Aurélie Maréchal – assistant to MEP Philippe Lamberts July 2010 Greens/EFA Group in the

Alternative indicators to GDP: how to make a choice? 1

Introduction: Alternative indicators for a Green New Deal

The Green New Deal (GND) proposes a new economic and social framework for the society of today and tomorrow, whose two central objectives are: 1) reducing the pressure we are exerting on the environment whilst simultaneously 2) reaching a better quality of life for everyone, with less inequalities overall. In other words, the GND is about putting the economy at the service of people and the environment, about creating a fair and happy society that lives within the physical limits of nature.

GDP (Gross Domestic Product) is the single most popular indicator used to asses the success of economic policies, and by an erroneous extension, the well-being of society. However, it has been demonstrated for decades that GDP is not a good measure of welfare, mainly because of what it measures and how it measures it.

First, GDP doesn't measure everything that matters. GDP is only the measure of the total economic production of final goods and services of a country over a year, expressed at market value. Yet, if a certain amount of economic activity which permits a decent level of material wealth is a condition sine qua non of well-being, GDP doesn't say anything about all the other dimensions that made human lives worth living (health, social relations, education, environment, security, participation, leisure, etc.). Moreover, even within a restricted vision of well-being as creation of economic goods and services, GDP excludes all activities that happen outside the market despite their positive contribution to the economy, in particular the household and the not-for-profit sectors. Second, GDP measurement does not allow differentiating between production and expenses that contribute to genuine improvements in human, social and environmental well-being, and those that are destroying it. Whether money is spent on building houses or weapons, on developing a green or a highly polluting technology, on going on holidays or curing a depression, it is always translated as “plus” in GDP.

The sole pursuit of GDP growth can therefore not be the main objective that will bring about a sustainable society. This is even truer as, for the last quarter of a century, GDP growth has not delivered in terms of reducing inequalities, on creating quality and meaningful jobs, and most certainly not on preserving natural resources. Therefore, we need new indicators to be the guidelines for the elaboration and the evaluation of GND policies. We need new indicators to counterbalance the message sent by GDP. We need indicators that measures what really matters in our lives.

1 A first and longer version of this paper has been produced in March 2010 for the "Green New Deal" Working Group of the Greens/EFA Group in the European Parliament. This version has been updated to reflect the evolution of the debate in the working group, without however claiming full sufficiency. A French version is also available ([email protected]).

1 The need for new indicators is well-accepted, and plenty of them have been developed over the last years. However, so far there has been no systematic attempt within the Greens to select one or several appropriate indicators. The aim of this paper is to clarify the debate to help defining the best indicator(s) for the GND. In the first part, the state of the debate and an overview of recent initiatives will be presented. Then, the basic technical and political questions will be tackled in order to clarify the terms of the debate and the decision to be made. The last part will present the major existing alternative indicators, with their respective strengths and weaknesses.

I. The alternative indicators debate. Where do we stand?

Critiques of GDP and proposals for alternative indicators of wealth and welfare have been going on for decades. However, until recently, the debate was mainly confined to non-orthodox academic circles and NGO's. In the last years, there has been a massive increase in official (governmental and intergovernmental) initiatives and a general mainstreaming of the debate. Significant steps have been made although there is still no worldwide (nor even European) consensus on new indicators.

At international level, the main initiative is the OECD Global Project on Measuring the Progress of Societies, which has been created in 2004 to foster the development of economic, social and environmental indicators. It seeks to become “the world wide reference point for those who wish to measure, and assess the progress of their societies”. The main result so far is the Istanbul Declaration (June 2007) signed by most international organisations (UN, World Bank, ILO, etc.), which calls for the production of “high-quality, facts-based information that can be used by all of society to form a shared view of societal well-being and its evolution over time.” Along with international forums, events and research projects, a web platform has been put in place to foster a democratic, open and multicultural debate on the definition and measurement of progress.2

In relation with the OECD's Global Project, the European Commission (EC) started public work on the topic in 2007. Together with the European Parliament (EP), Club of Rome, OECD and WWF, it organised a conference “Beyond GDP” with “the objectives of clarifying which indices are most appropriate to measure progress, and how these can best be integrated into the decision-making process and taken up by public debate”. There is a recognition tat GDP is not the appropriate measure of well-being and that new indicators are needed to include other dimensions of progress, in particular social and environmental. This project has given birth to an official Communication of the EC entitled “GDP and beyond: Measuring progress in a changing world” (COM(2009) 433 final). It outlines a EU roadmap with five key actions to develop new indicators: 1) Complementing GDP with environmental and social indicators ; 2) Near real-time information for decision-making; 3) More accurate reporting on distribution and inequalities; 4) Developing a European Sustainable Development Scoreboard; 5) Extending National Accounts to environmental and social issues. The European Economic and Social Committee and the Committee of Regions have already reacted to this communication. The EP will be doing the same at the end of 2010. Eurostat has been working on the EC roadmap and has undertaken some actions already to create more, better, and diversified data. More results are to be expected in the coming months.3

2 See http://www.oecd.org/progress and http://www.wikiprogress.org. 3 For archives, documents and evolution of the project see http://www.beyond-gdp.eu./ and http://epp.eurostat.ec.europa.eu/portal/page/portal/gdp_and_beyond/introduction.

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Finally, the most influential action so far has been the report of the “Commission on the Measurement of Economic Performance and Social Progress” (better known as “Stiglitz Commission”). Although created by the French government in 2008, it is considered as a major milestone in the evolution of the debate, and has had a impact worldwide. The report starts from the recognition of the limits of GDP as adequate measure of welfare. It is divided in three separate sections (classical GDP issues, sustainable development and environment, quality of life) which summarise the state of current researches, the issues and questions to be debated. The report is presented as a contribution to a global debate and calls for more work at international level and national with all stakeholders. In a nutshell, it recognises the importance of capturing quality changes and not only quantitative ones in economic matters, in order to shift from measuring production to well-being. It also underlines the multiple dimensions that should be taken into account simultaneously when measuring quality of life (material living standards, health, education, personal activities including work, political voice and governance, social connection and relationships, environment and insecurity) but entails a pragmatic approach to sustainability, considering it as a separate issue to the question of current well- being and economic performance.

The 12 recommendations of the Stiglitz report:

 On better measurement of economic performance: (1) look at income and consumption rather than production because better able to express well-being ; (2) emphasise the household perspective ; (3) consider income and consumption jointly to wealth ; (4) give more prominence to the distribution aspect of consumption, income and wealth ; (5) broaden income measures to non-market activities (especially household activity).  On well-being : (6) improve measures of people's objective conditions and capabilities (health, education,...) , requires both objective and subjective data ; (7) quality-of-life indicators should cover dimension of inequalities ; (8) surveys should asses links between various quality-of-life domains ; (9) statistical offices should provide the information needed to aggregate across quality-of-life dimensions, allowing the construction of indexes ; (10)measures of subjective well-being and perception of it should be integrated.  On sustainability: (11) assessment requires dashboard of indicators, whose components should be interpretable as variation of stocks. There is space for a monetarised index but it should remain essentially focused on economic aspects of sustainability ; (12) the environmental aspect of sustainability deserve a separate follow-up based on well-chosen physical indicators.

Although recognised as a turning point in history, the Stiglitz report has suffered several criticisms. The main limit is that too much importance is still given to economic methods, although that is one of the main limits of GDP. Too much space is given to monetarised indicators, which advocate for weak sustainability (economic, human and natural capital are considered as interchangeable) and are only understandable by experts. Overall, there is a lack of integration between the different dimensions considered, especially the question of

3 sustainability which is disconnected from issues of quality of life, inequalities, poverty, etc, and therefore still very much apprehended from a mainstream economic perspective. Finally, the process has been criticised for lacking of democracy and plurality: the Commission didn't open to the public and was still very much dominated by economists.4

II. From statistics to indicators: technical and political choices

If everyone agrees on the need for alternative indicators it is not always clear what exactly they are, what are their purposes and limits. Before all, it is important to remind that indicators are based on statistics, but cannot be equated to pure technical instruments. In fact, one can distinguish between observation that can be measured precisely and objectively, and construction based on ideological or political hypothesises and targets. It is central to identify which kind of data is produced to know how it can be used and for which purpose.

2.1. Statistics and primary indicators

Any statistical work starts with very simple information collected through survey (e.g. what is people's satisfaction with life) or register (e.g. what is the amount of fish exported by this country this year, what is the number of new unemployed people between 19 et 15 years over the last 3 months, etc.). Then, when put together, these data create accounting systems, from which relations and evolutions can be observed. These simple or primary indicators are the most reliable and statistically sound, and are thus the ones labelled "official statistics". They can be used to help and monitor political decisions, involving budget making or public money allocation (unemployment benefits, industry subsidies, etc.).

This type of indicators is not directly at stake when debating the question of alternative indicators to GDP. However, despite their high technical reliability, these basic statistics are not neutral. The decision of collecting more data on unemployment, on nuclear energy or on water pollution depends on political orientation and priorities. Moreover, in any case it is always difficult to translate a political concept into a statistical measure. Even in basic data set, mathematic manipulations and technical choices are made that influence the end result.

Therefore, it is important to stay aware of the developments of official statistics and try to influence the production of new content. In particular, there is still a clear need for more and better (accurate and comparable) primary data on environmental and social dimensions. As mentioned earlier, this is at the agenda of Eurostat (see EC Communication above) and needs support. In particular, pushing for the collection of new data and production of new statistics makes sense when part of a broader political agenda, like the EU 2020 strategy and its flagship initiatives (need for data on research and development, resource efficiency, etc.). Finally, another way to explore and support is the improvement and mainstreaming of Environmental and Economic Accounts (see Appendix 1).

2.2. Dashboards and synthetic indicators

When talking about alternative indicators to GDP, people are usually referring to dashboards and synthetic (or composite) indicators. Dashboards are tables made of various heterogeneous primary (or secondary) indicators, without being synthesised together but reflecting on a broad

4 For the final report see http://www.stiglitz-sen-fitoussi.fr/en/index.htm. For a critical analysis, see FAIR (2009) and Cassiers and Thiry (2009).

4 topic like sustainability or social inclusion for example.5 Synthetic indicators are indicators that summarise in one figure various primary indicators, which have been all converted in the same unit.

Usually, these two alternatives are presented as contradictory options to go beyond GDP. However, the opposition of synthetic indicators and dashboards is misleading as they have different uses and purposes. Dashboards are useful in the same sense as separated primary indicators for designing and assessing targeted policies. The advantage of grouping primary indicators in dashboards is to give a sense of coherence, although dashboards often tend to be too big and complex and therefore not so understandable and user-friendly. On the other side, synthetic indicators are better communication tools as they carry a political message in one figure although they are technically less reliable.

In any case, dashboards and especially synthetic indicators cannot be classified as "official statistics" as they are multidimensional constructions based on several primary indicators in which political choices and ideological hypothesis have a big role to play. In such indicators, there is room for subjectivity on what exactly is measured and in which proportions.Yet, the fact that statistical soundness is weaker shouldn't be seen as a major flaw. As said earlier, the assessment of quality in statistics must be put in relation with the use which is done of data. Alternative indicators are there to counterbalance the hegemony of GDP and measure other things that matter but are not recognised by GDP.

Clearly the advantage of GDP, and one central reason for which it is still prominent despite all the criticisms, is its simplicity. GDP is as construction but which is still quite close to primary indicators and allows reliable comparison over time and between countries. However, even if it is perceived as neutral and "scientific" measure, GDP, as any other indicator, is based on a specific theoretical framework, here neoclassical economic theory. What is at stake here is whether or not we believe that such a framework is still sufficient today to assess the multiple dimensions of our development, its impact on the planet and on people. If the objective of accumulating economic output, which is measured by GDP, is not the priority of our society anymore, can we rely on the same framework to measure what really matters?

It seems pretty clear that we need a multidisciplinary, multidimensional approach. True that we then have some problems to face as the more you want to integrate complexity, the more subjectivity you have to integrate to give life to figures. But if the technical limits of such indicators stay clear, and if they are used as general guidelines or policy orientation and as communication tools to offset the hegemony of GDP, there is no worry to have (see Appendix 2 for examples).

2.3. Options to go beyond GDP

Three strategies are usually identified to go beyond GDP with alternative indicators: 1. replace GDP by (one) indicator(s) of well-being and sustainability. 2.complement GDP with other indicators assessing different dimensions (social, environmental), leaving economic issues for GDP. 3. correct GDP with environmental and social dimensions.

5 Several dashboards exist at international and European level, among which: Sustainable Development Indicators of the EU, Structural Indicators of the Lisbon Strategy, Social and Environmental Indicators of the OECD, Laeken Indicators, European Environment Agency Core Set of Indicators, UN Agenda 21 and national initiatives derived from it. More information on these dashboards are available on their respective official websites.

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In a perspective of measuring what matters for a GDN society, none of these options is flawless. First of all, replacing GDP by one single other measure is largely criticised as it would assume that one number can cover the diversity and complexity of what needs to be measured.

To avoid this trap, the most popular option at the moment is to complement GDP with other indicators for social and environmental dimensions, recognising that GDP is still useful to measure economic output. The idea is to present a set of indicators, focusing on dimensions not covered by GDP, and based on different theoretical background, in order to reflect diversity. Two limits must nevertheless be pointed out. First, there is a risk to loose clarity if the number of complementary indicators is too high (dashboard type of approach). If the idea is to replace the hegemony of GDP, the message should still be concise enough to be heard and understood. Second, it might be incoherent to propose alternative indicators for environmental and social dimensions yet keeping unchanged the GDP measurement, which is criticised in the first place. One should not forget that GDP is problematic not only for what it measures but also for how it does it.

Therefore, the option of correcting GDP should also be considered. The idea is to make GDP a better mirror of general societal value by taking into account negative externalities created by economic activity and positive elements that contribute to economic activity but are so far not counted in GDP. To correct, one needs to monetarise, i.e. to evaluate the monetary value (the equivalent cost or price) of an element which normally doesn't belong to the classical economic sphere (like voluntary work or loss of biodiversity). For example, if we consider that voluntary work contributes positively to the wealth of a nation, GDP will be corrected by adding the evaluated monetary value of voluntary work. Similarly, elements considered negative like pollution or unemployment will be subtracted from the total. The big advantage of this approach is to fit into the well-recognised methodology of GDP.

Yet, serious challenges exist on how to evaluate correctly the monetary value of things that aren't a priori commodities or have no reliable market price (like the cost of natural degradation, resources, crime, illnesses or divorces). Another major limitation of monetarisation is that it implies a weak definition of sustainability. As soon as natural capital is being calculated in the same terms as man-made capital, it means that they are considered as perfect substitutes. The irreversible destruction of natural resources is thus not an issue. Staying in a GDP-type of approach could have as consequence a reinforcement of a pure economic logic. Yet, f the not-for-profit sector is valuable it is especially because what it creates is more than pure economic value!

Therefore, recognising the limits of both options (complementing or correcting GDP) working toward a mix of both may be the most sensible option, i.e. complementing a corrected GDP. On the ideal number of indicators, multidimensionality has to be put in the balance with clarity. In any case, indicators should not be substitutable (e.g. a good economic score cannot compensate for a poor environmental one) and binding thresholds and targets should be defined for each of them. With such a set of indicators, always communicated together and presented as simultaneous goals to reach, it would be possible to “tell another story” about the development, well-being and sustainability of our societies.

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III. Which indicators?

Many alternative indicators have been created by NGO's, academics, statistical institutes. The ones presented here are already relatively known and recognised and have been developed in an international perspective, or have the potential to become so. Lots of other national and regional propositions exist, as well as specific indicators for developing countries, or centred on one specific dimension of development (biodiversity, corruption, etc.) but are not covered as the focus is on useful indicators in a European context. These indicators have been classified in 3 categories: well-being and quality of life, inequalities, environment and sustainability. For each category, main issues and theoretical challenges at stake are outlined together with a presentation of each existing indicator, their strengths and weaknesses. Examples of these indicators put in practice and information on data availability are in Appendix 3.

3.1. Well-being and quality of life

All credible indicators of well-being and quality of life are aggregated indicators, which cover each different sub-elements, emphasising subjective or objective dimensions, economic or social aspects, etc. Choosing one of these is therefore eminently political.6

Name What? Strengths Weaknesses Human Human development as aggregation of -Well accepted, already - Useful for development Develop (1) health and longevity, used (data produced by policies but not so much ment (2) knowledge and education, UNDP) for EU Index (3) standard of living (GDP/capita) - Easily comparable - Still very depending on between countries. GDP/capita. Human Two measures for human poverty: - Data produced by UNDP - More complicated that Poverty HPI-1 (for poor countries) = - Distinction between a one-dimensional Index (1) longevity (death before 40 years) variables for rich and indicator of poverty (2) education (illiteracy) poor countries whilst without significative (2) decent life conditions (access to keeping similar criteria divergence in the results drinkable water, health care, etc.) - Multidimensional approach of poverty HPI-2 (for rich countries) = (1) longevity (death before 60 years) (2) education (lack of functional literacy skills) (3) decent life conditions (long-term unemployment) Index of Aggregation of 16 dimensions, grouped by - Covers a large range of - Cultural and Social ages: (child) infant mortality, child poverty, social problems. institutional specificities Health child abuse, teenage suicide; (teenagers) - Quite popular and well- in the choice of the 16 teenage drug abuse, high school drop- developed, especially in dimensions. outs; (adult) unemployment, wages, North America health insurance coverage; (elderly) poverty among the elderly, out-of-pocket health costs among the elderly; (all ages) homicides, alcohol-related traffic fatalities, food stamp coverage, affordable housing, and income inequality

6 For this dimension of well-being and quality of life, there are also several dashboards, namely at European level (Structural Indicators of the Lisbon Agenda, Laeken Indicators) but they are not used much.

7 Index of Average of 4 indicators (for a total of 15 -Dimension of economic - Classical social- Economi variables): insecurity, referring to democrat vision with low c Well- (1) consumption flows (commercial and Human Rights weight for green topics. being non-for-profit goods and services, - Favourable to start a - Emphasis on economic domestic production, leisure), dialogue with specialists dimension of welfare. (2) sustainable accumulation of wealth of national accountancy. (economic, human and environmental), - Explicitly presented as a (3) inequalities and economic poverty, tool open to public (4) economic insecurity (towards job loss, debate illness, family change, aging). - Using 2 methodologies Covers simultaneously current prosperity, takes into account the sustainable accumulation and social topics, different nature of these combining aggregation (for 3&4) and objects. monetarisation (1&2) methods. Personal Aggregation of 3 dimensions of security: - Combines objective and - Mainly concern with Security (1) economic (unemployment, salaries, subjective measurements. economic and security Index social security, debt) ; - Incorporates dimensions dimensions of welfare. (2) health (accidents, stress, trust in ignored by other - Quite individualistic healthcare system); (3) physical (physical indicators. perspective. violence, theft). Accounts Subjective measurement of dimensions of - Allow different levels of - So far no comparison of personal and social well-being, through 7 analysis over time is available. Human dimensions (emotional well-being, - Difficulty of dealing with Well- satisfying life, vitality, resilience and self- subjective data (survey) being esteem, positive functioning, supportive relationships, trust and belonging)

3.2. Inequalities

Some aspects of inequalities are usually already present in aggregated social and well-being indicators. The issue is to define 1) whether the dimension of inequalities needs a separate assessment or not and 2) whether multiple dimensions of inequalities should be taken into account (e.g. gender, geographic, etc.)

Name What? Strengths Weaknesses GINI Measure of income inequalities. 1 = total - Already well-known, - Focus only on one Index inequality where only one person has all the widely used. (although central and available income; 0 = everyone gets exactly - Simple and clear. relatively representative) the same share of the total income in a aspect of inequalities. society. BIP40 Aggregation of 58 variables covering 6 - Democratic: the - Quite French-centric. dimensions of inequalities: housing, income, website bip40.org is - More an indicator of work and employment, education, health, more generally a general social health, justice. platform for debates and from the angle of is meant to be evolving. inequalities.

3.3. Environment and sustainability

There are lots of indicators dealing with (aspects of) sustainability and environmental dimensions. First of all, one major distinction is between indicators that are following a perspective of strong sustainability or weak one. On the one hand, a strong sustainability vision assumes that natural capital cannot be (entirely) replaced by human capital (economic or social) as there are definitive limits to some natural resources. These indicators are expressed in physical units,

8 typically Carbon and Ecological Footprint. On the other hand, from a perspective of weak sustainability, what matters is to sustain a total level of wealth, considered as the sum of all capitals. A high level of economic and/or social capital can compensate for a poor level of natural capital. Therefore, natural elements are translated into monetary value in order to be integrated in a broader indicator.. This is the case with the Adjusted Net Savings.

Name What? Strengths Weaknesses Ecologica Measure of sustainability. The EF - Good communication - Results diverge according l converts natural elements into one tool, awareness-raising to method used although Footprin single measure, the global hectare. The and pedagogical. overshooting is a clear trend t (EF) EF is compared with a measure of - Symbol of inequalities in all cases. biocapacity (= productive capacity of (between and among - Complicated system of the biosphere and its ability to provide nations and generations) aggregation and conversion, a flux of biological resources and - Worldwide perspective however, involvement of services useful to humankind). of sustainability: a country official statistics could (or person, product, improve data. In other words, the aim is to compares company) EF is compared - Risk of misuse of the EF. human demand for “global hectare” with global biocapacity. Limits shouldn't be (footprint) with planet Earth's - Physical indicator = forgotten: (1) only consider ecological capacity to regenerate strong sustainability the environmental aspect of (biocapacity or sustainable footprint). It - Focuses on mode of sustainability; (2) doesn't measures sustainability as it compares consumption and take into account the role of flows of consumption with existing production, allows better technological advances ; (3) stocks, focusing exclusively on natural identification of some elements not included capital. responsibilities, and link so far e.g. air, soil and water economic and pollution, use of non- environmental questions. renewable resources, desertification. Carbon Most popular subset of the EF and of - Less controversial - Limited to one aspect of Footprin the more comprehensive Life Cycle methodology environmental t (CF) Assessment (LCA). - Quite popular, and sustainability. It follows the same principle as the EF recognised (climate but is limited to one aspect: carbon change negotiations). emission, which is however significant - Directly operational to as it already account for more than orient the action of 50% of the EF. companies and administration. - Possible to present for communication and educational purposes (overshoot day, number of planets) Happy Efficiency measure of well-being (or - Original: mutually - Measuring ‘happiness’ is Planet “happy life”) delivered per unit of conditions human and very subjective, not sure Index environmental impact. It reflects the environmental welfare this definition of “happy life average years of “happy life” produced (generalisation of the years” is convincing. by a given society, nation or group of standard of living of the - Policy relevance of nations, per unit of planetary resources West is not sustainable targeting ‘happiness’ can be consumed. Happy life years are but low level of happy life debated, HPI does not estimated as the product of a years in poor countries do consider social and subjective indicator of life satisfaction not compensate their economic criteria that could and an objective indicator of life sustainable ecological shed light on the direct expectancy at birth. These are divided footprint). relationship between by a measure of natural resource use - Strong sustainability. political action and (EF or CF). - Simple and easily happiness understandable, good - potentially misleading communication potential. name

9 Adjusted Presented as a measure of - Data are available for 140 - Weak sustainability. Net sustainability, understood as countries and are developed countries are Savings maintenance of a constant stock of legitimated by the World seen as being “in a or “extended wealth” (natural + Bank. sustainable path” because Genuine productive + physical + human capital) - It draws attention to high levels of human and Savings which are the ingredients to provide investments in human man-made capital equivalent opportunities than ours to capital and good compensate for poor future generations. governance that have natural stock, while some ANS = net savings (gross national emerged as important developing countries are on savings minus consumption of fixed factors as part of a a non-sustainable path. capital) nation’s capital. - No assessment of global + education expenditures unsustainability, neither of (considered as investment in human imbalances in consumption capital) of natural resources, over- - estimates of the depletion of consumption by rich is not natural resources (reflecting the an issue. decline in asset values associated - Doesn't include water with their extraction and harvest) depletion, unsustainable - monetary evaluations of fisheries, soil degradation global pollution damages resulting and biodiversity loss. from CO2 emissions

The sustainability of this savings rate is evaluated as percentage of actual GDP

One important distinction between these indicators is whether it is based on a global approach of sustainability or not. Carbon and Ecological Footprint take this view: what matters is the total resources of our planet and a fair distribution of them. Sustainability of CF and EF are measured in comparison to the global biocapacity. On the contrary, with ANS, the "sustainable" rate of savings is evaluated as a percentage of national current GDP. Whether or not this national current level of wealth could be generalised to the planet and still be sustainable is not at stake.

Other indicators focus on a more pragmatic or instrumental environmental aspects:

Environ Composite index tracking - Fill a gap in - Hasn't been calculated mental environmental sustainability and its environmental after 2005 and was replaced Sustaina human's management. through 5 performance evaluation by the EPI (see below). bility domains (divided into 76 variables) : (1) - Provides a ranking for Index state of the ecosystem, (2) reduction of countries and (ESI) environmental pressures, (3) reduction governments, allowing the of human vulnerability, (4) social and identification of “best institutional capacities to tackle practices”. environmental challenges, (5) global - Can serve as a tool for governance achieving global-scale policy goals.

Environ Method of quantifying and numerically - Allows easy cross-country - No care for depletion of mental benchmarking the environmental comparisons resources. Perform performance of a country's policies, - Tool for improving policy- - Centred on anthopogenic ance using outcome-oriented indicators. It making and shifting use of nature, no Index covers 6 policy categories (16 environmental decision- consciousness of climate (EPI) indicators) : (1)water (quality and making onto firmer change effects on human), (2) air pollution analytic foundations. - Quite uncritical, overly (effects on human and on ecosystems), optimistic picture of (3) biodiversity and habitat, (4) environment in developed

10 productive natural resources (forestry, countries fisheries, agriculture), (5) sustainable - Gives no information energy, (6) environmental health about whether or not the country is on a sustainable path.

Finally, the environmental dimension is also taken into account in the broader approach of corrected GDP. As mentioned earlier, the idea is to give a measure of sustainable GDP by adding to its value non-economic factors that contribute to an increase of “wealth” in society, and subtracting elements that contribute to its decrease. Corrected GDP doesn't imply only environmental elements (e.g. pollution, resource depletion) but also social and quality-of-life dimensions (e.g. housework, leisure time, suicide, etc.) and is presented as a comprehensive indicator that could replace GDP as proxy for general well-being of a society.

Apart from what has been noted in 2.3., the main strengths of such indicators are the following: - They are good communication tools ; - They are potentially interesting to promote synergies between various policies (for example the EU SDS and Agenda 2020) ; - They indicate trends that are bigger than the possible error margin in its construction, and are therefore useful for long-term planning ; - They are good awareness-tool about the unsustainability of our modes of production and consumption, and about the non-linearity of the relationship between welfare and GDP.

However, weaknesses can be observed, among which: - They adopt a vision of weak sustainability ; - The method is seen as relatively robust, but there is a need for more international and reliable set of valuation methods ; - They are no measures of sustainability per se. They only account for the depletion of resources and damages in the environment but give no assessment of how far we are from sustainable targets, in other words, on how much we overconsume, or underinvest, or put too much pressure on resources (critique from Stiglitz report) ; - They are based on GDP methodology and must thus stay in line with microeconomic theory. The adjustments made are only marginal, and keep unchanged the general equilibrium and its underlying hypothesises (e.g. property rights are defined and respected, information is symmetric, etc.) that don't make sense for most environmental problems of global nature.

Here are the two well-known and most used examples of corrected GDP with their specific characteristics:

Index of ISEW = Personal consumer expenditure - It is said to be accurate in (see above) Sustaina - adjustment for income methodological terms ble inequality - It is open to modification. Economi + services from domestic labour Friends of the Earth c - costs of environmental degradation website provides an open Welfare - defensive private expenditures platform to create your + non-defensive public expenditures own ISEW and suggest + economic adjustments improvements. - depreciation of natural capital. Genuine GPI = personal/household consumption - It is said to be less (see above) Progress expenditures complex and more Indicator + value of household work not accessible than IESW, as

11 counted in GDP well as more popular and + value of volunteer contribution highly relevant for EU work - crime factor - environnemental damage factor (resource depletion, ozone depletion, pollution ... ) - family breakdown factor - overextended worker stress factor - exploding consumer debt - inequality of distribution of wealth and income

Last but not least, one should be aware that without creating a whole new indicator correcting GDP, classical GDP is a construct whose definition has and can still evolve. There is now consensus at UN level to include major building blocks that have been left out so far like research and development to be changed from "expenses" to "investment" and demographic change (Eurostat source).

Conclusion

The debate on alternative indicators to GDP is complex but one shouldn't give up under the pretext of too high technicality. On the contrary, decisions that are to be made are before all political and the choice of some indicators rather than others will reinforce the diffusion of a specific vision of the world, of priorities and political objectives for today and tomorrow. Now that the debate is on the agenda, it is crucial to participate critically in it. Two ways are to be worked on simultaneously. On the one hand, pressure must be exerted to improve the production of social and environmental statistical data, as well as the development and diffusion of environmental accounts, so that political decision and evaluation are based on what really matters. On the other hand, GDP must be evicted from its hegemonic status in the discourse about progress and well-being in our societies. Therefore, we need to communicate simultaneously on several indicators which complement a corrected measure of GDP. In order to represent the multidimensional nature of quality of life, an indicator like the Human Poverty Index or the Index of Social Health is recommended, and should be complemented by a specific measure of inequalities, Gini Index being the best option. In addition, it is important to promote a vision of strong and global sustainability. The Ecological Footprint is in this respect totally appropriate despite its technical limits. Finally, it is essential to work for improving GDP, whilst communicating on what traditional GDP is, and especially what it is not.

12 Appendix 1: Environmental Accounting

National accounts are the current standard framework to measure the economic activity of countries. They present the production activities as well as the income and expenses of all economic actors (companies, government and households) within an economy, generally a country, including their relationship with the economies of other countries. Flows and stocks, including of financial assets and liabilities, are calculated and can then be combined and aggregated. The most famous aggregated measures, derived from the System of National Accounts (SNA) are GDP, available income, savings and investments, which are broadly used by political decision-makers. Detailed national accounts also contain useful information, generally presented in "input-output" tables, showing how economic actors interact, their production patterns, the share of trade or consumption for such sector or an other, etc.

Environmental accounting has been developed using the same technical framework as classical national accounts with the aim of measuring 1) the contribution of the environment to the economy and 2) the impact of the economy on the environment.

The System of Integrated Environmental and Economic Accounting (SEEA), developped by the UN since 1993, covers 4 categories of specific accounts: 1) physical data related to flows of material and energy used in economic system (as resource or waste) 2) elements of classical SNA that have a direct link with good management of the environment (e.g. revenues of eco-industries, taxes) 3) accounts for environmental assets measured in physical and monetary terms (e.g. timber stock account) 4) adjustments of economic accounts (exclusively in monetary terms) due to the impact of the economy on the environment i.e. resource depletion, defensive expenditures and environmental degradation. This category is the equivalent of “corrected GDP” (also called "green GDP"), although it is the less used outcome of SEEA.

SEEA is very good to evaluate specific effect of some environmental and economic policies as well as the interaction between both. For example, it shows the repartition of expenses in the protection of the environment according to different actors; or the share of domestic and imported products as a contribution to pollution (in water and air). SEEA can thus be promoted as tool for designing and assessing targeted economic and environmental policies. SEEA allows easy international comparison because it follows clear and systematic format, such as national accounts, which are already well- known and accepted. While taking into account monetary elements and classical economic data, it articulates them with environmental physical data.

A broad process of standardisation, mainstreaming and collection of resources is being made by UNCEEA (UN Committee of Experts on Environmental-Economic Accounting, created in 2005) in order to make SEAA international statistic standard (http://unstats.un.org/unsd/envaccounting/ceea/default.asp). The topic is also being developed at European level through the European environmental economic accounts (see COM (2010) 132 final).

13 Appendix 2: Economic wealth doesn't mean welfare, nor sustainability

Alternative indicators have been calculated, usually for developed countries from 19590-1970 to present. When compared to GDP in a graph, most alternative indicators show a clear discrepancy. Up to a certain point, both curves follow the same (upwards) path, then alternative indicators start going down, while GDP is still going up. All these graphs feed the hypothesis that: 1) There is a threshold after which increasing economic wealth doesn't make welfare or sustainability increasing at the same rate (or even makes it decreasing). 2) We have already overtaken the sustainable point at which our society would be in equilibrium (from an environmental and social perspective). These graphs also allow putting in perspective the critiques against accuracy in statistical measurement of the alternative. Whatever the alternative indicator used, the general trend is very clear and similar for all of them. The presence of constant and significant discrepancy with GDP evolution compensates in a way for possible technical errors.

Genuine Progress Indicator vs. GDP (USA, 1950- Ecological Footprint/Biocapacity vs. GDP (China 2002) 1961-2003)

Index of Sustainable Economic Wealth vs. GDP (Chile, 1965-2000)

IESW vs. GDP (Germany, Netherlands, 1950-2000)

Index of Social Health vs. GDP (USA, 1970-1993)

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Appendix 3. Figures and graphs for existing alternative indicators

What is usually highlighted in alternative indicators data and graphs are general trends rather than absolute figures, as well as the comparison with the evolution of GDP over time.

Human Development Index and Human Poverty Index

Data produced each year by the UNDP in the Report on Human Development (http://hdr.undp.org/en/). HDI gets a value between 0 and 1 (the closest to 1, the highest development is) whilst HPI is expressed in percentage (a high percentage meaning high poverty).

Index of Social Health

Index only developed by the Fordham Institute for the US (http://iisp.vassar.edu/ish.html). Few data is abailable for EU. However, great details and methodology allow easy estimation in a European context. ISH in the US:

Index of Economic Well-being (IEWB)

Lots of updated data available for Canada and the US, as well as partial data for other OECD countrires, developed by Canadian academics Osberg and Sharpe and the Centre for the Study of Living Standards (http://ideas.repec.org/e/pos2.html).

The Index is said to have stimulated much interest among researchers and policy analysts at the international level, however not much more data is available straightforward. A new estimate of the IEWB for 14 countries for the 1980-2007 period has just been released: http://ipac.ca/documents/sharpe.pdf

15 National accounts of Well-being,

Developed by the New Economics Foundation (http://www.nationalaccountsofwellbeing.org). Data have been collected for 22 European countries via the European Social Survey of 2006-2007. A score of 0 to 10 is given for the final indicators as well as for each of its 7 dimensions, with 5 representing the average score across the 22 countries. So far no comparison over time is available.

Rank Country Value

1 Denmark 5.94

2 Switzerland 5.71

3 Norway 5.66 4 Ireland 5.46 5 Austria 5.45 6 Sweden 5.44 10 Cyprus 5.18 16 Poland 4.80 21 Bulgaria 4.49

22 Ukraine 4.31

GINI index

Data produced among others by Eurostat, OECD and World Bank although lots of data are missing before 2000's. However, all data show a slow but clear rise in inequalities over the last decades.

time 2001 2002 2003 2004 2005 2006 2007 2008 geo (27) : : : : 30 (s) 30 (s) 31 31 New Member States 29 (s) 29 (s) 29 (s) 30 (s) 32 32 30 29 Euro area : : : : 29 29 30 30

Ecological Footprint

So far, mostly promoted by civil society organisations: WWF (http://www.footprint.wwf.org.uk) and Global Footprint Network (http://www.footprintnetwork.org). However, lots of lobby is done for a mainstream use of the indicator, and it is more and more recognised. Various applications and different ways to present the data are widely spread (overshoot day, number of planets consumed, etc). Notably, the European Environment Agency collaborated with GFN to produce the National Ecological Footprint and Biocapacity Accounts in 2005.

Total EF Ecological Deficit Population (global Total Biocapacity* or Reserve** 2002 data (millions) ha/person) (global ha/person) (global ha/person) WORLD 6.225,0 2,2 1,8 -0,4 High income countries 925,6 6,4 3,4 -3,0 Middle income countries 2.989,4 1,9 2,1 0,2 Low income countries 2.279,8 0,8 0,7 -0,1 EU-25 + SWITZERLAND 460,9 4,7 2,3 -2,4

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Per-person resource demand (Ecological Footprint) and resource supply (Biocapacity) in France since 1961.

Carbon footprint

According to the European Commission, carbon footprint is relatively easy to calculate as it is a subset of the data covered in LCA (Life Cycle Assessment), internationally standardised method (ISO 14040 and ISO 14044). Promoted by official bodies (EU, IPCC) and lots of independent think thanks and Ngo's (www.carbonfootprint.com). It is very easy to find user-friendly online calculator, but they are aimed at individual or business. General data on countries are not available so straightforward. A partial database is available in the UNDP Human Development report of 2007-2008. One useful distinction to make is the difference in emissions per country or per capita, as well as the importance of historic emissions. For example, according to the UN, even if China is now the first polluter, American is responsible for 19.8 tones per person while the average Chinese citizen is 4.6 tones. UN data for 2006

Annual CO2 emissions Rank Country (in thousands of CO2 metric tons) Rank Country emissions per - World 28,431,741 capita 1 China 6,103,493 1 Qatar 56.2 2 United States 5,752,289 2 United Arab Emirates 32.8 - European Union 3,914,359 3 Kuwait 31.2 3 Russia 1,564,669 4 Bahrain 28.8 4 India 1,510,351 5 Luxembourg 26.2 5 Japan 1,293,409 6 Trinidad and Tobago 25.3 6 Germany 805,090 7 Netherlands Antilles 22.8 7 United Kingdom 568,520 8 Aruba 22.3 8 Canada 544,680 9 United States 19,7 9 South Korea 475,248 10 Australia 19.0 10 Italy[15] 474,148 96 China 4,6

Happy Planet Index Developed by the New Economics Foundation (www.happyplanetindex.org). Data for 2010 and comparison over time from 1990. The presentation in sub-categories with traffic light system allows for more nuances although it makes it also a bit complicated : Traffic Lights Scheme Component Colours Blood Red Red Amber Green All 3 green 2 green, 1 yellow

Life Satisfaction < 5.5 5.5 - 7.0 > 7.0 1 green, 2 yellow Life Expectancy < 60 60 -75 > 75 Happy Life Years <33 33-52.5 > 52.5 All 3 yellow Ecological Footprint (g ha) >8.4 4.2 - 8.4 2.1 - 4.2 < 2.1 Any 1 red

2 red, or anything with one blood red

17 HPI Countries Region Life Sat Life Exp HLY EF HPI rank Costa Rica 1a 8,5 78,5 66,7 2,3 = 76,1 1 Dominican Republic 1a 7,6 71,5 54,2 1,5 = 71,8 2 Jamaica 1a 6,7 72,2 48,5 1,1 = 70,1 3 Haiti 1a 5,2 59,5 30,8 0,5 = 50,8 42 Netherlands 2c 7,7 79,2 61,1 4,4 = 50,6 43 Malta 2e 7,1 79,1 56,0 3,8 = 50,4 44 Uzbekistan 7a 6,0 66,8 40,3 1,8 = 50,1 45 Sudan 4b 4,5 57,4 25,8 2,4 = 28,5 121 Luxembourg 2c 7,7 78,4 60,1 10,2 = 28,5 122 Un.Arab Emirates 3b 7,2 78,3 56,2 9,5 = 28,2 123 Ethiopia 4b 4,0 51,8 20,6 1,4 = 28,1 124 Kenya 4b 3,7 52,1 19,1 1,1 = 27,8 125

Index of Sustainable Economic Welfare and Genuine Progress Indicator

ISEW and GPI are very similar. In the academic world, application, methodological comments and critiques GPI: Developed by Redefining Progress, American are often done for both indicators indistinctively. think thank Results tend to converge, regardless of the specific (www.rprogress.org/sustainability_indicators/genuin methodology used. Both are expressed like GDP: in $ e_progress_indicator.htm) and so far, (detailed and or Euros, sometimes per capita, and with an updated) data is only available for the US and emphasis on the evolution over time. Canada. However, RP is promoting the production of GPI Accounts for the EU, through the Center for IESW: Developed by Friends of the Earth and nef Sustainable Economy. Example for the USA: (www.foe.co.uk/progress/). Data are only available for a few regions of UK (Wales, Scotland ) and some countries (Austria, Italy, , Poland) for which analysis has been done through isolated academic research. However, when available, data is robust and very detailed. The general methodology could be applied easily in any context. Example of IESW for Belgium (more graphs in Appendix 2):

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Adjusted Net Savings

It is expressed in percentage of GNI (gross national income) and is usually compared to gross savings rate. Promoted by the World Bank, figures available per country between 1970 and 2005

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