare

289 19 & 20 November 2007 Virtual Indicator Exhibition

The future of the ISEW References

In 2007, a seminar was hosted by the Sustain- • Jackson, T and N McBride 2005. able Futures division of the Welsh Assembly to Measuring Progress? A review of adjusted present a recent attempt to construct an ISEW measures of economic welfare in Europe. for Wales. Economists and statisticians from the Report to the European Environment Agency. Assembly discussed the possibility of adopting Guildford: University of Surrey. the ISEW as an offi cial Welsh Assembly statistic. • Jackson, T 2004. Chasing Progress? Although they decided against this, it is worth Beyond measuring economic growth. noting that the only signifi cant objection was the London: nef (the new economics foundation). lack of methodological consensus amongst ISEW • Jackson, T, N Marks, J Ralls and S Stymne researchers. Herein lie the key challenges for the 1997. Sustainable Economic Welfare in the future development of the ISEW: collaboration UK – a pilot index 19501996. London: nef and consensus-building around the assumptions (the new economics foundation). used in the index. Firstly, what is the defi nitive set of economic, social and environmental factors to be included in the index? Then, how exactly do Contacts: we value certain non-monetary factors included in the account? These are signifi cant hurdles, but [email protected] by no means insuperable: GDP has faced and [email protected]@surrey.ac.uk overcome similar issues. Like the ISEW, GDP also makes potentially arbitrary exclusions of certain goods and services; and where the ISEW wres- tles with subjective valuations of social and environmental factors, GDP simply refuses to address them. By recognising, and placing a value on social and environmental outcomes, the ISEW represents a signifi cant advance on GDP as a measure of genuine progress. Its logic of adjusted economic well-being translates easily into the language of policy makers.

290 Beyond GDP: Measuring progress, true wealth, and the well-being of nations System of Environmental-Economic Accounting

System of Environmental-Economic Accounting (SEEA) by London Group on Environmental Accounting

Why we need the SEEA ral resources and the environment. A consensus emerged supporting a satellite approach, Conventional national accounting does not ful- in which the analytical capacity of the national indicators Virtual ly account for the role of the environment in its accounts is expanded to include environmen- measurement of economic activity. Recogniz- tal data without overburdening the central ing this limitation resulted in the development framework of the System of National Accounts of the System of Environmental-Economic Ac- (SNA). counting (SEEA).

The 1993 System of National Accounts (1993 Indicator Exhibition Virtual Environmental-economic accounting brings to- SNA) also endorsed the link to the environ- gether economic and environmental informa- ment by including a chapter on satellite ac- tion in a common framework to measure the counts (Chapter XXI), a large part of which contribution of the environment to the econo- is dedicated to environmental-economic ac- my and the impact of the economy on the en- counting. In 1993 the United Nations also vironment. The framework builds on concepts published the Handbook of National Account- defi nitions and classifi cations consistent with ing: Integrated Environmental and Economic economic statistics supplementing them with Accounting (SEEA-1993) demonstrating how environmental data that refl ect the environ- several environmentally-adjusted national ac- ment in terms of the resource, sink and ser- counts aggregates can be derived. vice functions it provides. After the publication of the SEEA-1993, sev- The SEEA can be used to analyze sustainable eral developing and developed countries start- paths of development through a broad range ed experimenting with the compilation of the of indicators. These indicators can be directly SEEA. These compilation experiences were obtained from the accounts, such as, mate- shared in the London Group on Environmental rial fl ows and energy use by industries and Accounting, one of the City Groups established households; or natural resource indicators can under the auspices of the United Nations Sta- be derived, such as, energy effi ciency and wa- tistical Commission (UNSC) in 1994. As man- ter effi ciency by industry. In addition, indica- dated by the UNSC, the London Group advanc- tors, such as, ‘ecological rucksacks’, ‘virtual es methodologies in environmental-economic water’ and ‘total material requirement’ can accounting and provides a forum for practitio- also be derived through the application of the ners to share their experiences in the develop- accounts, for instance, by using input-output ment and implementation of the SEEA. modeling. At its twenty-ninth session, in 1997, the UNSC requested the London Group to collaborate History with the United Nations Statistics Division (UNSD) on the revision of the SEEA-1993. This Environmentally sound and sustainable socio- eventually materialized in the revised Hand- economic development has since the 1970s book of National Accounting: Integrated En- received increased attention from the inter- vironmental and Economic Accounting, Rev. 1 national community. It was particularly stimu- (SEEA-2003). The SEEA-2003 was submitted lated by the report of the World Commission to the 33rd session of the UNSC in 2002 and on Environment and Development (1987) and subsequently issued in 2003 by the United Na- Agenda 21 of the United Nations Conference tions, the European Commission, the Inter- on Environment and Development (1992). national Monetary Fund, the Organization of During the 1980s and early 1990s, joint work- Economic Cooperation and Development, and shops, organized by United Nations Environ- the World Bank. ment Programme (UNEP) and the World Bank, set out to examine the feasibility of physical Although the SEEA-2003 handbook is widely and monetary accounting in the areas of natu- accepted as the reference for recording the

291 19 & 20 November 2007 Virtual Indicator Exhibition

interaction between economic processes and the processes, including their natural resource inputs, environment, it still falls short of being an inter- product throughputs and residual outputs, i.e. national statistical standard. It does not provide wastes. unique guidance or a preferred treatment for various issues. The UNSC therefore, created the The accounts also quantify the material depen- United Nations Committee of Experts on Environ- dencies of economies via imports and exports. mental-Economic Accounting (UNCEEA), with one When combined with monetary data they are of its main objectives to establish the SEEA as an called hybrid fl ow accounts. These accounts il- international statistical standard. lustrate how economic growth is interrelated with natural resource use and pollution. By way of example, Figure 1 presents a decoupling indicator, Description of SEEA: which illustrates the effect of major economic de- modules and indicators terminants of pollution over time. Notwithstand- ing higher levels of production in the economy The SEEA is an integrated information system (read), emissions (blue) from the production consisting of several modules. It can be used processes have stabilized since the middle of the to respond to different types of policy questions 1990s. This development can be attributed to concerning, for instance, the pollution of the at- improvements in the effi ciency of the production mosphere, water bodies or soil from production processes (i.e. less emissions per unit of value and consumption, and the sustainable use of added by industry) due to technological improve- natural resources and ecosystems; or to provide ments (yellow), and structural changes in the information regarding environmentally related production processes (pink) refl ected by a great- transactions, such as taxes and subsidies to ex- er share of the services industries in total value amine cost-recovery or polluter pays principles. added. The SEEA does not support particular schools of thought and can therefore be universally applied, Asset accounts underscoring its role as a multi-purpose for stra- tegic planning and policy analysis. Asset accounts record stocks and changes in stocks (fl ows) of natural resources such as land, Physical and hybrid fl ow accounts fi sh, forest, water and minerals for the accounting period. The SEEA include all environmental Physical fl ow accounts provide a systematic physi- assets that provide option, bequest and existence cal description of production and consumption benefi ts and combined with produced assets

Figure 1 Global warming emissions of CO2, CH4 and N2O in the Netherlands

Source: Statistics Netherlands

292 Beyond GDP: Measuring progress, true wealth, and the well-being of nations System of Environmental-Economic Accounting

Figure 2 : Per capita wealth in Botswana Virtual indicators Virtual

Source: G.M. Lange (2004), Environmental & Resource Economics, 29:257-283 Indicator Exhibition Virtual

provide a better indicator of the wealth of a penditures on the protection of the environment country. Asset accounts can be compiled in and resource use. Other monetary transactions both physical and monetary terms. Monetary connected with the environment are covered as asset accounts illustrate the changes in the well, speciﬁ cally those economic instruments value of environmental assets and whether being used to manage natural resources, such they are being depleted. Asset accounts can as taxes, permits and licenses for extracting be particularly relevant for countries which are natural resources or using the environment as economically dependent on the exploitation a sink. Such accounts can for example illustrate of natural resources. Figure 2 shows that Bo- the importance of environmental taxes (and tswana has been successful in using its natu- subsidies) in the total tax regimes of countries ral capital (primarily minerals) to build nation- (i.e. ’greening of the tax system’). al wealth as evidenced by a rising per capita wealth in recent years. Environmentally-adjusted national accounts aggregates Economic accounts and environmentally related transactions As an integrated and multipurpose system serving different policy needs, information from the These accounts separately identify environmen- various modules of the SEEA can be combined tally related transactions presented in the exist- to form a full-sequence of accounts from which ing SNA ﬂ ow accounts in order to make them aggregates such as an environmentally-ad- more explicit for analysis. They cover both ex- justed gross domestic product (‘Green GDP’),

Figure 3 : Environmental taxes as share of total tax revenues in 2003

Source: Eurostat

293 19 & 20 November 2007 Virtual Indicator Exhibition

or environmentally-adjusted net saving (‘Genu- international organizations (UNSD, UNEP, Eurostat, ine Saving’) can be derived. These adjustments World Bank and OECD) and expert groups like could include depletion, defensive expenditures the London Group on environmental accounting and degradation. and the Oslo Group on energy statistics.

The SEEA revision and implementation pro- Future – SEEA as an international statisti- gramme is expected to improve the accounting cal standard concepts, the international harmonization of the accounting guidelines and subsequently the poli- The UNSC, recognizing the SEEA as a mature cy relevance of environmental-economic account- framework for the analysis and policy formulation ing considerably. In this context it is important to on environmental-economic issues, entrusted the emphasize that the SEEA is not an indicator list, UNCEEA to promote the worldwide implementa- but an integrated information system providing tion of environmental-economic accounting and the underlying statistical framework for thorough to establish the SEEA as an international statis- analysis and policy formulation. tical standard. In this regard the UNCEEA has the challenging task to revise the SEEA-2003. More information The work of the UNCEEA will be carried out in on the SEEA is available on the website: http:// close cooperation with national statistical ofﬁ ces, unstats.un.org/unsd/envaccounting/default.asp

Sustainable Society Index (SSI): a new comprehensive index for world-wide use by Geurt van de Kerk, Sustainable Society Foundation, Arthur Manuel, Sustainable Society Foundation

Do you know how sustainable – or should we say Sustainable Society Index – SSI unsustainable? – your country is? Probably not. The Sustainable Society Index shows you at a The newly developed SSI is based on a solid defi - glance how far your country is on its way to full nition: the world-wide respected Brundtland defi - sustainability, what is going well and what needs nition. In order to express that sustainability in- urgent improvement. cludes human well-being, we have extended the defi nition of Brundtland by adding a provision so that the qualitative aspects of human life are ex- Need for a new measurement tool plicitly included. We have formulated the Brundt- land+ defi nition as follows: The notion of what is meant by sustainability differs strongly among people. Even among scien- A sustainable society is a society tists there are numerous defi nitions of sustainability. However, to be able to adequately manage • that meets the needs of the present our efforts in achieving a sustainable way of living generation, on our planet, a clear defi nition of sustainability • that does not compromise the ability of is required. Since none of the numerous indexes future generations to meet their own needs, that have been developed until now show at a • and in which each human being has the glance the level of a country’s sustainability, we opportunity to develop itself in freedom, developed a new measurement tool: the Sustain- within a well-balanced society and in harmony able Society Index, SSI. with its surroundings.

294 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Sustainable Society Index

Starting from this defi nition, 22 indicators The Sustainable Society Index has been cal- have been determined, covering this compre- culated for 150 countries. This offers the op- hensive defi nition of sustainability in its broad tion for comparison between countries using sense. The 22 indicators are clustered into 5 various viewpoints: neighboring countries, categories as shown below. more or less similar countries, regional comparisons, comparisons between rich countries like the OECD-members, comparison I Personal Development between “North” and “South” etc. 43 of the existing 193 countries had to be left out due indicators Virtual 1 Healthy Life to lack of data. The bigger of those are Af- 2 Suffi cient Food ghanistan, Djibouti, Eritrea, Somalia and Su- 3 Suffi cient to Drink rinam. But mostly it concerns smaller coun- 4 Safe Sanitation tries including small island states. For the 5 Education Opportunities calculation of the indicators of the SSI only

6 Gender data from public sources has been used. Indicator Exhibition Virtual

II Clean Environment Each indicator has been expressed on a scale from 0 to 10. A 10 expresses full sustainabil- 7 Air Quality ity; a 0 no sustainability at all. This quantita- 8 Surface Water Quality tive approach requires that it should be de- 9 Land Quality ﬁ ned what full sustainability for each indicator means. For some indicators this is very clear; III Well-balanced Society for example the percentage of people with access to safe drinking water should be 100 to 10 Good Governance receive a score of 10. For some other indica- 11 Unemployment tors where this is not obvious, one can make 12 Population Growth an educated guess as to full sustainability and 13 Income Distribution for some others even that is not possible. For 14 Public Debt the latter group the highest score in any of the 150 countries has received a 10 and the IV Sustainable Use of Resources lowest score a 0. One has to bear in mind that the sustainability value of an indicator might 15 Waste Recycling be subjective to some extent. Moreover, it is 16 Use of Renewable Water Resources likely to change over time. For instance popu- 17 Consumption of Renewable Energy lation growth: now our planet seems overpop- ulated by human beings. However, it can very V Sustainable World well be that in the future one has a different view on this issue. 18 Forest Area 19 Preservation of Biodiversity A more detailed description of the calculation 20 Emission of Greenhouse Gases methodology and all results can be found on 21 Ecological Footprint www.sustainablesocietyindex.com. 22 International Cooperation

The most well-known indicator, GDP per cap- Results ita (Gross Domestic Product per capita), is not included since economy is not explicitly As could be expected, the world at large is far included in the Brundtland+ deﬁ nition. Only from sustainable. The average ISS score of few people still consider GDP per capita to be all countries on our planet is only 5.5. See a useful indicator for development towards Figure 1. Does that mean half-way down or sustainability. In that respect other indica- half-way up? When updates of the ISS become tors, the ISEW or the Dutch DNI (Duurzaam available in the coming years this question can Nationaal Inkomen, Sustainable National In- be answered. come), are far more indicative. Unfortunately they cannot be used for the SSI on a world- Norway is currently topping the SSI ranking wide scale since these two indicators are avail- list with a 7.0. Though being the best in class, able for no more than a couple of countries. even Norway is way below full sustainability.

295 19 & 20 November 2007 Virtual Indicator Exhibition

Figure 1 Overall SSI score for 150 countries

The average indicator scores for the 27 EU-mem- History of the SSI ber countries are shown in the spider web diagram in Figure 2. From this ﬁ gure it is clear that The concept of the SSI has been developed by in several areas there is much room for improve- the Sustainable Society Foundation during the ment. It concerns in particular the indicators of past three years. It was published late 2006 and category IV (sustainable use of resources) and presented in May 2007 at the Amsterdam Confer- of category V (sustainable world). The scores for ence 2007. The SSI received a warm welcome, the indicators in category I (personal develop- and at the same time, as could be expected, ment) are relatively high. questions and criticism.

These results show clearly that aggregation of Research and further development of the SSI is a scores for the individual indicators into one over- continuous process. In the meantime we are already all index entails a danger: it smoothes the dif- working on the next biennial update of the SSI. ferences between the individual scores. The fi nal result, the score for the SSI, has less variation between maximum and minimum than the un- Examples of using the SSI derlying fi gures, i.e. the scores of the indicators. So it is important always to look at the underlying The SSI can be used in many ways: fi gures as well. 1. To enlarge the awareness of people of the level of (un)sustainability of their own country. 2. As a policy instrument for all government levels. Figure 2 For instance at national level, each indicator Average SSI can be assigned to a specifi c ministry. This indicators for ministry will then be responsible for the devel- the EU-27 opment towards sustainability with respect to this indicator. Frequent monitoring of progress will stimulate to reach the objectives set according to an agreed time schedule. 3. By NGOs to help them with their strategy towards Sustainability. 4. To compare the scores of countries in order to learn from, and to stimulate each other to make progress on the way to sustainability. 5. For educational purposes at all levels.

296 Beyond GDP: Measuring progress, true wealth, and the well-being of nations Time Distance Method for Analysing and Presenting Indicators

The SSI already has stimulated and supported tainability policies in the country. Spreading various new developments. to other countries is foreseen. • The SSI is being used for educational pur- • The international Peer Review of the Neth- poses at colleges and universities. erlands’ sustainability policy used the SSI in its considerations. • The SSI has played a role in the planning We hope to present a – further developed and and monitoring of the sustainability policy improved – Sustainable Society Index by the of the Netherlands Government. end of 2008, when the next update will be indicators Virtual • Based on the SSI a sustainability index for published. We welcome your comments and greenhouse culture is now under develop- suggestions. ment. • Recently a project has started to introduce the SSI in Romania, both on national and Contacts:

regional level. It is the intention to use the Geurt van de Kerk, [email protected] Indicator Exhibition Virtual SSI as tool for planning and monitoring sus- Arthur Manuel, [email protected]

Time Distance Method for Analysing and Presenting Indicators by Pavle Sicherl, SICENTER

Why we need the time distance method • Expressed in time units it is an excellent for analysing and presenting indicators presentation tool easily understood by policy makers, experts, managers, media and The time distance methodology offers a very general public, it can support decision-ma- interesting new way of analyzing and presenting king as well as infl uence public opinion. indicators and time series data in general. Well- being and development are multidimensional and long-term phenomena, people compare Defi nition of S-time-distance and policy and assess over many dimensions and over implications: different statistical measures time. Time, besides money, is one of the most may lead to different perceptions about important reference frameworks in a modern the situation society. The time perspective, which no doubt exists in human perception when comparing Statistical measure S-time-distance measu- different situations, has been with the S-time- res the distance (proximity) in time between distance method systematically introduced both the points in time when the two series com- as a concept and as a quantifi able generic sta- pared reach a specifi ed level of the indicator tistical measure. X. The observed distance in time (the number of years, quarters, months, etc.) for given • The new generic time distance approach levels of the indicator is used as a temporal offers a new view of existing data that is measure of disparity between the two series, exceptionally easy to understand and com- in the same way that the observed difference municate, and it allows for developing and (absolute or relative) at a given point in time is exploring new hypotheses and perspectives. used as a static measure of disparity. • It can also make important contribution to better exploitation of information resources S-time-distance measure is a measure with in new ways and to the visualization of fi n- clear interpretability that delivers a broader dings; it is also well placed to be used jointly concept to look at data and to compare situa- with other methods. tions, including benchmarking and monitoring.

297 19 & 20 November 2007 Virtual Indicator Exhibition

This innovation opens the possibility for simulta- tance amounts to 29 years. For a more realistic neous two-dimensional comparisons of time se- conclusion all measures should be presented si- ries data: vertically (standard measures of static multaneously. difference) as well as horizontally (Sicherl time distance). In graphical terms, the usual way is This is important for analysis and policy debate to compare the time series in the vertical di- for a single indicator and especially for compari- mension, i.e. for a given point in time. The time sons across indicators with different growth rates distance approach uses an additional perspecti- in different ﬁ elds of concern as needed for the ve; it compares the respective time series in the Beyond GDP approach. The better the analytical horizontal dimension, i.e. for a given level of framework the greater the information content the variable. Empirically, the degree of disparity provided to decision makers, experts, media and may be very different in static terms and in time general public. If one does not use explicitly the distance, which leads to important technical and broader framework outlined here, there is a possi- policy consequences. bility that in political debate and policy formulation various interest groups would intentionally look only at the measure which will suit their particular Benchmarking and gap analysis interest.

Two time series can and should be compared in two dimensions: Monitoring and evaluation – how to present 1. static gap for a given point in time it better for public debate 2. gap in time for a given level of the variable A substantial effort of the international and national organizations as well as research organizations has been and will be channeled into collecting and analyzing the necessary data for the systems of indicators under discussion. However, the beneﬁ t for better decision making and wide participation of broad range of stakeholders will depend critically on the human interface: understanding of the information and communication of that understanding (Sicherl, 2006b). Monitoring and evaluation of the degree of implementation of policy targets are indispensable phases of the policy circle. The interpretation of the deviation of actual development from the line to target with S-time-distance measure is straightforward and Comparing the EU15 for male-female differen- intuitively understandable; it deals with lead or ces in life expectancy in 2000 the female life ex- lag against their own target. It is like tracking the pectancy was 6.3 years higher (absolute static actual arrivals in comparison with the train or bus difference), which amounted to about 8 percent timetable, the difference being that the concept difference (relative static difference) in relation of geographical space is in our application repla- to that of men. However, the S-time-distance was ced with the indicator space. an astonishing 29 years. This means that women attained the value of male life expectancy for With EUROSTAT we agreed on a selection of sus- 2000 already in 1971, about three decades ago. tainable development indicators to be tested The perception whether the gender difference in using the time distance methodology. In a single life expectancy in the EU15 is large or small de- table there is a wealth of clear information about pends on the measure used: static percentage being on or off the track to targets for 12 selected difference is only 8 percent, while S-time-dis- indicators from 7 themes of SDI for all years.

298 Beyond GDP: Measuring progress, true wealth, and the well-being of nations

People will intuitively un- Monitoring implementation of Lisbon 1 targets for EU 15 accross 7 thems of SDI derstand the lead or de- (S-time-distance deviation from the linear hypothetical path to target) lay in time of actual im- Theme Proposed SDI 2000 2001 2002 2003 2004 2005 2006 Theme 1 - Economic plementation against the development 1Life-long learning, %01.0 1.8-1.0-2.0-2.1 -1.1 assumed time table to Theme 1 - Economic 2 Share of R&D in GDP 00.8 1.7 2.9 >4 >5 >6 the proclaimed targets. development Theme 1 - Economic development 3 Total employment rate, %00.1 0.8 1.6 2.02.1 2.1 Theme 1 - Economic This type of analysis can development 4 Employment rate, females, %0-0.5-0.5-0.2-0.6 -1.1 -1.6 Theme 2 - Poverty indicators Virtual be repeated in the EU and socila exclusion 5 Early school-leavers, %00.5 1.2 1.52.02.7 3.4 case for all 27 countries Theme 3 - Ageing Employment rate of older society 6 workers, % 00.20.0-0.20.1 -0.2-0.1 across a selected num- Theme 5 - Climate Total greenhouse gas change and energy 7 emissions 0 >1 >2 >3 >4 >5 ber of available indica- Theme 5 - Climate Share of electricity from tors with established tar- change and energy 8 renewable sources 00.2 >2 >33.9 >5 Theme 6- Production gets. In the case shown and consumption 9 Municipal waste lanﬁ lled, 00.1 -0.9-2.5-4.2 TA TA pattern kg per capita it is easy to observe the Theme 8 - Transport 10 People killed in road accidents 0 0.50.90.4-0.2-0.1 Indicator Exhibition Virtual large delays in the theme Road share of inland freight Theme 8 - Transport 11 transport 0 >1 >2 >3 >3 >5 >6 5 Climate change and Theme 10 - Global 12 Oﬃ cial development 0-0.1 0.40.90.9-1.3 energy; as well as in the partnership assistance, % of GNI S-time distance in years: - actual ahead of path to target, + actual behind the path to target road share of inland frei- TA Target already achieved ght transport and share > x Actual value is worse than the starting value, therefore S-time-distance is more than x of R&D in GDP.

Visualisation for the latest available S-time-distance estimate for SDI for EU15 The above analysis for -5 TA one unit across many -4 indicators can be also -3 performed for a given -2 indicator across many -1 -1.6 -1.3 countries or regions or -1.1 -0.1 0 -0.1 socio-economic groups. 1 Tracking the time table to 2.1 Lisbon for total employ- 2 ment rate is here shown 3 3.4 against the EU overall 4 >5 >5 target, for NRPs the indi- 5 >6 >6 vidual country targets for 6 indicators will be taken into account. Lisbon 1 target of 70% employment rate in 2010 for all countries If the relevant EU and (S-time-distance deviation from the linear hypothetical path to target) national bodies would 2000 2001 2001 2003 2004 2005 2006 care to assess the S- EU (25 countries) 0 0.5 1.52.32.83.23.0 EU (15 countries) 0 0.1 0.8 1.6 22.32.1 time-distance measure DenmarkTA TA TA TA TA TA TA Netherlands TA TA TA TA TA TA TA by the same eight criteria Sweden TA TA TA TA TA TA TA applied to the selection United KingdomTA TA TA TA TA TA TA Austria 0 1 0.7 0.30.04.3 TA of structural indicators Cyprus 0 -3.9-4.7 -5.1 -3.4-1.5-3.8 like 1. Easy to unders- Estonia 0 0.40.30.4 1.30.8-2.0 Finland 0 -2.2-1.2 1.22.6 0.7 -1.5 tand, 2. Policy relevant, Ireland 0 -0.2 1.42.4 1.7 0.0-1.1 Latvia 0 0.1 -0.3-0.40.20.4-1.0 3. Mutually consistent, … Spain 0 -0.1 0.40.40.5-0.1 -0.2 6. Comparable between Slovenia 0 -0.4 1.2 >30.50.6 0.7 Lithuania 0 >1 1.3 1.22.1 1.8 1.9 countries, etc. (Munoz Germany 00.5 >2 >3 >4 >52.4 Greece01.1 1.3 1.4 1.92.32.7 2004), then for this ap- Italy 00.30.9 1.5 1.6 2.6 3.1 plication in monitoring Slovakia 0 1 2.02.33.84.34.0 Luxembourg 0 0.5 1.0 >3 >43.84.8 implementation of the France00.1 0.9 1.52.7 3.7 4.9 Lisbon EU and NRP stra- Hungary 0 >1 >22.53.6 4.6 5.3 Czech Republic 0 11.2 >3 >4 >55.4 tegies by structural in- Belgium 0 >1 >2 >3 >44.45.5 Malta 0 0.9 1.93.0 >4 >55.6 dicators as well as for Portugal 0-2.7 -0.5 >3 >4 >5 >6 sustainable development Poland 0 >1 >2 >3 >4 >5 >6 S-time-distance in years: - actual ahead of path to target, + actual behind the path to target. 299 19 & 20 November 2007 Virtual Indicator Exhibition

strategies the S-time-distance measure would monitoring the implementation of the Millennium pass the test with ﬂ ying colours. Development Goals on its ofﬁ cial MDG web site to enable countries and other stakeholders to take advantage of this complementary statistical Wide range of possible applications measure for policy debate at various levels.

In empirical research and in decision-making the SICENTER is in the process of developing a web art of handling and understanding different views application which would allow a variety of inte- of data is crucial. We need innovative perspecti- rested users such as international and national ves also in statistical concepts and measures, not organizations, NGOs, experts, managers, educa- only in qualitative and other dimensions. The pos- tors, students and media to monitor with S-time- sibilities for S-time-distance analysis range from distance the lead or lag in time from the Lisbon a simple analysis of monitoring implementation and NRP targets in the case of EU and for the UN of targets to more complex benchmarking and Millennium Development Goals or other planned, to a very complex econometric analysis (Gran- budget, or aid disbursement targets at world, re- ger and Jeon used time distance as a criterion gional, national, sub-national and business levels. for evaluating forecasting models). The time dis- The ﬁ rst version of the free web monitoring tool tance approach can thus contribute a useful pie- for Lisbon targets is available at www.gaptimer. ce of the mosaic in building up an internationally eu/content/view/25/34. supported methodology to measure and assess the overall “position” and “progress” among and within countries. Examples are available on www. Contact: sicenter.si and www.gaptimer.eu Pavle Sicherl, SICENTER, Brajnikova 19, 1000 Ljubljana, Slovenia, UN Statistical Division decided to put the softwa- email: [email protected], re to calculate the S-time-distance measure for [email protected]

300 Beyond GDP: Measuring progress, true wealth, and the well-being of nations World Happiness Index

World Happiness Index by Pierre le Roy

1 – World Happiness Index: why? • Selected global indices are the followings : > Peace and security : 1 – number of nu- indicators Virtual • Limits of GDP as an indicator to assess clear warheads, 2 – number of victims of the world or a country situation are widely major armed conﬂ icts, 3 – military ex- acknowledged. As an example: Equatorial penditures, 4 – number of violent deaths, Guinea, thanks to oil production, shows a GDP 5 – number of refugees, 6 – number of per capita of 20,000 dollars (in purchasing victims of natural or technological disas-

power parity), which is equivalent to Greece, ters, 7 – corruption, 8 – economical and Indicator Exhibition Virtual but the under-5 mortality rate is 204 in fi nancial security, 9 and 10 – probability Equatorial Guinea and 5 in Greece… of dying before age 60. • More generally speaking, GDP is not a sat- > Freedom, democracy, human rights : isfactory index because it ignores impor- 1 – number of people living freely, 2 – tant things of daily life: when a tree is cut level of democracy in the world, 3 -press down, GDP grows; traffi c accidents increase freedom, 4 – children rights: under-5 GDP, and so do wars potentially! Conclusion mortality rate, 5 – death penalty, 6 – by Robert Kennedy: GDP “measures women rights: gender development in- everything, in short, except that which dex, 7 – percentage of female parliamen- makes life worthwhile”. tarians, 8 – women’s school enrolment, 9 • The only signifi cant progress to go beyond – boys’ and girls’ school enrolment, 10 GDP has been the creation, in 1990, of the -child labour. human development index (HDI), cal- > Quality of life : 1 – GDP per capita, 2 – culated and published yearly by the United GDP per capita, disparities, 3 – life expec- Nations Development Program (UNDP). For tancy at birth, 4 -human poverty index,

each country and globally, HDI aggregates: 5 – GINI coefﬁ cient, 6 – suicides, 7 – CO2 GDP, life expectancy at birth and edu- rate, 8 – forest area per capita, 9 – water cation level. and hygiene, 10 – clean air. > Research, education, information, com- World Happiness Index (GHI) goes further! munication, culture: 1 – Research and Development, 2 and 3 – boys and girls education rate, 4 – adults literacy rate, 2 – World Happiness Index: how? 5 – education disparities, 6 – number of copies of daily newspapers per capita, • The ﬁ rst question to answer is: what is a 7 – number of television receivers per happy world? What is a happy country? capita, 8 – ICT: phones, PC, Internet, 9 Answer: it’s a world or a country: – number of movies, 10 – international > Where people live peacefully and safe- tourist trips. ly; > Where people live freely and democrati- • We emphasize here the importance given cally, and where human rights are re- to education in all aspects, disparities spected; and women status. > Where quality of life is good; • Initially calculated for the year 2000, > Where research, education, information, which sets the basis 100, WHI evolves communication and culture are shared every year, increasing or decreasing, by all. depending on the average of these 40 • As a result the idea is to choose, for each of indices. these 4 chapters, 10 indices from reli- • Results are published once a year on www. able sources and published every year globeco.fr, section: “GLOBECO, la revue”, (UNDP, World Bank, WHO, SIPRI, Amnesty, under the title: “bonheur mondial, édition HCR…); WHI is, for any given year, the 2007” (world happiness, 2007 edition), average of these 40 indices. for the last edition.

301 19 & 20 November 2007 Virtual Indicator Exhibition

3 – Country ranking

• Country ranking is calculated on the same > Quality of life : GDP per capita, GINI co- basis as the world happiness index, from the efﬁ cient, life expectancy at birth, suicides, 20 following indices: clean air; > Peace and security : war and peace, violent > Education, information, communication : edu- deaths, corruption, economical security, cation (coefﬁ cient 2), newspapers, TV, In- human security; ternet. > Freedom, democracy, human rights : de- • This ranking is done over 60 countries which mocracy, press freedom, women rights, represent 85% of worldwide population children rights, death penalty; and over 90% of global GDP.

4 – «World happiness, 2007 edition» : the results

WORLD HAPPINESS INDEX

2006 / 2005 (2005 = 100) 2006/2000 (2000 = 100)

Peace and security 100,95 90,50 Freedom, democracy, human rights 101,09 105,08 Quality of life 101,97 99,11 Research, education, information, 101,80 114,44 communication, culture RESULTS 101,45 102,28

COUNTRY RANKING 2007 1 – NORWAY 21 – CZECH REPUBLIC 41 – PHILIPPINES 2 – SWEDEN 22 – SOUTH KOREA 42 – MOROCCO 3 – NETHERLANDS 23 – HUNGARY 43 – ALGERIA 4 – DENMARK 24 – BALTIC COUNTRIES 44 – EGYPT 5 – AUSTRALIA 25 – ISRAEL 45 – CHINA 6 – CANADA 26 – POLAND 46 – SAOUDI ARABIA 7 – FINLAND 27 – CHILI 47 – RUSSIA 8 – GREAT BRITAIN 28 – ROMANIA 48 – VIETNAM 9 – IRELAND 29 – BULGARIA 49 – PERU 10 – SWITZERLAND 30 – MEXICO 50 – INDONESIA 11 – GERMANY 31 – MALAYSIA 51 – SRI LANKA 12 – AUSTRIA 32 – ARGENTINA 52 – IRAN 13 – SPAIN 33 – VENEZUELA 53 – UZBEKISTAN 14 – BELGIUM 34 – BRAZIL 54 – INDIA 15 – FRANCE 35 – COLOMBIA 55 – PAKISTAN 16 – JAPAN 36 – UKRAINE 56 – BANGLADESH 17 – ITALY 37 – TURKEY 57 – NIGERIA 18 – GREECE 38 – TUNISIA 58 – DR OF THE CONGO 19 – PORTUGAL 39 – THAILAND 59 – ETHIOPIA 20 – UNITED STATES 40 – SOUTH AFRICA 60 – UNION OF MYANMAR

For further information: In the same section, you’ll ﬁ nd another article on www.globeco.fr ; Contact: [email protected] the issue, entitled “Mesurer le bonheur, à quoi Full text of “Bonheur mondial, édition 2007” bon ? La réponse de GLOBECO et de quelques will be online (in French) on www.globeco.fr by autres” (Measuring happiness, what for? november 14, 2007, section “Globeco : la revue”. Answers from GLOBECO and a few others).

302 Beyond GDP: Measuring progress, true wealth, and the well-being of nations