More than GDP: Measuring What Matters Report of the Round Table on Measuring Economic Performance and Social Progress in Scotland ACKNOWLEDGEMENTS: The work of the Round Table was funded by the Carnegie UK Trust and delivered in partnership with the Sustainable Development Commission.
This report was written by Maf Smith and Sylviane Herren, with support from Shelagh Young, Anne Marte Bergseng, Jan Bebbington, Martyn Evans, Sasha Trifkovic, Caroline St Johnston and Maria Bell.
The Round Table is grateful for the contributions of the following people who attended Round Table discussions and shared their experiences: Paul Allin (Office of National Statistics); Stephen Hall (Defra); Trudi Sharp and Rob Wishart (Scottish Government); Stephen Noon (Scottish National Party), and Jane Saren (Scottish Labour Party).
© Copyright of this report is held jointly by the Carnegie UK Trust and the Sustainable Development Commission.
This report is printed on paper that is FSC certified. May 2011 Contents
Round Table Members ii
Foreword from the Chair and Vice Chair iii
Executive Summary v Summary of the Round Table’s Recommendations vii The 12 Stiglitz Report Recommendations viii
1. Background to our Scottish Round Table 1 1.1 The Commission on the Measurement of Economic Performance and Social Progress 2 1.2 The work of the Scottish Round Table 2
2. The Importance of Redefining Prosperity 5 2.1 Introduction 6 2.2 Exploring the links between GDP and well-being 6 2.3 What does GDP actually measure? 8 2.4 The dilemma of growth 10
3. The Relevance of the Stiglitz Report to Scotland 13 3.1 Introduction 14 3.2 Summary of the Stiglitz Report recommendations 15
4. How has Scotland been Measuring Economic Performance and Well-Being? 19 4.1 Introduction 20 4.2 Scotland’s National Performance Framework 20 4.3 Advice of the Scottish Government Council of Economic Advisers 21
5. Evaluating Scotland’s Approach to Measurement of Progress 23 5.1 Introduction 24 5.2 Meeting the Stiglitz Report Recommendations through a Scottish performance framework 25
6. Concluding Comments 33
Appendices 37 Appendix 1: Biographies of the Scottish Round Table Members 38 Appendix 2: List of Technical Annexes Prepared for the Scottish Round Table 41 Appendix 3: Endnotes 42 ii More than GDP: Measuring What Matters
Round Table Members
Professor Jan Bebbington Professor of Accounting and Sustainable Development, University of St Andrews (Round Table Chair)
Angus Hogg Vice Chair, Carnegie UK Trust (Round Table Vice Chair)
Sir John Elvidge KCB Permanent Secretary of the Scottish Government from 2003 to 2010
Tricia Henton Director of Environment and Business at the Environment Agency 2006 to 2010 & previous CEO of SEPA
Kaliani Lyle Scotland Commissioner, Equalities and Human Rights Commission & Board member of the Office of the Scottish Charity Regulator (OSCR)
Professor Duncan Maclennan CBE School of Geography & Geosciences, University of St Andrews
Iain Macwhirter Columnist and Broadcaster & Rector of the University of Edinburgh
Ian McKay Director of Scottish Affairs, Royal Mail Group
Stewart Murdoch Director of Leisure & Communities, Dundee City Council & Board member of International Association of Community Development
Martin Sime Chief Executive, Scottish Council for Voluntary Organisations (SCVO)
Douglas Sinclair CBE Chair of Consumer Focus Scotland & Deputy Chair of the Accounts Commission for Scotland
Dr Karen Turner Reader in Economics, University of Stirling Management School, Research Associate at the Fraser of Allander Institute & ESRC Climate Change Leadership Fellow
Martyn Evans Chief Executive, Carnegie UK Trust (Co-secretary of the Round Table)
Maf Smith Scotland Director, Sustainable Development Commission (Co-secretary of the Round Table) More than GDP: Measuring What Matters iii Foreword and Executive Summary iv More than GDP: Measuring What Matters FOREWORD AND EXECUTIVE SUMMARY
Foreword from the Chair and Vice Chair
Most people understand that Gross Domestic Product (GDP) However, we are very concerned that through the ebb is a unit of economic activity, but far fewer can accurately and flow of politics – and with regular elections – there is describe what it measures. Put simply, GDP measures the a significant risk of all this experience being lost and the ‘busy-ness’ of our economy. But is a growing economy busy framework itself being abandoned either now or in the doing the right things? Making our economy do more will future. Our Round Table is clear that all governments not necessarily lead to the things we want. Over time GDP need a framework now and over the long term, and has taken centre stage in the minds of the public and policy must seek to learn from and take forward the work of the makers as the critical measure of progress. Yet included Scottish administration over 2007-2011. Economies need in GDP are ‘defensive expenditures’ which attempt to put a performance framework that clarifies longer term right problems we would be better avoiding in the first place. goals, organises effort and is underpinned by a core set Tackling crime, treating ill health, responding to emergencies, of indicators that helps us measure progress toward this and cleaning up pollution or putting right environmental long-term goal. damage all contribute more to GDP than avoiding crime, ill-health or environmental damage. Our over-reliance on GDP Governments can use such a framework to set out their makes it difficult for politicians to back policies that are good programme for government and, in turn, others can use it to for society or the environment, but which might hamper an better hold Government to account. Governments across increase in GDP. the UK need to engage with and be guided by our recommendations and the work of the Stiglitz Report. A growing list of organisations and individuals now say that our over-reliance on GDP means we undervalue quality of These governments also need to work alongside civil society life and the health of our environment. GDP is not even to host a much wider debate about the aspirations adequate as a measure of our economic performance. Our of Scotland. Our Round Table wants to see the UK’s Round Table has reviewed a wide evidence-base to make governments shift attention from a sole focus on expanding recommendations on how Scotland should develop better GDP to delivering well-being for all. To do that, we need to measurements of what matters. develop a wider and deeper understanding that our goal is well-being. Building on the ground-breaking work in Scotland of setting a national performance framework over 2007-2011, there The work of our Round Table has not been technical. We have are some important lessons for the governments of the UK. not tried to set out a full set of well-being indicators that can Governments should organise their work around growing simply be adopted. Instead we are aiming to do two things. the well-being for their people. They should also use a Firstly, we are offering practical advice on how to adopt the performance framework to help properly measure and report findings of the Stiglitz Report. Secondly, we want to start on aspects of economic performance, quality of life and a wider debate in civil society and government about the sustainability, as aspects of well-being. Such frameworks must importance of well-being. We want Scotland and the other be used to hold Governments to account. governments across the UK to lift their sights, and focus on a fuller, more rewarding end goal of increased well-being for all. A key theme throughout this report is our recognition of the progress made over the last four years by the Scottish Professor Jan Bebbington & Angus Hogg Government in developing the National Performance Framework (NPF). As one of our members put it: “The most important fact about the NPF is that it exists”. The innovative work and thinking in developing it should not be overlooked, and those involved in its inception deserve praise. More than GDP: Measuring What Matters FOREWORD AND EXECUTIVE SUMMARY v
Executive Summary
“Because what we choose to measure and how we construct our measures can have such an important role in the decisions that are made, it is important that there be an open and public discussion of our system of metrics.” Joseph Stiglitz1
This report explores the complex issues hidden behind two Our two main recommendations for the short and medium simple questions: what is Progress and what is Prosperity? It term lead us to four key factors in applying the Stiglitz Report argues that GDP is an insufficient and misleading measure to Scotland. of whether life in Scotland is improving or not. It takes the findings of the 2009 Stiglitz Report,2 which emerged from 1. When the Scottish Government chooses what it the Commission set up by President Sarkozy to advise on how measures, it is by default defining what matters, and better to measure economic performance and social progress. what it focuses attention and resources on; It recommends that the new Scottish Government applies these to creating a performance framework better able to Our Round Table is clear that too much emphasis is deliver, measure and report on economic performance, quality currently placed on the importance of GDP as a measure of life, sustainability and well-being. The report also shows of progress. It is an important indicator but not one that that over-reliance on GDP as a measure makes it difficult for should predominate. It should simply be one of a small politicians to back policies that are good for society or the select number of indicators used to track economic environment if they might hamper an increase in GDP. performance and social progress.
The Scottish Round Table which created this report was Through its NPF the previous administration made an established by the Carnegie UK Trust3 to look in more detail attempt to move in this direction. That Framework can at how to better measure economic performance and social be a building block in helping Scotland go beyond GDP; progress in Scotland. We were concerned to ensure that the by creating Scotland’s ‘GDP Plus’ dashboard of headline strong social structures and healthy environment, necessary to indicators. create a flourishing Scotland, were not overlooked as a result of working to measures mainly focused on economic activity. 2. Whatever the Scottish Government measures, the In short, we are advising that the Scottish Government should critical issue is connecting this measurement to the measure what matters. actions that help move Scotland towards its end goal;
In the short-term, Scotland’s new Government needs While the new Government needs to consider how to to learn from the experience of measuring a wider improve on any framework or dashboard, more critical is set of indicators through the National Performance working to ensure that it is better used in policy making and Framework (NPF) and engage with and be guided by the in clearly aligning work across each part of government. recommendations of the Stiglitz Report to create a new framework with new indicators. Over the last four years, Scotland’s Government used the NPF to improve how performance was measured. We saw In the medium term – which we see as being across the next this as a significant development in how government is parliamentary term – the Scottish Government should work organised. Certainly others outside of Scotland have much alongside wider civil society to host a much wider debate to learn from this recent experience. However, we do not about the aspirations of Scotland, the relevance of well- see that in practice our Government used the Framework being as a goal and how we can develop better measures of to its full potential, or that it led to more informed or well-being that resonate with the wider population. joined up-decisions. vi More than GDP: Measuring What Matters FOREWORD AND EXECUTIVE SUMMARY
The Scottish Government made the NPF the responsibility While our focus has been on Scotland, our findings are of national and local government. Next, Government relevant across the UK. The UK’s four governments all must look more closely into how to build a sense of need to better understand how to measure well-being and shared responsibility and partnership in both deciding the report on their own performance. Our Round Table was contents of a framework, and then in aligning the work established in Scotland in part because of existing Scottish of local government and agencies to ensure effective interest in this topic. We also see that other governments partnerships on the ground. can learn from Scotland’s experience in using performance frameworks. It is vital that the UK’s four governments take 3. To achieve well-being we need to look at how we lessons from each other in reviewing and applying the measure, deliver and hold Government to account; Stiglitz Report. We would like to see more cooperation on this vital topic. Over the last four years, Parliamentary accountability has not been based around the Framework. This has meant that, outside of the civil service and Cabinet, few people A critical factor is the need for wider have understood how to use the Framework to scrutinise Government performance. Government’s chosen method civil society to also hold Government to of reporting – Scotland Performs – is thorough but account. What we choose to measure defines technical, and does not encourage a debate about how what is important, and what Government better to organise government and develop and deliver better coordinated policies. It is also not very well known focuses its effort on. If we want Government outside central government. Scotland Performs should to be more ambitious and focus on delivery be maintained – it is critical that statistics are easy to access and use and seen as objective – but our preference of well-being, wider open and public would be for Government to report annually against any discussion will be crucial. dashboard or framework it sets itself. Stiglitz Report A critical factor is the need for wider civil society to also hold Government to account. What we choose to measure defines what is important, and what Government focuses its effort on. If we want Government to be more ambitious and focus on delivery of well-being, wider open and public discussion will be crucial.
4. Having reviewed in detail the 12 recommendations of the Stiglitz Report, we are of the firm view that they are relevant and timely and the new Government needs to make their implementation a priority;
Below we set out our 12 recommendations, with advice from our Round Table on how to implement the findings of the Stiglitz Report. If the Scottish Government wants to be better at delivering well-being through having a healthy economy, and by tackling inequalities in our society, then it needs to take the Stiglitz Report seriously and look closely at our findings to see how they can be implemented in Scotland. More than GDP: Measuring What Matters FOREWORD AND EXECUTIVE SUMMARY vii
Summary of the Round Table’s Recommendations
Recommendation 1: Recommendation 8: Focusing on delivering economic growth as the end rather Civil Society organisations should lead a national debate than the means is inadequate. Our collective purpose should about what really matters for Scotland. This debate should be improving people’s well-being, so the time is right for feed into decisions by future Scottish governments on the Scotland to shift its emphasis from measuring economic long-term goal or goals for Scotland and how to measure production to measuring people’s well-being. progress towards the goal(s).
Recommendation 2: Recommendation 9: The Scottish Government should continue to measure GDP In any high level dashboard, the Scottish Government but measures of national income and consumption need should better report on subjective views about well-being. greater prominence and weight if it is to better track economic We recommend including both the measure of the Warwick- performance. Edinburgh Mental Well-being and an index of well-being.
Recommendation 3: Recommendation 10: The Scottish Government’s Council of Economic Advisers While reorganisation of a performance framework to aid should review its recommendations on measuring the Scottish better communication and understanding across government economy, taking into account our Report and the expertise and wider civil society will be important, Government’s main now available through Professor Stiglitz’s membership. challenge for the next four years is to look more carefully at delivery across the wider public sector. There needs to be Recommendation 4: clearer lines of shared responsibility across the public sector, if Material well-being needs to be measured at a household delivery is to be properly coordinated. level. In any headline indicator set the Scottish Government should publish measures of household consumption alongside Recommendation 11: its current measure of household income. The decision, to cease monitoring and reporting against a Scottish sustainable development indicator set, was a step Recommendation 5: backwards. Use of a sustainable development indicator set as The Scottish Government must supplement measures on part of any performance framework is needed. Without such income distribution with ones that show distribution of wealth a sub-dashboard, Government cannot properly track levels and consumption. The Government also needs to measure of economic, human and environmental stocks vital for our inequalities in other dimensions such as health, housing and future well-being. education which are central to quality of life. Recommendation 12: Recommendation 6: To properly measure the state of the environment, The Scottish Government needs to measure the contribution Government needs to use separate indicators on climate of the household to the Scottish economy. A practical way to change and biodiversity but could also include an aggregate begin this would be to produce comprehensive and periodic indicator such as ecological or carbon footprint. Given accounts of household activity that sit as satellite accounts to Scotland’s statutory targets on climate change, Government the core national accounts. needs to develop a better climate change indicator. The focus of any indicator should be to report on cumulative emissions Recommendation 7: reduction, not simply on recording percentage reductions The Scottish Government needs to better measure the towards the 80% target. contribution of the third sector to the Scottish economy. A practical way to begin this would be to produce comprehensive and periodic accounts of the third sector that sit as satellite accounts to the core national accounts. viii More than GDP: Measuring What Matters
The 12 Stiglitz Report Recommendations
The ‘unifying theme’ of the Stiglitz Report is that the time 7. Quality of life indicators in all dimensions covered should is ripe for our measurement system to shift emphasis from assess inequalities in a comprehensive way. measuring economic production to measuring people’s well- being. The Report distinguishes between an assessment of 8. Surveys should be designed to assess the links between current well-being and an assessment of sustainability (i.e. various quality of life domains for each person, and this whether this can last over time). Current well-being has to information should be used when designing policies in do with both economic resources, such as income, and with various fields. non-economic aspects of peoples’ lives. Whether this well- being can be sustained over time depends on whether stocks 9. Statistical offices should provide the information needed of capital that matter for our lives (natural, physical, human, to aggregate across quality of life dimensions, allowing social) are passed on to future generations. the construction of different indexes.
The Stiglitz Report makes 12 recommendations divided 10. Measures of both objective and subjective well-being between the three topics of Classical GDP Issues, Quality provide key information about people’s quality of life. of Life and Sustainability. These recommendations are Statistical offices should incorporate questions to capture summarised below. people’s life evaluations, hedonic experiences and priorities in their own surveys. Classical GDP Issues 1. When evaluating material well-being, look at income and Sustainability consumption rather than production. 11. Sustainability assessment requires a well-identified dashboard of indicators. The distinctive feature of the 2. Emphasise the household perspective. components of this dashboard should be that they are interpretable as variations of some underlying “stocks”. 3. Consider income and consumption jointly with wealth. A monetary index of sustainability has its place in such a dashboard but, under the current state of the art, it 4. Give more prominence to the distribution of income, should remain essentially focused on economic aspects of consumption and wealth. sustainability.
5. Broaden income measures to non-market activities. 12. The environmental aspects of sustainability deserve a separate follow-up based on a well-chosen set of physical Quality of Life indicators. In particular there is a need for a clear indicator 6. Quality of life depends on people’s objective conditions of our proximity to dangerous levels of environmental and capabilities. Steps should be taken to improve damage (such as that associated with climate change or measures of people’s health, education, personal activities the depletion of fishing stocks). and environmental conditions. In particular, substantial effort should be devoted to developing and implementing robust, reliable measures of social connections, political voice, and insecurity that can be shown to predict life satisfaction. More than GDP: Measuring What Matters 1 Chapter 1 Background to our Scottish Round Table 2 More than GDP: Measuring What Matters CHAPTER 1
1. Background to our Scottish Round Table
“The economic crisis doesn’t only make us free to imagine other models, another future, another world. It obliges us to do so.” President Nicholas Sarkozy4
1.1 The Commission on the Measurement of Our Scottish Round Table, set up by the Carnegie UK Trust and Economic Performance and Social Progress SDC Scotland, is a direct response to this recommendation. Both organisations have long been interested in this topic. The In February 2008, Nicholas Sarkozy asked Joseph Stiglitz, Carnegie UK Trust has the objective to promote well-being Amartya Sen and Jean Paul Fitoussi to create the Commission and has been working since 1913 in this field. The SDC acted on the Measurement of Economic Performance and Social as independent adviser to the four governments of the UK Progress to review how statistics are used to measure progress until its closure in March 2011 and has taken a close interest in the economy and society. It had the following objectives: in the role of Government indicators and wider questions about redefining prosperity. This work culminated in its • To identify the limits of GDP as an indicator of economic groundbreaking report Prosperity without Growth? written by performance and social progress, including the problems SDC’s Economics Commissioner Professor Tim Jackson.5 with its measurement; • To consider what additional information might be Our work also builds on, and has been influenced by, the required for the production of more relevant indicators 2009 Measuring What Matters Dundee conference, hosted of social progress; to assess the feasibility of alternative by the Community Development Alliance Scotland in measurement tools; partnership with the International Association for Community • To discuss how to present the statistical information in an Development, the Carnegie UK Trust and the Scottish appropriate way. Community Development Centre.6
The Commission’s 2009 report, which we refer to as the Stiglitz Report, has been hugely influential. It builds on an 1.2 The work of the Scottish Round Table increasing volume of academic and professional literature looking at how to improve measurement of economic We met across winter 2010-11 to review the findings of the performance and wider social progress. The Report is Stiglitz Report and make recommendations about applying it significant and its timing, coming in the midst of one of the in Scotland. Twelve members were invited to receive written worst financial, economic and social crises in post-war history, and verbal submissions, to discuss key issues arising from the is highly appropriate. evidence, to offer advice and input to the secretariat and to direct the findings and writing of the report into its work. A number of countries, including the UK, are looking at the findings of the Stiglitz Report. Indeed, its authors were aware We agreed terms of reference stating that we would that the findings of the Report applied not only to France but “consider the findings of the 2009 Stiglitz Report and make to all countries. One of their key recommendations was that: recommendations to the Scottish Government and other interested stakeholders on relevance and application to “At the national level, Round Tables should be established, Scotland of the Report’s findings. In doing this the Round with the involvement of stakeholders, to identify and prioritise Table will take account of Scotland’s current experience of those indicators that carry the potential for a shared view of working within a National Performance Framework, as well as how social progress is happening and how it can be sustained previous and current work on additional measures that is seen over time.” as relevant to discussions.” More than GDP: Measuring What Matters CHAPTER 1 3
Membership was drawn from across Scottish society. At the national level, Round Tables Members took part as individuals but brought expertise and should be established, with the involvement of a range of experience from their current and previous work. The Group was chaired by Professor Jan Bebbington, SDC’s stakeholders, to identify and prioritise those Vice Chair for Scotland, with Angus Hogg, Vice Chair of the indicators that carry the potential for a shared Carnegie UK Trust, taking the role of Vice Chair. Biographies of Round Table members are set out in Appendix 1. view of how social progress is happening and how it can be sustained over time. The Round Table was supported by a secretariat led by Maf Smith, Director of SDC Scotland, and Martyn Evans, Chief Executive of the Carnegie UK Trust.
The full set of technical papers prepared for each of the three meetings is available online on both the Carnegie UK Trust and SDC Scotland websites. In addition to this report, the secretariat has produced three online Annexes which set out in more detail (a) relevant factors from SDC’s Prosperity without Growth?, (b) analysis of other relevant work on measuring progress and (c) detailed recommendations about the Scottish Government’s original National Performance Framework. A list of all Annexes and Technical Papers is included in Appendix 2. 4 More than GDP: Measuring What Matters More than GDP: Measuring What Matters 5 Chapter 2 The Importance of Redefining Prosperity 6 More than GDP: Measuring What Matters CHAPTER 2
2. The Importance of Redefining Prosperity
“This is the logic of free market capitalism: the economy must grow continuously or face an unpalatable collapse. With the environmental situation reaching crisis point, however, it is time to stop pretending that mindlessly chasing economic growth is compatible with sustainability. We need something more robust than a comfort blanket to protect us from the damage we are wreaking on the planet.” Tim Jackson7
2.1 Introduction In fact, our view of our own prosperity and economic well- Prosperity consists of more than material wealth. Prosperity being is now largely played out through relative effects. What has vital social and psychological dimensions. It includes matters more than the absolute level of income is whether we the ability to give and receive love, to enjoy the respect have more or less than those around us.8 This is particularly of peers, to contribute useful work and to have a sense of true in highly unequal societies where income disparities signal belonging and trust in the community. Material wealth brings significant differences in social status. Income is used to confirm us food, shelter and security but, beyond a certain level of status and sometimes authority, power and class as well. development, the relationship between economic growth and Income also provides access to the ‘positional’ or status goods increased prosperity weakens. that are so important in establishing our social standing.
An important component of prosperity is the ability to participate It appears that being at or near the top of the pile matters in meaningfully in the life of society. This view of prosperity has terms of health, happiness and subjective well-being.9 much in common with Amartya Sen’s vision of development as ‘capabilities for flourishing’. Such an approach emphasises There is an assumption that increased GDP will lead to functional capabilities (such as the ability to live to old age, improvements in health, education or people’s life satisfaction engage in economic transactions, or participate in political but the data shows that the relationship is far from simple. activities). Poverty can be seen as the deprivation of capability. For example, Figure 1 maps life expectancy against average We made use of the SDC’s Prosperity without Growth? report annual income levels in 177 different nations. The pattern is alongside our review of the Stiglitz Report. While Round Table similar to the one observed when looking at the relationship members had differing views on some of the findings of the between life satisfaction and income. SDC report, we are clear that it asks challenging and relevant questions about if and how growth can become sustainable The difference between the poorest and the richest countries and provides a strong evidence base helpful for those wanting is striking, with life expectancies as low as 40 years in parts of to look carefully at definitions of prosperity. Africa and almost double that in many developed nations. But the advantage of being richer as a nation shows diminishing returns. As income rises, the additional benefits in terms of 2.2 Exploring the links between GDP increased life expectancy are reduced. and well-being Some low-income countries have life expectancies that are on a There is a strong and necessary call for increasing incomes par with developed nations. For example, Chile (with an average in poorer nations. But in societies where material needs per capita annual income of $12,000) has a life expectancy of are broadly met and disposable incomes are increasingly 78.3 years, greater than that of Denmark (whose average income dedicated to different ends such as leisure, social interaction is almost three times higher at $34,000). It is also possible to find and the acquisition of desirable goods, our appetite for countries with incomes in the same range as Chile (e.g. South increases in material consumption remains strong. Africa and Botswana) where life expectancy is 30 years lower. More than GDP: Measuring What Matters CHAPTER 2 7
90
Japan Iceland New Zealand Costa Rica Ireland 80 Malta Norway Cuba Chile United States United Kingdom Bahrain
70 India Russian Federation
th (years) 60
Gabon y at bir at y
South Africa tanc 50 Botswana Mozambique e expec e
Lif 40 Swaziland
30 0 5000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 GDP per capita (PPP $2005) Figure 1: Life Expectancy at Birth vs Average Annual Income10
1.20
New Zealand United Kingdom 1.00 Cuba Norway Chile United States
Hong Kong India China 0.80 UAE
South Africa
0.60 Equatorial Guinea
Lesotho 0.40 HDR Education Index
Sierra Leone 0.20
0.00 0 5000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 GDP per capita (PPP $2005) Figure 2: Participation in Education vs. Income Per Capita11 8 More than GDP: Measuring What Matters CHAPTER 2
The ambivalent relationship between income and health understanding of what other actions – for example tackling indicators is echoed in the relationship between income and inequalities, providing better housing, putting more focus on education. Figure 2, from the Human Development Report’s preventative health care – are pivotal for delivering well-being. Education Index – based on a composite of educational And once identified, Scotland needs to make sure these participation rates – illustrates the same disparity between measures are tracked, reported on, and seen as being of the very poor and the very rich. It also shows the familiar equal importance to GDP in charting Scotland’s progress. pattern of diminishing returns with respect to income growth. We refer to this as ‘GDP-plus’. By this we mean creating a set Again, it is possible to find low income countries providing of well-being indicators that go beyond and add to GDP as a educational participation rates that are as high as the most measure of progress. developed nations. Kazakhstan, with in average income of less than $8,000, scores higher on the index than Japan, Switzerland or the US, countries with income levels four and five 2.3 What does GDP actually measure? times higher. Equally though, it is not hard to find countries with income levels of $8,000 whose educational participation rates Our principle macroeconomic indicator is GDP. We have are only two thirds of those in most developed nations. questions about why it sits at the head of the table. It is clearly useful and important but it is important to be clear Interestingly, there is no hard and fast rule here on the what it actually measures and what we can deduce from it. relationship between income growth and improved flourishing. The poorest countries certainly suffer Broadly speaking, GDP is a measure of the ‘busy-ness’ of the extraordinary deprivations in life expectancy, infant mortality economy. It counts up – in different ways – three types of and educational participation. But as annual incomes grow economic activity within a particular geographical area (usually beyond about $15,000 per capita, the returns to growth a nation). The first type of GDP account measures expenditures diminish substantially. Some countries achieve remarkable on goods and services in the economy and tells us what people levels of flourishing with only a fraction of the income and government spend or invest. The second type (income) available to richer nations. tells us what people earn and the third (output) tells us how much value firms produce. Our economy is said to be in balance International data clearly shows the limits of growth in being when the first type (our aggregate demand) equals the sum able to deliver ongoing improvements in our well-being. Beyond of the second and third (our aggregate supply). That is when a certain point – certainly reached in Scotland – economic expenditure equals income. The different calculations all come growth alone cannot be relied on to deliver ongoing well- up with more or less the same total and can be thought of as being. It is clear that Scotland needs to develop a better measuring the volume of economic flow at different points around the circular economy.
Northern hemisphere average surface temperature
Population
CO2 concentration GDP Loss of tropical rainforest and woodland
1750 1800 1850
Figure 3: Major Global Trends, 1750 to 200012 More than GDP: Measuring What Matters CHAPTER 2 9
What does GDP not measure? In a nutshell, GDP is a monetary measure of things exchanged on markets. It is a limited measure because it does not address what happens outside markets even when these activities result from or impact on economic activity. These can be positive (e.g. housework, caring and voluntary work) or negative (e.g. ecological and social damage from economic activities). The shortfalls of GDP as a useful measure of even economic well-being are summarised in the following points. The GDP measure fails to:
• Account for changes in the asset base (depreciation of capital stocks and level of indebtedness); • Adjust for the costs associated with the degradation and depletion of natural capital (finite resources and ecosystem services) generated through economic activities; • Incorporate the real welfare losses from having an unequal distribution of income; • Correct for defensive expenditures (costs of crime, car accidents, industrial accidents, family breakdown); • Account for non-market services such as domestic labour and voluntary care.
GDP excludes many activities that contribute to human well-being, such as parenting or volunteering so it is clearly not a good measure of overall well-being. It also fails as a reliable measure of economic well-being. Including defensive expenditures that stem from activities or events that can seriously undermine economic (let alone overall) well-being seems perverse.
Water use
Fisheries exploited
Foreign investment Paper consumption Species extinctions Motor vehicles Ozone depletion
1900 1950 2000 10 More than GDP: Measuring What Matters CHAPTER 2
2.4 The dilemma of growth labour productivity. Continuous improvements in technology mean that more output can be produced for any given input Prosperity without Growth? argues that the current model of of labour. Crucially, this process leads to fewer people being economic growth is unsustainable. It also acknowledges that needed to produce the same amount of goods. This explains lack of growth currently leads to instability. It asks whether why such importance is placed on economic growth to provide it is possible that continued economic growth is a necessary employment. A key means of doing this is to encourage condition for a lasting prosperity. This is the dilemma of growth. greater levels of consumption to stimulate greater demand. The dangers of relying on financial speculation and personal Figure 3 below gives a stark reminder of the crisis facing our borrowing, as tools to encourage consumption and economic planet. Consumption of resources is rising rapidly, biodiversity activity,are obvious since the economic collapse. Figure 4 is plummeting and just about every measure shows the shows how personal debt in the UK has increased while troubling impact humans are having on the Earth. These savings have fallen. Clearly using debt to increase spending figures suggest that, if we are serious about safeguarding our fuels economic growth in the short-term but cannot be seen planet’s ability to sustain us, we must reshape our economy. as sustainable.
Material possessions play an important symbolic role in our We are clear that better measurements of economic lives as well as enabling us to participate in the life of society. performance, that track production alongside As Adam Smith noted, “with the greater part of rich people, the consumption, and measures that capture how strong chief enjoyment of riches consists in the parade of riches.”13 Scotland’s economy is at a household level, will be There is some statistical correlation between economic growth important to help us track the sustainability of our and key human development indicators. Economic resilience economy. – the ability to protect jobs and livelihoods and avoid collapse in the face of external shocks – really does matter. Basic Is Decoupling a Myth? capabilities are threatened when economies collapse. Scotland’s focus on ‘sustainable economic growth’ signals an attempt to align its economic activity to an idea of a more Growth is our default mechanism for preventing collapse. In virtuous path to growth. Scotland’s commitment to reduce particular, market economies have placed a high emphasis on greenhouse gas emissions to 80% of their 1990 level by 2050
12% 120% Personal debt
10% 100% P ersonal debt as % of GDP 8% 80%
6% 60%
4% 40% Household savings ratio vings as % of disposable income
Sa 2% 20%
0% 0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-2% -20% Figure 4: UK Consumer Debt and Household Savings 1993-199814 More than GDP: Measuring What Matters CHAPTER 2 11
is the most obvious example of this. Its use of ecological situation is essential if economic activity is to remain within footprint as a measure of consumption is also relevant. ecological limits.
One remedy frequently proposed for the negative impacts Evidence for declining resource intensities (relative decoupling) associated with economic growth is ‘decoupling’ growth from is relatively easy to identify. The energy required to produce its problematic elements. This means achieving ‘good growth’ a unit of economic output declined by a third in the last 30 and stopping ‘bad growth’. The decoupling argument relies years, for instance. Global carbon intensity fell from around on finding ways of reducing material throughput per unit of one kilo per dollar of economic activity to just under 770 economic activity. grams per dollar.15
It is vital to distinguish between ‘relative’ and ‘absolute’ Evidence for overall reductions in resource throughput (absolute decoupling. Relative decoupling refers to a situation where decoupling) is much harder to find. The improvements in energy resource impacts decline relative to the GDP. Impacts may (and carbon) intensity noted above were offset by increases still rise but they do so more slowly than the GDP. The in the scale of economic activity over the same period. Global situation in which resource impacts decline in absolute carbon emissions from energy use have increased by 40% since terms is called ‘absolute decoupling’. We believe this latter only 1990 (the Kyoto base year).16
800 768
750
700
650 Scenario 1: 9 billion people: trend income growth 600 Scenario 2: 11 billion people: trend income growth
/$ Scenario 3: 9 billion people: incomes at equitable 2007 EU level 2 550 Scenario 4: 9 billion people: incomes at equitable 2007 EU level plus 2% growth 500
450
400 arbon Intensity gCO
C 347 350
300 244 250
200
150
100
50 36 30 14 6 0 2007 World 2007 UK 2007 Japan 2050 (Scen 1) 2050 (Scen 2) 2050 (Scen 3) 2050 (Scen 4)
Now Required to meet 450 ppm target Figure 5: Carbon Intensities Now and Required to Meet 450ppm Target17 12 More than GDP: Measuring What Matters
Lord Stern has argued that stabilising atmospheric carbon The message here is not that decoupling is unnecessary. On at 500 parts per million (ppm) would mean investing 2% of the contrary, absolute reductions in throughput are essential. GDP each year in carbon emission reductions.18 Based on the The question is: ‘how much is achievable? How much most recent Intergovernmental Panel on Climate Change decoupling is technologically and economically viable?’ (IPCC) recommendations, international effort is now focused on meeting a recommended 450 ppm target by 2050. Figure A significant economic focus in Scotland has been the 5 shows that to meet this 450ppm target, while treating the development of renewable energy sources. It is clear that world’s nine billion people equitably, global carbon intensity these technologies are going to be important, not just in will need to fall to six grams per dollar of output, a level Scotland but internationally, to help deliver reductions in almost 130 times lower than it is today. Factor in the wider our emissions. So an economic strategy that supports capital needs for resource efficiency, material and process the development of a low carbon economy in Scotland substitution and ecological protection, and the sheer scale of is vital. But we must do this knowing it is not just to investment becomes an issue. increase our own GDP but to move our economy onto a more sustainable model. Many people are aware of the need to cut greenhouse gas emissions. It is also important to highlight the need to Prosperity without Growth? tells us that we need to develop a decouple growth from wider resource use (see Figure 6 below). better understanding of the relationship between economic There are rising global trends in a number of other resources performance and well-being and move on from the – a range of different metals and several non-metallic assumption that further economic growth will go on delivering minerals for example. Worryingly, in some cases, even relative greater prosperity. A Scottish Economic Strategy needs to decoupling is not happening. Resource productivity in the use recognise that economic development is only one element of some structural materials (e.g. iron ore, bauxite, cement) of work needed to deliver well-being across Scotland. Any has been declining globally since 2000, as the emerging performance framework needs to better track the economic, economies build up physical infrastructures, leading to social and environmental sustainability of our actions, and accelerating resource throughput. The scale of improvement better measures of progress, taking note of the Stiglitz Report, required is daunting. will be critical in helping us track prosperity.
250
200 Copper
Nickel
150 World GDP
1990 = 100 100 Zinc
Bauxite Iron Ore
50
0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Figure 6: Global Trends in Primary Metal Extractions: 1990-200719 More than GDP: Measuring What Matters 13 Chapter 3 The Relevance of the Stiglitz Report to Scotland 14 More than GDP: Measuring What Matters CHAPTER 3
3. The Relevance of the Stiglitz Report to Scotland
“Statistical indicators are important for designing and assessing policies aiming at advancing the progress of society, as well as for assessing and influencing the functioning of economic markets.”
The Stiglitz Report20
3.1 Introduction system, one that would have signalled problems ahead, so governments might have taken early measures to avoid or at It is a paradox that as society has grown more complex and least to mitigate the present turmoil. But perhaps had there the amount of information we produce has increased, so been more awareness of the limitations of standard metrics, the reliance on a decreasing number of key indicators has like GDP, there would have been less euphoria over economic risen. At the top of this pile of preferred indicators sits our performance in the years prior to the crisis.”24 Gross Domestic Product (GDP). GDP has become accepted shorthand for the performance and health of our economy, as We are keen that Scotland learns from the economic crisis well as a proxy for benchmarking well-being and prosperity in and thinks more carefully about what it measures. Scotland society. needs to ensure we have a better set of wealth accounts – the ‘balance sheets’ of the economy – that would give a more A significant volume of literature has grown up questioning comprehensive picture of assets, debts and liabilities. this over-reliance on GDP as an indicator. The Stiglitz Report is one of the most authoritative critiques. It reviewed “the The 12 Stiglitz Report recommendations set out in detail how limits of GDP as an indicator of economic performance and economic performance and social progress can be better social progress, including the problems with its measurement”, measured. These recommendations are based on two key considered “what additional information might be required for messages which are worth re-emphasising here. the production of more relevant indicators of social progress”, assessed “the feasibility of alternative measurement tools”, Firstly, the Stiglitz Report distinguishes between: “an and discussed “how to present the statistical information in an assessment of current well-being and an assessment of appropriate way.”21 sustainability, whether this can last over time. Current well-being has to do with both economic resources, such as We believe that what we measure matters. It affects what income, and with non-economic aspects of peoples’ lives we choose to do. If we measure the wrong thing, if our (what they do and what they can do, how they feel, and the measures are flawed, if wider perceptions about what we are natural environment they live in). Whether these levels of well- measuring are inaccurate or if we make deductions from our being can be sustained over time depends on whether stocks measurements not supported by data, then our decisions of capital that matter for our lives (natural, physical, human, may be distorted. This means our long-term progress will be social) are passed on to future generations”.25 undermined. The second key message and ‘unifying theme’26 of the Stiglitz Early questioning of the over-reliance on GDP as a measure Report, is that the time is ripe for our measurement system of progress highlighted the false choices that are often made to shift emphasis from measuring economic production between promoting GDP and protecting the environment.22 to measuring people’s well-being. Measures of well-being There has also been increasing concern that we are not should be put in a context of sustainability; that is the ability sufficiently tackling well-being, or wider concerns about of society to maintain well-being over time. persistent inequality.23 The Stiglitz Report recommends a change of emphasis so that The Stiglitz Report anchors itself firmly in the economic crisis we know as much about well-being as we do about economic during which it was published. It notes that: “It is perhaps production, but it does not see this shift leading to a dismissal going too far to hope that had we had a better measurement of GDP or the importance of measuring economic production. More than GDP: Measuring What Matters CHAPTER 3 15
Stiglitz and his fellow Commissioners are clear that GDP levels we are experiencing stationary or declining levels of provides answers to many important questions but it is not subjective well-being.30 Clearly rising material living standards are sufficient alone because there appears to be an increasing not always accompanied by rising levels of life-satisfaction. gap between the information contained in aggregate GDP data and what accounts for people’s well-being. This has implications for both the choice of indicators for measuring our material living standards and how these are The Stiglitz Report argued for “the development of a used alongside other indicators. The Stiglitz Report sets out statistical system that complements measures of market five recommendations on how to improve measurement of activity by measures centred on people’s well-being and economic progress: by measures that capture sustainability... There are several dimensions to well-being but a good place to start is the • Measure people’s material living standards. To do this measurement of material well-being or living standards”.27 we need to use income and consumption, rather than production (Stiglitz Recommendation 1). Current well-being has to do with both economic resources, • Ensure measures capture the perspective at the level of such as income, and with non-economic aspects of peoples’ the household (Stiglitz Recommendation 2). Importantly, lives. Whether these levels of well-being can be sustained over this means making adjustments for government services time depends on whether relevant assets or stocks are passed in kind, such as health care, education and social services, onto future generations. If our economy makes us richer in the which individual households rely on for well-being. short-term but poorer in the long-term, this is not sustainable. • Give measures of wealth the same status as those of If rising inequality threatens the longer term cohesion of income and consumption. Our ability to consume is society, this is not sustainable. If our activities as a society important in securing our material well-being, but this (or economy) breach environmental limits, we will struggle to is linked to levels of wealth as well as income (Stiglitz manage the repercussions. This, of course, is not sustainable. Recommendation 3). While financial wealth is obviously critically important, so too is the measurement of social and The Stiglitz Report builds from these key messages to a set environmental wealth. These three aspects of wealth are of recommendations under three headings: Classical GDP also central in linking present and future well-being. Issues, Quality of Life and Sustainability. The Report’s 12 • Give more prominence to distribution of income, recommendations are set out at the start of our report. In consumption and wealth (Stiglitz Recommendation 4). the next section we summarise the main findings under these While rising income levels would be expected to bring three headings.28 material benefits, the distribution of any rise in average income is also important to well-being. Unequal societies 3.2 Summary of the Stiglitz Report are found to generate a loss of welfare.31 recommendations • Account properly for the services that households produce for themselves. Household services (e.g. care support) Classical GDP Issues play an important role in well-being but are not properly The Stiglitz Report’s first recommendation is that we need recognised in official income and production measures to shift our focus from production measures to measures of (Stiglitz Recommendation 5). A solution to this lies in income and consumption in order to better measure well- broadening income measures to non-market activities being. through the use of satellite accounts.32
Sustainable development sees the economy as a means to Quality of Life an end. Our economy can help us to get what we want – The second focus of the Stiglitz Report is the fact that societal well-being – while respecting environmental limits. well-being is determined by more than material living GDP measures total production in our economy, yet we know standards and conventional economic measures. It asks that consumption, income and wealth relate far more closely how multi-dimensional measures of well-being – including to actual and perceived well-being, both of individuals and health, education and environmental conditions – can be businesses. This is backed up by surveys of individual attitudes incorporated. It also looks at the difficulties of measuring to well-being.29 objective (e.g. levels of crime) and subjective (e.g. perception of crime or fear of crime) elements of well-being. The Scottish Round Table was fascinated by the ‘well-being This is a challenging area. Unlike measuring our material paradox’, which is that, despite growing income and consumption standard of living (these are well established and use money 16 More than GDP: Measuring What Matters CHAPTER 3
as a standard measuring unit), other factors seen as relevant Approach to describe the approach needed to develop new to our quality of life are not routinely measured using measures. This way of thinking is echoed in the Scottish standard units. They also do not get traded on markets or Government’s Purpose of creating a flourishing Scotland. given a value which is tracked. The Stiglitz Report recommends that governments should:
Most agree that money is not everything. Despite this, • Use both subjective and objective measures to track well- there has been little agreement on how to measure those being (Stiglitz Recommendations 6 & 7). For example, it is non-monetary things that make life worth living. As Robert useful to know about people’s fear of crime alongside the Kennedy famously said in 1968, GDP “measures everything actual crime rate. We should also resist the temptation to in short, except that which makes life worthwhile”.33 Closer monetise any measurement. For example, while it is good to home, Oscar Wilde defined a cynic as someone who to know the total value of health services in a country, this knows the price of everything but the value of nothing. The measure cannot be used as a proxy for overall levels of challenge here is to understand and devise measures for the health; value of the things that matter. • Try to capture the interdependencies between the various dimensions of quality of life (Stiglitz Recommendation One reason for GDP’s dominance as a measurement is 9). For example, although one can be both unhealthy the shared international understanding of what is being and materially wealthy, statistics show levels of ill- measured. It is undeniable that economic growth has brought health are most prevalent in the poor and that multiple vital improvements to people’s material well-being. Few disadvantages can also have a cumulative negative effect; people can explain what GDP measures, but we have been • Measure inequalities (Stiglitz Recommendation 8). A content to trust it as a measure because past experience critical factor in the measurement of well-being is the shows a link between economic growth and human progress. relative positions of individuals in society. There is plenty of evidence to show that being at the top of the pile Can we be certain this historical link shows causality? Might matters in terms of bringing greater access to some it only be correlation? We have almost certainly become services and benefits (e.g. health, accommodation, life over-reliant on GDP as a benchmark for our success, despite expectancy);34 increasing concerns about what is left out of this measure. • Finally, given the potential wealth of data, and the need Despite the potential for disagreement on what constitutes to report on a number of headline indicators, aggregating quality of life and the risk of creating new imperfect measures, the rich array of measures in an effective way is necessary it is clear that governments need better measures of our but will be challenging (Stiglitz Recommendation 10). quality of life to help them set policy. If people are to play a part in safeguarding and improving their well-being, and that Sustainable Development and Environment of others, we need new but easy-to-understand measures too. The third focus of the Stiglitz Report is on measuring the potential for future well-being. It approaches this issue by The Stiglitz Report is clear that defining well-being requires a looking at ‘stocks’ that we have at our disposal today and that multi-dimensional definition which takes the following will be passed on to future generations. Such ‘stocks’ could be into account: social (e.g. a resilient community), environmental (e.g. a stable climate and healthy biodiversity), and economic (e.g. levels of • Material living standards (income, consumption and credit or the absence of debt). wealth); • Health; The Report is clear that ‘sustainability’ must be measured • Education; separately as a sub-set of any wider indicator set. It also warns • Personal activities including work; against measuring these stocks solely in monetary terms • Political voice and governance; (except for economic stocks). Monetising the measurement of • Social connections and relationships; stocks is especially problematic for monitoring environmental • Environment (present and future conditions); assets if they are irreplaceable, or hard to replace. • Inequality, in economic as well as physical or environmental factors.
Many of these are missed by conventional income measures. The Stiglitz Report draws on Amartya Sen’s Capabilities More than GDP: Measuring What Matters CHAPTER 3 17
Crucially, measurement of such assets depends on science The Report is clear that rather than economics. An economic approach tends to ‘sustainability’ must be measured separately undermine sustainability because it assumes that all types of capital can be substituted for one another. This is not the as a sub-set of any wider indicator set. case as some impacts on the environment are irreversible. For It also warns against measuring example, climate change science tells us that once emission levels reach a certain point, the impacts that result (e.g. rising these stocks solely in monetary term greenhouse gas emissions) could accelerate the melting of (except for economic stocks). Monetising the Greenland ice-sheet, causing the release of methane the measurement of stocks is especially from the tundra, a shifting of the North Atlantic currents, increases in global temperature and rapid biodiversity loss, problematic for monitoring environmental none of which can be reversed in any meaningful sense. The assets if they are irreplaceable, work of Nicholas Stern on the economics of climate change shows us that it will be much more cost effective to mitigate or hard to replace. against climate change, rather than trying to react to its consequences later.35
This problem also relates to another critical consideration of the Stiglitz Report: that it is important that the indicators we use tell us how near to dangerous levels of environmental damage (such as the risks of climate change or the depletion of fishing stocks) we are.
Recommendations 11 and 12 in the Stiglitz Report show how to improve measurement of sustainability by:
• Measuring future economic, environmental and social stocks using a well-identified dashboard of indicators (Part One of Stiglitz Recommendation 11) Using separate indicators that track physical levels and limits. Given the important role of environmental assets in supporting well- being, these assets require separate indicators. Monetised indicators of environmental assets should be avoided (Part Two of Stiglitz Recommendation 11) • Making sure indicators of environmental sustainability show us how near or far we are from dangerous levels of environmental damage (Stiglitz Recommendation 12) 18 More than GDP: Measuring What Matters More than GDP: Measuring What Matters 19 Chapter 4 How has Scotland been Measuring Economic Performance and Well-Being? 20 More than GDP: Measuring What Matters CHAPTER 4
4. How has Scotland been Measuring Economic Performance and Well-Being?
“The train of progress hurtles down the tracks with us as its passengers. Whether we have good seats or bad, whether we enjoy or complain about the view, it rarely feels as though it is us setting the destination. Rationality can tell us how best to get from A to Z but without deeper reasoning we cannot decide where Z should be.” Matthew Taylor36
4.1 Introduction Our starting point is that Scotland’s Government needs a performance framework like the NPF. This outcomes- based The Stiglitz Report is clear that what is measured matters. It also approach to tracking performance across the public sector, clearly focuses on measurement and not policy. Similarly, our which sets out progress towards a longer term set of objectives, Round Table is interested in how Scotland should measure its has proved effective over the last four years. Now, the twin progress, not in the policies that it chooses to deliver this progress. challenges are firstly how to make improvements in light of new However, what we measure shapes what we collectively pursue – thinking – in particular the Stiglitz Report – and secondly, how and what we pursue determines what we measure. to foster wider understanding of the worth of organisational frameworks like the NPF so that their use becomes the norm for This means that, while detailed, our recommendations are government in Scotland, not a one-off experiment. not merely technical. They have a more ambitious reach than that, and they set out more fundamental challenges about We are clear that these objectives need to be framed around our goals as a society. Because of this we have seen our role well-being, not economic growth. However, it is not our role to pre- as starting a debate, rather than providing technical, detailed judge what priorities political parties might set for themselves. We views on how Scotland should measure progress in future. simply want to see the next Government and the Parliament take seriously the 12 recommendations in the Stiglitz Report. Scotland is not starting from a blank sheet of paper. Much has already been done to better measure performance Scotland’s Government will not be able to do this without a and to align the government’s efforts to better deliver this performance framework of some kind. Below we briefly review performance. The Round Table is very supportive of the work the NPF. In the next chapter we make recommendations by politicians and civil servants that led to the creation of on how to structure, use and develop a future performance Scotland’s National Performance Framework (NPF), published framework across the next term of Government. by the last Government in September 2007.37
The NPF set out the longer term aims of the SNP Government 4.2 Scotland’s National Performance Framework and how it sought to measure and report progress towards achieving them. It is the most innovative and forward-thinking Introduction attempt since devolution to track Scotland’s progress and The Scottish Government was clear upon election in May 2007 performance. It is clear that the NPF has been a significant that it would look to introduce a new, outcomes-based approach driver inside the Civil Service, and was not far short of becoming to performance, which would focus “government on the key long- the manual of the Scottish Government. This reach also term challenges for Scotland and will enable, and encourage, extended into local authorities through the related Single more effective partnership working right across the public sector Outcome Agreements (SOAs). However, in Parliament, which and with stakeholders. The whole of the public sector will, for the must hold the Government to account, and civil society, which first time, be expected to contribute to one overarching Purpose must help inform the work of both Government and Parliament, and all performance management systems will therefore be the NPF seems little known and even less understood. aligned to a single, clear and consistent set of priorities.”38 More than GDP: Measuring What Matters CHAPTER 4 21
Early on it announced the scrapping of all departments and economics, but our brief is to deal with those aspects the adoption of a single Purpose, backed up by five Strategic of Scottish life that are to do with economics. Our Objectives. The NPF itself was published in November 2007, and concerns are, therefore, narrower: with the extent to for the first time set out in detail what the Government intended. which GDP does correctly reflect Scottish economic This new Scottish model was heavily influenced by the approach performance in terms of the evolution of the material of the State of Virginia in the USA, though its development output of Scotland and the material standard of living was different from that taken in Virginia, where the model was of people in Scotland.”40 developed over time after wide civil society involvement. The Council felt that a measure of Gross National Income The NPF set out a single Purpose: “To focus government and (GNI) might be more relevant as an indicator of living public services on creating a more successful country, standards in Scotland. To illustrate this point, they highlighted with opportunities for all of Scotland to flourish, through the fact that, in 2007, 15% of Scotland’s GDP came from increasing sustainable economic growth.” Scotland’s (then) two major banks, yet this was due to significant international trading rather than operations This Purpose has been backed up by nine Purpose Targets, five distinct to Scotland. Strategic Objectives, 15 National Outcomes and 45 National Indicators. The SNP’s 2007 Manifesto committed to report The Council made two recommendations to the Scottish annually on performance through a “Health of the Nation” Government that are relevant to us. Firstly, they noted that report. In practice, once in Government it published progress the quality of economic statistics in Scotland does not yet reports online through a “Scotland Performs” website that meet the needs of government and asked for further work. included up to date information tracking each indicator. Secondly, they recommended use of other measures of economic performance alongside GDP: In reviewing the NPF, our Round Table relied on expertise around the table, discussions with invited experts, and “We have listed many reasons why it would be information from the 2008 and 2010 Assessments of the inappropriate to focus solely on reported Scottish GDP SDC. We also asked the secretariat to analyse how well the data – or any other single indicator – in evaluating NPF met the Stiglitz Report recommendations. Scottish economic performance. GDP is so widely accepted internationally as a measure that it would be wrong not to use it, or to seek to alter the estimates of 4.3 Advice of the Scottish Government Council it that are available using the conventions which have of Economic Advisers been defined by the United Nations and which have achieved international recognition. But we will wish to Annexe 3 sets out more detail about other relevant work on use many other measures of performance in the course additional measures of progress.39 This section focuses on of our work and urge Ministers to do the same.”41 the work of the Scottish Government’s Council of Economic Advisers. In its response to the Council’s recommendation, the Government emphasised that: “We agree that other Established in 2007, the Council of Economic Advisers was measures of performance such as earnings would provide set up to advise the First Minister on the best way to improve helpful input into understanding the Scottish economy. Scotland’s sustainable economic growth rate. The Council However, there are a number of limitations which constrain has since met quarterly and published annual reports with the potential use of earnings data as a key indicator of recommendations. In late 2010, Professor Joseph Stiglitz performance at the current time.”42 became a member of this Council. It is clear that both the Council and the Scottish Government In its first Annual Report the Council looked at the role and recognised the need for developing better measures of measures of GDP. It noted that: economic performance. We understand how they were constrained by the fact that much data is only available at a “We are not drawing attention here to the point UK level. Following on from the Stiglitz Report, we would like which is often, and justifiably, made that there are to see the new Scottish Government task the Council (should many important aspects of human welfare that GDP they still exist and if not, another appropriate body) to look measurement leaves out... There is more to life than afresh at this issue using our recommendations. 22 More than GDP: Measuring What Matters More than GDP: Measuring What Matters 23 Chapter 5 Evaluating Scotland’s Approach to Measurement of Progress 24 More than GDP: Measuring What Matters CHAPTER 5
5. Evaluating Scotland’s Approach to Measurement of Progress
“I fully understand that you are purely committed to means and not ends.” James Hacker
“As far as I am concerned, Minister, there is no difference between means and ends.”43 Sir Humphrey Appleby
5.1 Introduction The nine Purpose Targets A critical recommendation of the Stiglitz Report is that Scotland’s new Government stands at a critical point. Government cannot expect to accurately measure progress Between October 2007 and May 2011, the NPF acted as the using a single indicator, so must use a ‘dashboard’ that sets out a organisational framework for the Scottish Government. It mixture of critical individual and aggregate indicators. We are of was published in October 2007, two years before the Stiglitz the strong view that Scotland has already embraced this concept Report. In some ways, this means that the NPF was ahead and that the Purpose Targets were an attempt at establishing of the curve of political thinking, however, Scotland now risks such a dashboard. The last administration described them as being left behind as other countries grapple more effectively “specific benchmarks for sustainable economic growth [which with the findings of the Stiglitz Report. can also] ensure that growth is shared by all of Scotland”44 and noted that “together, these targets help define the characteristics Scotland needs to learn from experience of the last four years, of the economic growth that we want to see – a growth that and put in place a new performance framework that fulfils the is sustainable, cohesive and which builds solidarity in all of requirements of the Stiglitz Report. To aid Government in this Scotland’s regions. They also set a whole new level of ambition task we will now map existing work in Scotland against the 12 for economic performance, not only over the lifetime of this term recommendations set out in the Stiglitz Report. of the Parliament, but for the long-term.” 45
Scotland’s 2007-11 Purpose Targets
Indicator Target
Economic Growth (GDP) • To raise the GDP growth rate to the UK level by 2011
• To match the growth rate of small independent EU countries by 2017
Productivity • To rank in the top quartile for productivity amongst our key trading partners in the OECD by 2017
Participation • To maintain our position on labour market participation as the top performing country in the UK and to close the gap with the top five OECD economies by 2017
Population • To match average European (EU15) population growth over the period from 2007 to 2017, supported by increased healthy life expectancy in Scotland over this period
Solidarity • To increase overall income and the proportion of income earned by the three lowest income deciles as a group by 2017
Cohesion • To narrow the gap in participation between Scotland’s best and worst performing regions by 2017
Sustainability • To reduce emissions over the period to 2011
• To reduce emissions by 80% by 2050 More than GDP: Measuring What Matters CHAPTER 5 25
Unfortunately, the Targets do not sufficiently accord with the papers, but a summary of this work is set out in the Table recommendations in the Stiglitz Report. We argue that the below. Next we summarise our findings on each of the seven new Government should start with a revised set that better tests and make recommendations for what action the new measure economic performance and social progress. Government should take to meet them.
The application and use of these Purpose Targets has been weak in practice. In particular, it is hard to see how reporting 5.2 Meeting the Stiglitz Report Recommendations against these Targets has been linked to decision-making. through a Scottish performance framework Government focused on a wider set of Outcomes and failed to put these Purpose Targets centre stage in either reporting on Moving from production to material well-being progress or in decision making. This indicates there is a need In line with most governments and economies, measuring to develop a clearer performance framework that has a more economic performance is of primary importance to Scotland’s easily understandable and coherent structure. Government. In looking at the limits of GDP as a useful indicator, the Stiglitz Report is clear that not only should we Scotland’s Single Purpose not expect GDP to be a useful barometer of wider well-being An important element of our work has been the use of and quality of life, having a society solely or primarily focused Amartya Sen’s Capabilities Approach, which was also used on economic progress itself is inadequate. Like Stiglitz, our in the Stiglitz Report. Sen asks if people have “capabilities for Round Table is clear that we need to go further than this: flourishing” and insists that the key questions we should be that the time has come to shift emphasis from measuring asking are around how well people are able to function in any economic production to measuring people’s well-being. context. For example, are people well-nourished? Can they take part in the life of community? Can they find worthwhile jobs?46 Such a move will not be easy. It will require a much wider conversation throughout society. After all, Government In 2007, Government set out a Single Purpose to define its already measures many things relevant to well-being and direction of travel. This Purpose – “To focus Government and sustainability. But one measure – GDP – has taken on too public services on creating a more successful country, with great a significance. Its movement is tracked relentlessly, opportunities for all of Scotland to flourish, through increasing and any increase taken as undeniable proof of success and sustainable economic growth” – is itself based on the notion advancement in our society. In truth, GDP measures only one of flourishing, something we strongly support. aspect of economic growth. And economic growth is only one means to the end we seek. We need to agree a better end- However, the strong assumption that economic growth is the goal and measure progress towards it properly. key driver to ensure capabilities for all of Scotland to flourish is highly problematic. This correlation is not always obvious as Scotland’s new Government needs to follow through on the the following analysis will show. Stiglitz Report’s key recommendations, and make a clear statement on the importance of well-being as its end-goal. We have broken down our consideration of the Stiglitz Report into seven separate tests which are: Recommendation 1: Focusing on delivering economic growth as the end rather • Moving from production to material well-being; than the means is inadequate. Our collective purpose should • Measuring material well-being at the household level; be improving people’s well-being, so the time is right for • Measuring distribution and inequalities; Scotland to shift its emphasis from measuring economic • Measuring non-market activities; production to measuring people’s well-being. • Capturing objective and subjective dimensions of quality of life; A clear example of how Government has struggled to break • Improving our understanding of cross-cutting issues; away from over-reliance on GDP as a measure of success • Measuring current and future sustainability. can be seen in the 2007-11 Purpose Targets. Two of the nine targets are GDP-based, while the third measures relative The NPF only satisfactorily meets one of these tests. Three are economic productivity. Yet, as the Scottish Government’s partially covered and three not covered. A detailed analysis Council of Economic Advisers has made clear, GDP alone is set out online in Annexe 247 and related technical papers. cannot properly track economic performance. To have a A full assessment of the NPF is available in an online set of proper measure of how economic activity affects people’s 26 More than GDP: Measuring What Matters CHAPTER 5 Government has relied too heavily on GDP as an indicator of economic economic of indicator an as GDP on heavily too relied has Government but measures, economic of list longer a in place its has GDP performance. real income, national net of measures to given be should importance greater consumption. and income household Government has measured income and relative income through its Solidarity it should However, Target. consider factoring in the use of government services health (e.g. and care services) as part the of measurement material of living standard. income. relative measuring of importance the recognises Report Stiglitz The welfare of loss measure to undertake should Government Scottish The life. of quality of dimensions all in inequalities by triggered The Purpose do not measure Targets non-market activities third (e.g. sector and household activity). Government has used an indicator third of sector but turnover, this misrepresents its true value, which deliver to is non-market goods. However, measures. objective and subjective of use made has NPF The issues, non-economic of group wider a of account take to need these in participation (e.g. life Scottish to important freedoms other including indicator, headline a as WEMWS the use should Government democracy). well-being. subjective to relating another develop and The hierarchythe of NPF not is sufficiently clear. Government hasfocused on delivery Outcomes, of but needs make to more a set of Purpose of as anTargets overall dashboard measure to progress towards its Purpose. Current Sustainability Purpose only consider Targets greenhouse gas emissions, and the wider set indicators of used insufficient. is A dedicated set sustainability of indicators are required that better measure future economic, environmental and social stocks. Environmental indicators (e.g. on greenhouse gas need emissions) be to reframed show to distance from limits or dangerous levels. Recommendation Rating Purpose Solidarity Targets: Plus: National Outcomes and National Indicators Purpose Productivity, Targets: Participation Plus: National Indicators Purpose Economic Targets: Growth, Productivity, Solidarity, Participation Plus: National Outcomes and National Indicators Purpose Economic Targets: Growth (GDP), Plus: single Government’s Purpose and National Indicators Purpose Solidarity, Targets: Participation Plus: National Outcomes and National Indicators Purpose Economic Targets: Growth, Productivity, Solidarity, Participation Relevant element of NPF Purpose Sustainability, Targets: Solidarity, Productivity 2 5 1 6, 7 8, 9 4, 8 3, 11, 12 11, 3, Stiglitz Report Recommendation Issue Household perspective Distribution/ inequalities Non-market activities Subjective/ objective measures Cross-cutting issues Sustainability From productionFrom to well-being More than GDP: Measuring What Matters CHAPTER 5 27
well-being, a wider set of measures than GDP should be Recommendation 4: used. The Stiglitz Report is clear that people’s material living Material well-being needs to be measured at a household standards are more closely linked to net national income and level. In any headline indicator set, the Scottish Government consumption. should publish measures of household consumption alongside its current measure of household income. The Scottish Government must begin to use other measures of economic performance alongside GDP. If its Council of Measuring distribution and inequalities Economic Advisers is retained, it could play a useful future role Between 2007 and 2011, Government measured income for Scotland’s Government by helping to explore the relevant alongside “the income earned by the three lowest income parts of the Stiglitz Report. The Council should be asked to deciles as a group” through its Solidarity Purpose Target. give an updated comment on its previous Recommendations We welcome this. However, their Participation and Cohesion and Scottish Government progress. Purpose Targets measured participation in the labour market (at the UK & regional level) as a means of providing a more Recommendation 2: equitable distribution of the benefits of growth. The Scottish Government should continue to measure GDP but measures of national income and consumption need This means that the Scottish Government’s approach over the greater prominence and weight if it is to better track economic last four years has been to assume that inequalities should performance. be tackled through increasing growth. It is worth highlighting that the labour market is often seen as the panacea to Recommendation 3: tackle inequalities. This goes against the multi-dimensional The Scottish Government’s Council of Economic Advisers approach recommended by the Stiglitz Report. should review its recommendations on measuring the Scottish economy, taking into account our Report and the expertise We looked at the Equality and Human Right’s Commission’s now available through Professor Stiglitz’s membership. (EHRC) Equality Measurement Framework (EMF).48 The EMF is a good illustration of the Stiglitz Recommendations, as it is Measuring material well-being at the household level based on the capabilities approach to assess inequalities in all The Stiglitz Report makes clear that if we want to follow dimensions of well-being. trends in the material living standards of Scottish people, then it is important to use measures of household income and The last Scottish Government actively looked into how to consumption. use the EMF in measuring success in tackling inequality. As well as continuing its work with the EHRC on measuring Measuring material well-being from the perspective of the equality, to meet the Stiglitz Report’s third recommendation, Scottish household would mean taking account of payments the new Scottish Government must also collect data on the between sectors such as taxes going to government, social distribution of income, consumption and wealth. benefits coming from government, and interest payments on household loans going to banks. If done properly, any To be most effective, Government should use measures that measures of household income and consumption should show average and median income, consumption and wealth. also reflect the contribution of in-kind services provided by It also needs to report (as it had previously) what is happening government, such as healthcare and education. in the lowest income/wealth deciles. We agree with the Stiglitz Report findings that tracking experiences across different Over the last four years, Government has had a measure of income/wealth deciles is important to properly measure a range overall income through its Solidarity Purpose Target. This is of quality of life outcomes. This point is returned to below. a good start, but to fully meet the Stiglitz Report’s second recommendation, the new Government needs to introduce Recommendation 5: a measure of consumption. It must also look at how these The Scottish Government must supplement measures on household level measurements can take account of in-kind income distribution with ones that show distribution of wealth public services. and consumption. The Government also needs to measure inequalities in other dimensions such as health, housing and education, which are central to quality of life. 28 More than GDP: Measuring What Matters CHAPTER 5
Measuring non-market activities In other words, this sector is unproductive by conventional The way in which Scotland’s economy and society function standards (economists refer to this as Baumol’s ‘disease’). A has changed significantly over time. Most relevant here is the focus on productivity might discriminate against Scotland’s shift away from people receiving services from other family third sector if it undermines what is the real goal: providing members or their community to purchasing them on the meaningful work (i.e. helping people’s capabilities for market. This is particularly apparent in child-care and social flourishing) and the positive contribution to community that services. these sectors provide.
With GDP as our conventional measure, such a shift is seen as Over the last four years, Government has measured the a rise in income. But when such services are purchased rather turnover of the social economy through the NPF. However, than gained for free, the current measures may actually mask we have concluded that seeking to represent success of the a fall in living standards. social economy – by distilling this down to an economic indicator of the level of activity – risks repeating the mistake Many services that households produce for themselves are of measuring economic progress simply through GDP. A more not captured by official income and production measures, comprehensive approach is required. yet they make up an important part of economic activity. As the Stiglitz Report makes clear, this is an area fraught with Recommendation 7: difficulties. We follow the Stiglitz Report in recommending The Scottish Government needs to better measure the that the Scottish Government should start with information contribution of the third sector to the Scottish economy. about how people spend their time, that can be compared A practical way to begin this would be to produce over the years and across countries. This would involve comprehensive and periodic accounts of the third sector that production of comprehensive and periodic accounts of sit as satellite accounts to the core national accounts. household activity as satellites to the core national accounts. Capturing objective and subjective dimensions Recommendation 6: of quality of life The Scottish Government needs to measure the contribution We met with the Office of National Statistics (ONS), which has of the household to the Scottish economy. A practical way to been developing new measures of national well-being for the begin this would be to produce comprehensive and periodic UK Government. Its first task was consulting on what factors accounts of household activity that sit as satellite accounts to people judge make their lives worthwhile.49 the core national accounts. The previous administration tracked the work of the ONS Prosperity without Growth? makes clear that the services closely and the next Government will clearly need to decide provided by the third sector are of similar importance. Over how it might use any resulting national statistics in its own the last 20 years there has been a marked shift towards work. However, we agree strongly with the Stiglitz Report’s looking to the third sector to provide an increasing number of view that gathering information to help measure quality of national and local services; a trend that is likely to continue. life must go beyond people’s self-reporting and capturing Much of this activity is captured in GDP figures. their perceptions. It must also include measurement of their ‘functionings’ and freedoms.50 However, while the third sector overlaps government and private activity, it is motivated not by delivering economic We initially found the language of ‘functionings’ and growth, but provision of services that meet charitable or freedoms difficult. In the end we were clear that if we community aims. While the third sector will be motivated to are to make well-being the primary goal for Scotland this provide services efficiently, it often does not have the same will necessitate adopting different measures, terms and motivation to act as productively as the rest of the economy. descriptions. If we want to be sure there are “opportunities Scotland measures productivity (i.e. GDP per hour worked), yet for all in Scotland to flourish”, we must have indicators that the third sector depends on a substantial level of voluntary help measure such flourishing, but we also need Scottish civil labour, tends to provide services that are labour intensive (e.g. society to lead a robust and honest conversation about what care) and may even have an objective to maximise use of really matters. labour (e.g. employment creation, or providing employment to those with particular physical or mental health issues). More than GDP: Measuring What Matters CHAPTER 5 29
We agree with the Stiglitz Report that “what really matters there is a consensus that quality of life depends on people’s are the capabilities of people, that is, the extent of their health and education, their everyday activities (which include opportunity set and of their freedom to choose among this the right to a decent job and housing), their participation in set, the life they value.”51 the political process, the social and natural environment in which they live and the factors shaping their personal and Our first and primary recommendation highlights the need economic security”.53 to shift Scotland’s collective purpose away from economic growth and onto well-being. But our nation is hooked on the We believe that to effectively track the functionings notion of simplistic causality: economic growth goes up, we and capabilities of Scotland and its people, the Scottish all benefit. This belief is rarely challenged in the mainstream Government will need to use a range of subjective and – for example in news coverage of the recession – so it is objective measures. Government already tracks a wide not surprising that Government is still expected to deliver range of objective measures – which the New Economics economic growth so that other benefits become possible. Foundation describes as ‘drivers of well-being’54 – as well This makes it extremely difficult for any government to make as subjective ones. We particularly welcome the use of an this shift and tie itself to the mast of well-being, rather than Indicator of Mental Well-Being by the Scottish Government.55 staying down below to forever toil in the engine of growth. The Warwick-Edinburgh Measure of Well-Being is an internationally recognised system, and Government needs What is now needed is a wider discussion involving Scotland’s to continue its use, and make more of the reported findings. civil society organisations. In particular we want to see an Mental well-being is a key factor in overall well-being, and inclusive debate take place on what matters to Scottish because it is influenced by a range of social factors it is a people, communities and businesses. Oxfam Scotland’s work reasonable indicator of broad government performance. surveying people throughout Scotland on how they define wealth could help inform this much-needed debate. However, Oxfam Scotland is looking to measure people’s own views of we see the need for an even more profound discussion on prosperity and develop these into a ‘Humankind Index’. The this subject. After all, Scottish Government already measures Scottish Government should look more closely at this work, as many, many indicators of economic, social and environmental well as that of ONS and the New Economics Foundation. We progress. What is missing is recognition of the need to better would like to see the new Government make a commitment to define the end-goal, and lift our attention from the means. develop an index of subjective well-being or life satisfaction, and work with key stakeholders to develop and then report on We are committed to staying involved in this debate. But such an indicator within the next four years of Government. without wider agreement on the need to set well-being as the purpose and end-goal of Scotland’s Government, it will be Recommendation 9: impossible for the key findings of the Stiglitz Report to take In any high level dashboard, the Scottish Government root. should better report on subjective views about well-being. We recommend including both the measure of the Warwick- In taking forwards this work, we would like to see civil society Edinburgh Mental Well-being and an index of well-being. and Government learn from ‘Growth in Transition’ initiatives now being taken forwards in several countries.52 Improving our understanding of cross-cutting issues The NPF is very large and eclectic, and it is possible that its Recommendation 8: effectiveness is diminished because of its heterogeneity. It Civil Society organisations should lead a national debate was constructed quickly leaving little time to test indicators about what really matters for Scotland. This debate should with stakeholders. We believe lack of exploration of the links feed into decisions by future Scottish governments on the between different indicators has reinforced, but not tested, long-term goal or goals for Scotland and how to measure the idea that economic growth will help progress other areas progress towards the goal(s). critical to well-being.
What measures we choose to help us track these functionings We are also concerned about the complexity of the NPF and capabilities will always be a value judgement, but as the and the relationship between its four different levels. Stiglitz Report notes: “while the precise list of the features Scotland’s Government needs to think about how to make affecting quality of life inevitably rests on value judgements, a performance framework more easily understandable and 30 More than GDP: Measuring What Matters CHAPTER 5
communicable. We would recommend separating out a set We concluded that perhaps the greatest weakness in the NPF of purpose targets (or dashboard) and indicators from a list has been a lack of both a shared understanding as to how of outcomes, areas of work and key manifesto commitments. to use it on the ground, and a shared responsibility over its In this way, targets and indicators would be there to track delivery. long-term trends and progress, could be statistically robust and reported against, at least annually. Outcomes and other While it was not a significant part of our deliberations, we see commitments need to support delivery of these longer-term that there is certainly an argument for putting community targets and describe the actions that Government will seek to planning partnerships onto a statutory basis in order to achieve over a four-year term. clarify accountability and governance. The present system is not delivering what is required and does not hold partners Such changes would make a performance framework easier to properly to account for their performance in delivering use, while also improving the likelihood of effective scrutiny by outcomes. The next Government therefore needs to think Parliament and wider civil society. through carefully what structures are needed that actually deliver, and which properly share out, responsibility. However, we are clear that the priority for the new Government will be to ensure better alignment of the Recommendation 10: targets and indicators of a framework with the wider work While reorganisation of a performance framework to aid of Scotland’s public sector. More effort is needed to link a better communication and understanding across government performance framework into the work of local authorities and and wider civil society will be important, Government’s main community planning partnerships (CPPs) in particular. Over challenge for the next four years is to look more carefully the last four years, we have seen the Scottish Government and at delivery across the wider public sector. There needs to be local authorities agree a set of Single Outcome Agreements clearer lines of shared responsibility across the public sector, if (SOAs) in an attempt to ensure shared delivery between these delivery is to be properly coordinated. two layers of government. In practice, differences between each of the 32 sets of local authority SOAs make it difficult to Measuring of current and future sustainability track performance across local government. The Stiglitz Report is clear that if we are to better track economic performance we need to better measure Scotland’s A performance framework brings with it the opportunity to wealth. As the financial crisis has reminded us, the levels encourage joint delivery across outcomes or indicators. As of debt and savings are critical to the sustainability of such, it should be of great benefit to CPPs. These partnerships our economy and therefore our well-being. Having the are made up of key public, private and community opportunity to consume (to meet our needs and wants) over organisations working together to agree priorities on the time is an important component of well-being which requires planning and provision of services. But there is not a clear both income and wealth. Without the two, the danger is that enough acknowledgement of the interdependence of each consumption becomes fuelled by debt spending, which is of partner in the planning process, or clarity around the different course unsustainable. roles of stakeholders. For local partners it has often not been clear how to use the NPF alongside SOAs, community plans or The Stiglitz Report is also clear that alongside tracking of local government strategic plans. financial stocks like wealth, we need to track stocks which tell us about future prospects for our environment and quality of We also see that a dilemma of community planning life. Put another way, do we have any surplus or any stockpile partnerships is that they are voluntary, not statutory, that can be called upon in the future? If not, and we are living partnerships. Their duty relating to CPPs is only to participate in debt, then we can expect a future deterioration in our well- in community planning. And it is only local authorities – which being as our quality of life or environment deteriorates. have a statutory best value duty – that are held to account for the contribution to community planning. We see therefore, The notion of stocks is especially useful for economic and there is a question about whether it is credible or realistic environment assets. For measuring social assets, it would to continue to rely on a voluntary partnership where the be better if we talked about social resilience or the handing governance and accountability arrangements are not fit for on of cultural values to the future generations (for example purpose. maintaining mutually supportive communities, something that More than GDP: Measuring What Matters CHAPTER 5 31
the New Economics Foundation measures through its National through breaching environmental limits. The NPF adopted Accounts of Well-Being). Measuring human capital is a complex its climate change targets two years before the Scottish issue, as it could be considered both a social and economic asset. Parliament passed its Climate Change Act. With the Act in place and the publishing of Scotland’s greenhouse gas To measure future stocks, it is essential for Government to budgets, the Government could now adopt a better indicator know what resources are available today and how to manage of progress showing how we are contributing to the avoidance these in ways that make it possible to maintain and further of climate change. What matters is not simply the overall develop this resource over time. progress to a long (or even short) term target, but the cumulative amount of greenhouse gas emissions avoided. The Stiglitz Report is clear that the issue of sustainability is a complex one, taking into account stocks available for future The NPF clearly did not give sufficient attention to generations. A separate dashboard of indicators is needed measurement of environmental assets such as biodiversity. if we are to properly measure and be able to better track The wider Indicator set included measures of biodiversity, how current performance strengthens or weakens our future waste, fish stocks, protected nature sites and ecological sustainability. footprint. There is a lack of comprehensiveness in the choice of these measures and none sufficiently embed the notion of We strongly recommend that the Scottish Government learns environmental limits. from current UK work and puts in place a small, focused sub-dashboard of sustainability indicators as part of any While the use of an aggregate indicator such as ecological performance framework. In 2006, the Scottish Executive footprint is a positive step, the Stiglitz Report warns against published a set of sustainable development indicators. the use of composite indicators in isolation. We are also aware Initially these were maintained by the last Government of methodological and measurement issues that perhaps but were superseded in 2009 by the NPF. Our review of the limit the effectiveness of ecological footprint as an indicator. NPF shows that it does not have a sufficient ‘sustainability Any aggregate indicators should only be used as shorthand dashboard’ within the overall set of indicators. Given this, it to track wider performance. Unless such indicators are is disappointing that the last Scottish Government ceased helping paint a general picture of how near or far we are from tracking and publishing progress on its own sustainable environmental targets, and inviting us to look more closely development indicators in 2009. It now trails behind the UK at the detail of the various components, then they fail to be Government in this area. useful.
Recommendation 11: Our recommendation is that the Scottish Government The decision to cease monitoring and reporting against a should take a hybrid approach to deal with the complexity of Scottish sustainable development indicator set was a step measuring environmental aspects of sustainability; namely backwards. Use of a sustainable development indicator set as a limited number of indicators – or ‘micro-dashboard’ – that part of any performance framework is needed. Without such can sit within a performance framework and properly measure a sub-dashboard, Government cannot properly track levels critical economic, human and environmental capital or stocks. of economic, human and environmental stocks vital for our future well-being. Recommendation 12: To properly measure the state of the environment, The NPF contained two Purpose Targets that were referred to Government needs to use separate indicators on climate as Sustainability Targets. They tracked short-term (to 2011) change and biodiversity but could also include an aggregate and long-term (to 2050) delivery against Scotland’s climate indicator such as ecological or carbon footprint. Given change targets. Alongside them the National Indicators Scotland’s statutory targets on climate change, Government contained up to nine measures that could be classed as needs to develop a better a climate change indicator. The tracking environmental issues. While inclusion of such focus of any indicator should be to report on cumulative environmental indicators is positive, more work is needed. emissions reduction, not simply on recording percentage reductions towards the 80% target. In particular, the Stiglitz Report is clear that we should be tracking the proximity to causing environmental damage 32 More than GDP: Measuring What Matters More than GDP: Measuring What Matters 33 Chapter 6 Concluding Comments 34 More than GDP: Measuring What Matters CHAPTER 6
6. Concluding Comments
“Our time has become, in many respects, one of forgetting ends and sacralising means.” Tzvetan Todorov56
Our subject – statistics – might seem as dry as dust to some, We agree with the Stiglitz Report’s fundamental point but the assumptions that have to be challenged and the that because of the complexity of our modern world – issues that are raised are critical, complex ones that are including our advanced and diverse economy – we need relevant to every household, community and business in to break our focus on economic growth and instead focus Scotland. So returning to our opening questions, what is our effort on delivering well-being, now and into the prosperity, well-being and the role of economic growth? future. We need to be very concerned with how our economy is performing but we should not expect a strong economy to In short, we have not been able to fully answer these questions, automatically deliver all that is important to us. but we are clear that some of our accepted notions of prosperity need to be challenged. Reliance on economic growth Over the last four years, Scotland’s Government has used a leads us to forget the importance of human relationships, of ‘Single Purpose’ to spell out its long-term ambition for the social capital and of the undermining influence of inequality. country. This is welcome, but our view is that this needs wider It leads us to forget, in Sir Martin Holgate’s words “that the ownership which will come from agreeing our longer-term world’s economy is a wholly-owned subsidiary of the world’s aspirations from the bottom-up. We also feel that the Scottish ecology”.57 Without a strong, healthy environment there is no Government has been distracted from this long-term vision prospect of long-term well-being for Scotland. and instead has concentrated on the intermediary step of “sustainable economic growth”. Scotland needs a measure of progress that is not based solely on the size of economy. Simon Kuznets, the leading Following on from the recent economic crisis, many see the economist who helped to develop measures of national need to restate the importance of substantive and ethical economic performance, cautioned against over-interpretation considerations in science, commerce and politics. Matthew of measures like GDP, saying that “the welfare of a nation can Taylor of the RSA frames this by asking “How can we make it scarcely be inferred from a measure of national income.”58 easier to ask ‘is this the right thing to do’?”60 Early economists such as John Stuart Mill also saw the limits to economic growth. Mill predicted that once economic growth We have forgotten that our end-goal of increased well- had delivered prosperity, a ‘stationary’ economy would being is the one that we need to focus on. Concentrating on emerge in which we could focus on human improvement: economic growth is no guarantor of longer-term success. A “There would be as much scope as ever for all kinds of mental good archer knows that to hit the target, you need to focus on culture, and moral and social progress... for improving the art the far away target, not at the middle distance. of living and much more likelihood of it being improved, when minds cease to be engrossed by the art of getting on.”59 The point we make is that what is measured matters. There are things that matter which we do not currently measure In Scotland, there is a need to rebalance our focus on because we have not found satisfactory measurement increasing economic growth with increasing our well-being. instruments, but we are increasingly coming to see that these There is a role for Scotland’s civil society organisations in things are not insignificant. Increasingly, the measurement of taking this debate to a new level and out to a wider audience. quality of life and well-being will become important in helping Like most countries, Scotland needs to break free from us to focus on this longer-term aim. the over-simplified conception thateconomic growth and prosperity amount to the same thing. Economic growth can We endorse work we have seen internationally on what is deliver prosperity, but it can also deliver or cause negative becoming known as ‘Growth in Transition’. The notion of developments, such as increasing inequality or over-reaching growth, and what we mean by it, is in transition. We now natural environmental limits. have an increased understanding of how our economy is More than GDP: Measuring What Matters CHAPTER 6 35
over-reaching the environmental limits we need to live within. Scotland’s NPF is an attempt at this; its nine Purpose Targets Alongside this there is a better understanding that inequality could be seen as a version of the Stiglitz Report’s ‘dashboard’ affects us all, not just those at the bottom. Short-term of indicators. The problem remains that too many of economic growth does not automatically deliver long-term Scotland’s Purpose Targets are based around monetary prosperity. We need the next Scottish Government, local measures. Developing a better dashboard will be necessary authorities and wider civil society to work together and so we can properly measure the economic performance and explore the notion of ‘Growth in Transition’ in more social progress described above. detail. There is clearly merit in the Scottish Government looking Our discussions have also concluded that measuring a at the development of a subjective measure of people’s country’s GDP is critically important. But we have sought well-being. Learning from the Office of National Statistics to put too much responsibility on the small shoulders of and organisations such as Oxfam Scotland and the New this single indicator. One number cannot tell us all we need Economics Foundation will be helpful here. In the meantime, to know. We believe it is a case of not shooting the GDP Scotland’s existing measure of mental health should be used messenger, but accepting that there are other carriers as a headline indicator. of valuable information that we need bring into the mix. Scotland needs to select a small number of these indicators A future dashboard must set out economic performance that, between them, can reliably tell us how we are doing. We (focused on measuring national levels of consumption and call this ‘GDP Plus’. By this we mean creating a set of well- wealth and not just GDP); include a measure that gives the being indicators that seek to go beyond and add to GDP as a perspective of Scottish households; and use a small number of measure of progress. indicators that show our quality of life. These indicators need to be a mixture of subjective and objective ones, and could be To measure our economic performance we need to put aggregate indicators. more effort into tracking consumption and wealth rather than focusing on production. This means GDP needs We have forgotten that our end-goal to step down from its place at the head of Scotland’s table of indicators. As one of the Round Table members of increased well-being is the one that commented in the discussions, “...in my 25 years running a we need to focus on. Concentrating on business, I never once needed to know what my GDP was.” His business did need to know its turnover, savings and debt economic growth is no guarantor of however. The same goes for our national economy. longer-term success. A good archer knows that to hit the target, you need We need to measure economic progress at the household level. This will help us know if individuals and families to focus on the far away target, not throughout Scotland are doing better. We also need at the middle distance. to improve how we measure the contribution that public services – particularly healthcare – make to well-being. The same is true for the activity and contribution of the household economy – for example informal care services, or the value We are clear that measuring quality of life or well-being is not of our leisure time and the role of the voluntary sector. And about trying to measure happiness. Perhaps this scepticism is finally, we need to track, not just the average, but progress simply a Scottish reflex. As the Scottish poet Alexander Smith across different sections of the population. This would give noted, “Happiness never lays its finger on its pulse.”61 Certainly, information about the relative winners and losers and where we were sceptical of the role of government in delivering to focus extra attention. happiness, though Governments are responsible for many things from which happiness can flow. Tellingly, the Stiglitz A critical step in taking well-being rather than economic Report is also concerned by the misconceptions that the word growth as our goal will be to develop better measures of happiness conjures up. progress to assess our quality of life. No single indicator can be expected to do this. Scotland needs a small group of indicators – each having similar weight and importance. 36 More than GDP: Measuring What Matters
Bhutan uses a well-publicised measure of ‘Gross National The Scottish Government must Happiness’ and several organisations are proposing measures dust off Scotland’s mothballed sustainable of happiness. For example, the New Economics Foundation have published a Happiness Index. In looking at these we development indicator set, review it and could not avoid being suspicious about the emphasis some re-establish it alongside and as part have placed on happiness. We were concerned that this emphasis could lead one to assume that if you are poor of any performance framework that but happy all is well in society. We disagree with such an measures current economic performance assumption and our work is aimed mainly at seeking a change and social progress. in how Scotland sees and measures its progress. As a result we have steered clear of discussions of happiness in this report.
Scotland needs to re-introduce a set of sustainability indicators that allow us to track expected future progress. It is important that we understand not just current economic performance and well-being, but how current performance will impact on our children or our children’s children. We know that the next generation will still be working to get Scotland out of the social and economic problems that the current economic crisis has got us into. The Stiglitz Report sees that better measures would almost certainly have been helpful in warning us of this coming problem. We are also worried that inequalities throughout Scotland are becoming embedded and harder to shift. This will affect us all, not just those at the bottom. The science is also clear that global environmental issues, such as biodiversity and climate change, are certain to impact on our long-term well-being if they are not tackled in the short- and medium-term.
Until 2009, Scotland had a set of sustainability indicators. We were disappointed to find that use of these indicators has stopped. The Stiglitz Report is clear that the topic of sustainability is complex and that it needs a dedicated indicator set. At a UK-level, work is going on to revise the existing sustainable development indicator set (from 68 to 28) and we would like to see this work replicated in Scotland. The Scottish Government must dust off Scotland’s mothballed sustainable development indicator set, review it and re-establish it alongside and as part of any performance framework that measures current economic performance and social progress.
Our hope is that this report will make it easier for those interested in Scotland’s current and future economic performance and social progress to advance this debate and start taking some practical steps. We hope as well that our conclusions make it easier to apply the good work of the Stiglitz Report to Scotland. More than GDP: Measuring What Matters 37
Appendices 38 More than GDP: Measuring What Matters APPENDICES
Appendix 1: Biographies of the Scottish Round Table Members
Professor Jan Bebbington Sir John Elvidge KCB – (Round Table Chair) Sir John was Permanent Secretary to the Jan holds a chair in Accounting and Scottish Government from 2003-2010, Sustainable Development at the University following a 37 year career in the Civil of St Andrews. She is also the Director of Service which also included responsibility the St Andrews Sustainability Institute. during 1998-1999 for coordination of Her research interests focus around the themes of corporate domestic policy for the UK Government as a member of the reporting on sustainable development, full cost accounting Cabinet Secretariat. and modelling as well as governance for sustainable development. Jan has worked with many organisations who Tricia Henton are seeking to model their sustainable development impacts Tricia is the recently retired Director and to transform their activities. of Environment and Business at the Environment Agency. She is a geologist/ Jan was also an external advisor to the Scottish Cabinet geographer with over 35 years experience Sub-Committee on Sustainable Scotland. Between July 2006 in environmental management and and March 2011, Jan was the Sustainable Development sustainable development. She spent 13 years with Aspinwall Commission’s Vice-Chair (Scotland). & Co, building their consultancy business in Scotland before joining Scottish Environment Protection Agency at its Angus Hogg – (Round Table Vice Chair) inception as Director of Environmental Strategy and then Having spent 15 years in local Government supply Chief Executive. She returned briefly to consultancy with management, Angus founded Panda Litho Ltd, a print and Enviros before joining the EA. design company in the late 1970s. The company expanded over the years, making various acquisitions in Edinburgh Tricia currently holds a number of non-executive director and Blantyre. In 2000 all operations were positions including the Coal Authority and British Geological centralised in a new factory in Rosyth. Survey Boards and is a Trustee of the British Trust for Disposing of his interests in 2003, he then Ornithology and Royal Botanic Gardens Edinburgh. She has established a Business Consultancy, the chaired or participated in numerous Government, Ministerial and Lomond Partnership, and the following other advisory groups, and has an extensive senior level record in year, Eden River Associates. strategic thinking allied with knowledge and experience of how Government and the private sector work. In 1996 he was appointed a Trustee of the Carnegie Dunfermline and Hero Fund Trusts and was Chair of those Kaliani Lyle Trusts from April 2006-2008. In 2004, he became a Trustee In April 2010, Kaliani was appointed as of the Carnegie UK Trust and was Chair in the year 2008- the new Scotland Commissioner by the 2009. He currently chairs The Royal Dunfermline Partnership: Government Equalities Office for the a public/private company whose remit is to create the vision Equality and Human Rights Commission for Dunfermline through to 2020 and beyond. He is also a Scotland. She leads the Scotland Director of CAN LLP a Charity Advice Network Company Committee which is involved in working strategically with the Scottish Government, Local Authorities, UK Government and Parliament to ensure equality and human rights are at the heart of all work carried out in Scotland.
She was the Chief Executive of Citizens Advice Scotland working to protect peoples’ rights and give voice to the most excluded individuals in Scotland, and was a leading anti-apartheid campaigner and Chief Executive of the Scottish Refugee Council. More than GDP: Measuring What Matters APPENDICES 39
Professor Duncan Maclennan CBE Ian McKay Duncan is an international expert on Ian is Director of Scottish Affairs for the the development of cities, the renewal Royal Mail Group (Royal Mail, Post Office of neighbourhoods and the economics Ltd and Parcelforce Worldwide) in Scotland, of housing. After a long career at the joining the company in August 2003. He University of Glasgow, where he directed is a member of the Scottish Committee of the Centre for Housing and Urban Research (1982-1996), the Institute of Directors and the Executive Committee of the the ESRC Cities Programme (1996-1999) and the Centre for Scottish Council for Development and Industry. Ian is also Public Policy on Regions, he worked in senior government and a member of the UK NHS Pay Review Body and sits on the academic posts in both Australia and Canada. After moving Board of Lothian Buses. to Canada in 2005 he held a joint appointment as Professor of Urban Economic Policy at the University of Ottawa and as He was previously a Trustee of the Edinburgh UNESCO City of Chief Economist at the Federal Department for Infrastructure. Literature Trust and a member of the Advisory Group of Arts & Business in Scotland. Before joining Royal Mail Group, Ian Duncan has advised governments on housing policy in the was Assistant General Secretary of the Educational Institute UK, Poland, France, Sweden, Ireland, New Zealand, Canada of Scotland (EIS), Scotland’s largest teacher professional and Australia. He has also served as Principal Consultant to association. the OECD. In 1997, he was awarded a CBE in recognition of his contribution to housing and renewal policies in the UK Stewart Murdoch and is also an honorary member of both the UK Royal Town Trained in Urban and Regional Planning, Planning Institute and the Charted Institute of Housing. Community Education and Management, Stewart worked for 15 years in Glasgow for Iain Macwhirter not-for-profit organisations. Iain is the award-winning political commentator for the Sunday Herald and He was involved in setting up the Community Central Halls, a the Herald. Born in London but raised in multi-funded community development trust which provided Edinburgh, he joined the BBC straight from a wide range of services, including the management of a Edinburgh University, where he was doing a 600-seat concert hall and theatre and was the Trust Director post-graduate degree in politics, and became the BBC’s Scottish between 1980 and 1990. Political Correspondent in 1987. In 1989 he moved to London to present political programmes for BBC network television such In 1990, he moved to Tayside as Regional Community Education as ‘Westminster Live’ and ‘Scrutiny’. He was a member of the Organiser and following local government reorganisation in Westminster Lobby for nearly ten years. Iain also presented 1996, he was appointed Manager of Neighbourhood Resources one-off documentaries for BBC 2, on politically related themes, & Development for Dundee City Council. including one on the House of Commons art collection, and was a co-presenter on budget and election programmes. In 2003, Stewart was appointed as Head of Communities Department and in September 2005 became Director of While still a BBC presenter in the early 1990s, Iain began writing Leisure, Arts and Communities for Dundee City. He chairs the political commentaries. He was, successively, political columnist Dundee Cultural Agencies Network and the Learning & Culture for Scotland on Sunday, The Scotsman, and The Observer. In Theme of the Dundee Partnership and has served on a 1999 he returned to Scotland to launch the Sunday Herald – number of national committees for the Scottish Government the first new quality Sunday newspaper in nearly 20 years – and and CoSLA. Stewart has several years experience as an to present the BBC”s ‘Holyrood Live’ TV programmes from the Associate HMIe and currently chairs the Scottish Community Scottish Parliament, thrice weekly, until 2006. He continues Development Centre and is the Scottish representative on the to appear as a political commentator on BBC programmes boards of the Community Development Foundation and the on a regular basis. Iain has also been a regular contributor to International Association for Community Development. Finance magazine and the New Statesman and writes for the Guardian online and in print. He has contributed to numerous books and journals about the constitution and is a frequent contributor to public debates and conferences. He is also Rector of the University of Edinburgh. 40 More than GDP: Measuring What Matters APPENDICES
Martin Sime Dr Karen Turner Martin is Chief Executive of SCVO (Scottish Karen is a Reader in the Division of Council for Voluntary Organisations), a Economics at Stirling Management post he has held for 19 years. SCVO is the School (University of Stirling). She is also a umbrella body for the voluntary sector in Research Associate of the Fraser of Allander Scotland and has over 1300 members. Institute (Department of Economics, SCVO assists the sector to represent its interests to the public University of Strathclyde) and has just completed her role as and government, provides common services and manages one of six Climate Change Leadership Fellows funded by the capacity building programmes. Economic and Social Research Council (RES-066-27-0029).
Martin is a Board member of ACOSVO, the Chief Officers Since her PhD studies at the University of Strathclyde in Network and has also served on the New Deal Task Force and 1999-2002, Karen’s main research area is investigating and the Expert Panel on Procedures for the Scottish Parliament. He modelling energy-economy-environment interaction in is currently Treasurer of Civicus, a global civil society network, and between regional and national economies. Her current and is an Advisor to the Christie Commission on Public Service research focuses in particular on accounting for pollution Reform. embodied in trade flows to facilitate the measurement of carbon footprints, and on investigating the source and Prior to joining SCVO Martin worked for 10 years in the mental magnitude of rebound effects that may erode (or entirely health field, latterly as Director of the Scottish Association for offset) energy savings from increased energy efficiency. Mental Health (SAMH). Prior to this he has been an academic researcher and a sheep farmer on the Isle of Lewis.
Douglas Sinclair CBE Douglas was appointed the Chair of the Scottish Consumer Council in May 2006 and Chair of Consumer Focus Scotland in January 2008. Consumer Focus Scotland was formed from a merger of Scottish Consumer Council, Energywatch Scotland and Postwatch Scotland.
Douglas has held posts as Chief Executive at Ross & Cromarty District Council, Central Region Council, COSLA and Fife Council. Douglas is also Deputy Chair of the Accounts Commission of Scotland. More than GDP: Measuring What Matters APPENDICES 41
Appendix 2: List of Technical Annexes Prepared for the Scottish Round Table
List of Annexes 1.2: Monitoring Performance – NPF Review Analysis of the alignment of the NPF and sustainable Annexe 1: Prosperity without Growth? Summary development, and the NPF’s effectiveness in supporting A summary report of the key arguments in Professor Tim moves towards a more sustainable Scotland. Jackson’s report. It examines the connections and conflicts between sustainability, growth, and wellbeing. 2.1: NPF vs. Stiglitz A review the structure of the NPF against the 12 Annexe 2: Evaluating Scotland’s Approach to recommendations set out in the Stiglitz Report, as reviewed at Measurement of Progress the Round-Table’s first meeting. A review of the National Performance Framework against seven tests established by SDC. Includes suggestions of 2.1.1: NPF Summary how the NPF could be adapted, to help guide work on any Outline of the structure of Scottish Government’s NPF. successor frameworks. 2.2: The Capabilities Approach Annexe 3: Other Relevant Work on Measuring Progress Outline of Sen’s approach, which conceives a person’s life as a Outline of other work reviewed by our Round Table, including combination of various functionings and capabilities. Scotland’s Sustainable Development Indicator Set and the Government’s Additional Measures of Progress Group. 2.3: EHRC’s Equality Measurement Framework Summary of the Commission’s Equality Measurement Framework and an outline of how the Commission and others are using it as a tool for change. List of Technical Papers 3.1: Growth in Transition 1.1: Introduction & Analysis to the Stiglitz Report Short examination of why current models of economic growth Introduction to the Stiglitz Report, its conclusions and arising threaten longer term well-being, economic performance and questions to the Round Table. environmental conditions and summary of international initiatives to explore this further. 1.1.1: GDP Issues Annex to Paper 1.1, a more in-depth look at the strengths and 3.2: Mental Health and Quality of Life weaknesses of GDP as a measure of economic well-being. A review of existing Scottish Government analysis of mental and emotional well-being. 1.1.2: Quality Of Life Annex to Paper 1.1, a brief outline of three different These papers can be viewed at the Carnegie UK Trust website: conceptual approaches set out in the Stiglitz Report to www.carnegieuk.org measure quality of life: subjective well-being, capabilities and fair allocations.
1.1.3: Sustainability Annex to Paper 1.1, an analysis of different approaches to including valuation of the environment into sustainability indicators. 42 More than GDP: Measuring What Matters APPENDICES
Appendix 3: Endnotes
1 Speech by Joseph Stiglitz at the launch of the Report 12 New Scientist (2008) Special Report: How our economy by the Commission on the Measurement of Economic is killing the earth. See www.newscientist.com/article/ Performance and Social Progress. See www.stiglitz-sen- mg20026786.000-special-report-how-our-economy-is- fitoussi.fr/en/index.htm killing-the-earth.html. Data shown in the graph is available from www.newscientist.com/article/dn14950-special- 2 Stiglitz, J. Sen, A. & Fitoussi, J.P. (2009) Report by report-the-facts-about-overconsumption.html the Commission on the Measurement of Economic Performance and Social Progress. See www.stiglitz-sen- 13 Smith, A. (1776) An Inquiry into the Nature and Causes of fitoussi.fr/documents/rapport_anglais.pdf the Wealth of Nations
3 In partnership with the then Sustainable Development 14 SDC (2009). Source data from the Office of National Commission Scotland Statistics
4 President Sarkozy, speaking at the launch of the Report 15 Intergovernmental Panel on Climate Change (IPCC) by the Commission on the Measurement of Economic (2007), Fourth Assessment Report, p4 Performance and Social Progress. See www.stiglitz-sen- fitoussi.fr/en/index.htm 16 US Energy Information Administration (2008) International Energy Annual, Table 1.8 5 Sustainable Development Commission (SDC) (2009) Prosperity without Growth?, p.55 17 SDC (2009) p.55. Source data from the EIA (2008), IPCC (2007) as well as the International Monetary Fund and 6 Measuring What Matters conference report (2009). A the United Nations report on the conference held on 27 March 2009 at West Park Conference Centre, Dundee. See www.iacdglobal.org/ 18 Stern, N. (2007) The Economics of Climate Change, events/measuring-what-matters-conference-0 HM Treasury. In his 2007 Report Stern concluded that meeting a 550ppm stabilisation target would cost 1% 7 Jackson, T. (2008) What politicians dare not say. New of GDP. He rejected the possibility of achieving a more Scientist, 18th October 2008, pp.42-43 stringent target because it would be “very difficult and costly to aim to stabilize at 450ppm”. He later revised 8 Evidence of the importance of relative income was first this view, estimating that the cost of meeting a 500ppm highlighted by Richard Easterlin (1972). For more recent target would be up to 2% of GDP. Price Waterhouse confirmation see Easterlin 1995, Dolan et al 2006 & 2008 Coopers have estimated the costs of achieving a 50% reduction in global carbon emissions at 3% of global GDP. 9 See for example, Wilkinson, R. (2000) Mind the gap – For Stern’s revised estimate see: ‘Cost of tackling global an evolutionary view of inequality and health. London: climate change doubles, warns Stern’, The Guardian 26 Weidenfeld and Nicholson, or Dittmar, H. (2008) June 2008 (www.guardian.co.uk/environment/2008/ Consumer Culture, Identity and Well-Being, The European jun/26/climatechange.scienceofclimatechange). For PwC Monographs in Social Psychology series. estimate see: ‘Time for deeds not words’, The Guardian, 3 July 2008 (www.guardian.co.uk/environment/2008/jul/03/ 10 Data taken from statistics compiled for the Human carbonemissions.climatechange) Development Report, available online at the UNDP website: http://hdr.undp.org/en/statistics 19 SDC (2009) p.52. Source data from the US Geological Survey Statistical Summaries. 11 Data taken from statistics compiled for the Human Development Report. See above 20 Stiglitz, Sen & Fitoussi (2009) p.7 More than GDP: Measuring What Matters APPENDICES 43
21 Stiglitz, Sen & Fitoussi (2009) p.7 “Too much and for too long, we seemed to have surrendered personal excellence and community values 22 See for example Daly, H. Steady-State Economics (1977). in the mere accumulation of material things. Our Gross For a current summary of Daly’s work see ‘A Steady State National Product, now, is over $800 billion dollars a Economy’: www.sd-commission.org.uk/publications. year, but that Gross National Product – if we judge the php?id=775 United States of America by that – that Gross National Product counts air pollution and cigarette advertising, and 23 Particularly influential has been the work of Wilkinson, ambulances to clear our highways of carnage. R. & Pickett, K. (2009) The Spirit Level – why more equal societies always do better. London: Penguin “It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the 24 Stiglitz, Sen & Fitoussi (2009) p.9 redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads 25 Stiglitz, Sen & Fitoussi (2009) p.11 and armoured cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife. And the 26 Stiglitz, Sen & Fitoussi (2009) p.12 television programs which glorify violence in order to sell toys to our children. 27 Stiglitz, Sen & Fitoussi (2009) p.12 “Yet the gross national product does not allow for the 28 For more detailed analysis see Technical Paper 1.1: health of our children, the quality of their education or Introduction & Analysis to the Stiglitz Report. the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence 29 For example, see Defra (2009), ‘Sustainable development of our public debate or the integrity of our public officials. indicators in your pocket’. London: Department for the It measures neither our wit nor our courage, neither our Environment, Food and Rural Affairs. Available at http:// wisdom nor our learning, neither our compassion nor our www.defra.gov.uk/sustainable/government/progress/data- devotion to our country, it measures everything in short, resources/sdiyp.htm except that which makes life worthwhile. And it can tell us everything about America except why we are proud that 30 Jackson, T. (2008) “Where is the ‘well-being dividend’? we are Americans.” Nature, structure and consumption inequalities”, Local Environment, 13:8, 703 -723 34 Defra (2009), or Wilkinson, R. (2000) Mind the gap – an evolutionary view of inequality and health. London: 31 Wilkinson, R., Pickett, K. (2009) Weidenfeld and Nicholson
32 Satellite Accounts are defined by the UK’s Office for National 35 Stern, N. (2007) Statistics as a Framework that enables attention to be focused on a certain field or aspect of economic and social 36 Taylor, M. (2010) Twenty-first century enlightenment, RSA, life. They are produced in the context of national accounts pp.24-25 but are more flexible as they allow concepts, definitions, accounting rules and classifications to be changed, where it 37 Scottish Government (2007) Scottish Budget Spending improves analysis. For example, Household Satellite Accounts Review, Chapter 8 can measure the value of unpaid work in households. For example UK Household Satellite Accounts are available at 38 Scottish Government (2007) p45 http://www.statistics.gov.uk/hhsa/hhsa/index.html
33 Robert Kennedy was speaking at the University of Kansas in March 1968. Kennedy was describing Gross National Product rather than GDP, but the quote is still highly appropriate. The USA used GNP rather than GDP until 1991 as its primary measure of total economic activity. A fuller quote would be: 44 More than GDP: Measuring What Matters
39 See Annexe 3: Other Relevant Work on Measuring 51 Stiglitz, Sen & Fitoussi (2009), p.15 Progress. This includes: the Scottish Government’s 2006 Additional Measures of Progress group, its 2006-2009 52 See for example the Austrian International Conference Sustainable Development Indicator Set and relevant ‘Growth in Transition/Wachstum im Wandel’ (www. work of its Council of Economic Advisers. From the UK, growthintransition.eu/conference). Also relevant is the EU we considered the UK Office of National Statistics’ work Commission’s 2009 report ‘GDP and beyond: Measuring on measures of well-being, Defra work on sustainable progress in a changing world’ (www.beyond-gdp.eu) development indicators, and the Equality and Human Rights Commission’s Equality Measurement Framework. 53 Stiglitz, Sen & Fitoussi (2009), p.15 From outside government we looked at relevant work of the New Economics Foundation, the Glasgow Centre for 54 New Economics Foundation (2011) Measuring our Population and Health, and Oxfam Scotland. progress: the power of well-being
40 Scottish Government (2008) First Annual Report of the 55 Scottish Government (2008) Well? What do you think? 4th Council of Economic Advisers, December 2008 National Survey of Public Attitudes to Mental Wellbeing and Mental Health Problems 41 Scottish Government (2008) 56 Todorov, T. (2009) In Defence of the Enlightenment. 42 Scottish Government (2009) The Scottish Government’s Atlantic Books. Quoted in Taylor M. (2010) Response to the First Annual Report of the Council of Economic Advisers 57 Holgate, M. (2010) The World Environment in 2070. Lecture to the 1970 Club, Edinburgh, 28th September 2010 43 Yes Minister (1982) The Whisky Priest. Exchange between Jim Hacker MP and Sir Humphrey Appleby. 58 Kuznets, S. (1934) National Income, 1929-1932. 73rd US Congress, 2nd session, Senate document no.124, p.7 44 Scottish Government (2007) p.44 59 Mill, J.S. (1848) Principles of Political Economy 45 Scottish Government (2007) p.44 60 Taylor, M. (2010) p.27 46 Sen, A. (1998) ‘The living standard’. Chapter 16 in Crocker, D. And T. Linden (eds) (1998) The Ethics of Consumption. 61 Smith, Alexander (1863) Dreamthorp: Essays written in the New York: Rowman and Littlefield, 287-311. Country
47 See Annexe 2: Evaluating Scotland’s Approach to Measurement of Progress
48 EHRC (2009) ‘Developing the Equality Measurement Framework: selecting the indicators’, London: Equality and Human Rights Commission. Also see the Technical Paper provided by the EHRC for the Round Table’s 2nd meeting
49 See www.ons.gov.uk/well-being. Also see ONS (2010) ‘There is more to life than GDP but how can we measure it?’, Economic & Labour Market Review, Vol4 No9. London: Office for National Statistics
50 This part of the Stiglitz Report is based heavily on Photography: Amartya Sen’s Capabilities approach. More Front cover, page iii, page 1, page 5, page 19 © Peter Devlin, www.devlinphoto.com information on this is contained in a Technical Paper Page 13 © Jerome Dutton, awakeimaging.com submitted to the Round Table’s 2nd meeting. Page 23 © Lucy Boyd, lbd.uk.net More than GDP: Measuring What Matters The Carnegie UK Trust is one of over 20 foundations worldwide set up by Scots-American philanthropist Andrew Carnegie working to support a more just, democratic, peaceful and sustainable world.
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A Round Table on Measurement of Economic Performance and Social Progress in Scotland
Introduction to the work of the Sarkozy Commission
It has become increasingly clear over recent years that conventional measures of prosperity such as Gross Domestic Product (GDP) do not accurately reflect the true prosperity of nations. Reporting in 2009, the Sarkozy Commission set out in detail gaps in current measures of progress and provided recommendations as to how we can better measure what matters. This 2009 Report has been hugely influential and has been a catalyst to work at a national and international level.
At an international level, the Sarkozy Commission has emphasised an issue that both the European Commission (EU) and the Organisation for Economic Cooperation and Development (OECD) have considered in their respective ‘GDP and beyond’ and ‘measuring the progress of societies’ projects.1 In the context of the latter, a World Forum on Statistics, Knowledge and Policy was organised in 2007. It led to the ‘Istanbul Declaration’ calling for the development 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’.2
In the UK, a recent Office of National Statistics report 3 also looks in more detail at the issue of measuring progress. ONS are seeking to identify the relevant Government Statistical Service outputs and initiatives that would better measure broader societal well‐being.
The UK Government’s 2010 Budget Report also highlights this issue, noting: “There is widespread acknowledgment that GDP is not the ideal measure of well‐being. The Government is committed to developing broader indicators of well‐being and sustainability, with work currently under way to review how the Stiglitz, Sen, and Fitoussi report should affect the sustainability and well‐being indicators collected by Defra, and with the ONS and the Cabinet Office leading work on taking forward the report’s agenda across the UK.”
The ONS report recognises that there are many existing statistical products to help meet the demand for wider measures, but what is missing is a sense of coherence and how various constituent parts might add up to provide a more complete picture.
The proposition that national statistical systems need to widen the focus from measuring market production towards more complete measures of societal well‐being, including quality of life and
1 See www.beyond‐gdp.eu; http://www.oecd.org/pages/0,3417,en_40033426_40033828_1_1_1_1_1,00.html 2 Available at http://www.oecd.org/dataoecd/14/46/38883774.pdf 3 ONS (2010), ‘There is more to life than GDP but how can we measure it?’, Economic & Labour Market Review, Vol.4 No.9, London: Office for National Statistics. 1 sustainability 4 is the starting point of this paper. It aims at exploring and breaking down the key messages of the Sarkozy Commission as set out in the three areas of Recommendations (R), namely:
• Part I: Classical GDP issues: measures of economic performance have to become more relevant to well‐being by: shifting them from production to income and consumption (R1); emphasising the household perspective (R2) and distribution of income (R4); and accounting for wealth (R3) and non‐market economic activities (R5); • Part II: Quality of Life. Well‐being has dimensions beyond material living standards requiring measures covering issues such as health, education and environmental conditions, where objective and subjective aspects are captured (R6‐R7) and cross‐cutting issues are addressed (R8‐R9‐R10); • Part III: Sustainable Development and Environment. The essential ability to maintain and improve well‐being over time requires new measures reflecting the importance of maintaining environmental ‘stocks’ and in particular our proximity to dangerous levels of environmental damage.
This paper is set out using these three areas of recommendations to help the Round‐Table navigate the Sarkozy Commission report. Each of the three areas is summarised in the following sections while a detailed analysis is provided in respectively Annex I, II, III. Finally, relevant questions that are available to help frame the Round‐Table’s discussion are set out as a conclusion.
Summary of the Work of the Sarkozy Commission
Part I: Classical GDP issues
The focus of the first part of the Sarkozy Commission report is improving existing measures of economic performance by shifting them from production to consumption, income and wealth.
One pillar of sustainable development is considering economy as a means to an end – where that end is to contribute to the progress of societal well‐being that is providing people with the abilities to flourish.5
From this perspective, an indicator of material living‐standards should be placed in the broader context of human flourishing and not be the main focus of any framework of national performance. Consumption, income and wealth relate far more closely to well‐being than production; not least because they are better able to address issues such as distribution, public services and non‐market services. Defra’s recent well‐being survey supports the relevance of income as a factor of well‐being.6
4 ONS (2010), ibid 5 Note, there are clear parallels here with the Scottish Government’s single Purpose that there are “opportunities for all of Scotland to flourish” 6 Defra (2009), ‘Sustainable development indicators in your pocket’. London: Department for the Environment, Food and Rural Affairs. Available at http://www.defra.gov.uk/sustainable/government/progress/data‐ resources/sdiyp.htm 2 However, in making this shift it is also important to recognise the “well‐being paradox”, namely the existence of stationary or declining levels of subjective well‐being, despite growing income and consumption levels.7
An example of evidence that helps us look at this paradox is the psychological research of Helga Dittmar which examines how individuals’ endorsement of materialistic values is linked to their well‐being. The conclusion is a strong negative correlation between materialism and personal well‐being.8 These findings suggest the need to confront the social logic and ask how to deliver a shift away from the pursuit of an increasing material‐living standard towards the pursuit of a decent material living‐standard as a component of well‐being.
This issue has implications for both the choice of indicators for material living‐standard and the balance of these with other measures. The balance issue is dealt with in the next section. Measuring material living standards in a way that both reflects the need for some ‘decent’ standard of living but does not champion continually rising levels as the link with well‐being weakens is a challenge.
• The first step, embedded in the Sarkozy Commission’s first recommendation, entails measuring income and consumption rather than production (R1) for the reasons set out above.
• Second, because assessing an individual’s economic situation is more relevant to well‐being than focusing on indicators for the entire economy, the Sarkozy Commission recommends emphasising the household perspective (R2). Importantly, they recommend adjustments being made for government services in kind, such as health care, education and social services which are central to well‐being.
• The third recommendation is based on the fact that consumption possibilities, which determine material well‐being, depend on wealth as well as income (R3). The report makes clear that although financial wealth is of central importance so too are social and environmental wealth expressed in a stock measure. Wealth is thus central in linking present and future well‐being.
• Fourthly distribution of any rise in average income is also important to well‐being. Unequal societies are found to generate a loss of welfare 9 and the Sarkozy Commission therefore concludes that more prominence should be given to distribution of income, consumption and wealth (R4).
• Finally, the Sarkozy Commission highlights that many services that households produce for themselves are not recognised in official income and production measures, yet they constitute an important aspect of economic activity. The same remark is valid for activities of the third sector. A solution to a better recognition of the household sector and the third sector is broadening income measures to non‐market activities through satellite accounts (R5).
Each of these recommendations is dealt with in more detail in Annex I.
Part II: Quality of Life
7 Jackson, T. (2008) ‘Where is the “well‐being dividend”? Nature, structure and consumption inequalities', Local Environment, 13:8, 703 ‐723. 8 Dittmar,H. (2008), Consumer Culture, Identity and Well‐Being, The European Monographs in Social Psychology series. 9 Wilkinson, R., Pickett, K. (2009) The Spirit Level‐ why more equal societies always do better. London: Penguin. 3 The second area of the Sarkozy Commission begins to deal with the fact that well‐being is determined by more than material living standards and conventional economic measures. It sets about examining how multi‐dimensional measures of well‐being ‐ including health, education and environmental conditions ‐ can be incorporated. In particular it addresses the difficulties of ensuring objective and subjective aspects of these dimensions are captured and that cross‐cutting issues are addressed.
This is a challenging area. Unlike the measures of material living standards (which have established data sets and generally all use money as a standard measuring unit) these determinants of well‐being are often not routinely measured using standard units and are not traded on markets. Yet they are to a large extent the factors that make life worth living and need to be measured in order to enrich policy discussions and to inform people’s view of the conditions of the communities where they live.
Not surprisingly therefore the recommendations in this section are more about approach than specific changes in measures. • The Sarkozy Commission report highlights the importance of both subjective (R6) and objective measures (R7) of these factors, e.g. fear of crime and rate of crime. It notes the need to effectively combine monetary and non‐monetary measures.
• It also emphasises the need to consider and capture the importance of the relationships between the various dimensions of quality of life, as it better captures the cumulative effect of multiple disadvantages such as being poor & of ill‐health (R9).
• Inequalities should be addressed in a comprehensive way (R8). A critical factor in the measurement of well‐being is the relative positions of individuals in society. This is confirmed by both the Defra study on the distribution of subjective well‐being as well as by Wilkinson (2000),10 which show that being at the top of the pile matters in terms of bringing greater access to some services and benefits (e.g. health, accommodation, life expectancy).
• Finally, there is an important challenge in how to aggregate the rich array of measures in an effective way (R10).
Annex II will pick up the main issues relating to objective and subjective measures, and tackle the three cross‐cutting issues mentioned above.
Part III: Sustainable Development and Environment
The first and second areas of the Sarkozy Commission analysed how to measure the economic (Part 1) and non‐economic aspects (Part 2) of present well‐being. The third part examines how to measure the potential for future well‐being. The report approaches this issue by looking at ‘stocks’ that we have at our disposal today and that will be passed on future generations. Such ‘stocks’ could be social, such as resilient community and societal structures, environmental such as a stable climate and biodiversity, and economic such as levels of credit.
From the beginning, the Sarkozy Commission makes it clear that it regards this ‘sustainability’ issue as augmenting current well‐being and economic performance indicators. It therefore suggests that it
10 Defra (2009), op. cit.; Wilkinson, R. (2000), Mind the gap – an evolutionary view of inequality and health. London: Weidenfeld and Nicholson. 4 should be examined separately. This is embedded in R11 (1st Part) which states: “Sustainability assessment requires a well‐identified dashboard of indicators”, the components of which should be interpretable as variations of some underlying stocks. The risk of such an approach, also called the capital approach, is that it overvalues the economic contribution of the different types of capital and also overvalues the contributions that can be readily monetised.
Sustainability calls therefore for a broader view of capital, with economic valuation being one tool among others, as highlighted by R11 (2nd part): a monetary index of sustainability has its place in a dashboard but, under the current state of the art, it should remain essentially focused on economic aspects of sustainability. This is especially true for environmental assets. Pressure on a natural resource or system creates unacceptable or irreversible change to the resource or system itself, which is also to the detriment of the organisms (including humans) which depend on it for a particular service. This scientific consideration led to one of the three pillars of sustainable development, namely living within environmental limits.
Crucially measurement of such assets depends on science rather than economics. Economics conventionally assumes all types of capital can be substituted for one another and that all impacts are reversible. For example a river is polluted by the manufacture of goods. This means reducing environmental capital so as to increase produced capital. However, investment in treatment works (produced capital) can restore the environmental capital by improving the water quality. In contrast, the melting of the Greenland ice‐sheet, the release of methane from the tundra, shifting of the North Atlantic currents, increases in global temperature and rapid biodiversity loss are not reversible in any meaningful sense.
The Sarkozy Commission recognises that there is a need for a clear indicator of our proximity to dangerous levels of environmental damage (such as associated with climate change or the depletion of fishing stocks) (R12). Interestingly this point is echoed in the recent UK Government Economic Service report on the economics of sustainable development, which noted that cost benefit analysis cannot cope with such thresholds and as such cannot help guide decision‐makers on the issue.
Annex III analyses some UK initiatives with regards to these recommendations. The general consideration is that measuring progress towards sustainable development is such that sustainable development fits with conventional economics, and not the other way around.
5 Relevant questions for the Round‐Table and the Scottish Government
Work to better measure progress is a complex area. The following eight questions are a starter for discussion. These questions would be valuable starting points for the Scottish Government in looking in more detail at the Sarkozy Commission’s work. They may also help the Round‐Table to frame its discussions.
1. To what extent should (and how) any new set of measures of economic performance and social progress inform decision making on policy making and public investment?
Part I: Classical GDP Issues
2. How important is it to address the well‐being paradox which implies that greater emphasis is given to ensuring everybody has decent material living standards rather than aiming for a continual increase in aggregate levels?
3. Assuming that wealth is both crucial for the assessment of the consumption possibilities (material living standards) and the assessment of sustainability, what are the next steps to be undertaken by the Scottish Government to ensure a fuller picture of Scotland’s wealth? By wealth we are thinking of financial, produced, human, natural, social wealth. What can be done to guarantee that the focus is not on wealth that can be measured in economic terms?
Part II: Quality of life
4. What comprehensive measure of inequalities would be appropriate for Scotland? Measuring income inequality itself is insufficient and other measures should be included, such as suggested by the UK Equality Measurement Framework11 (see R8). This raises the issue of an aggregate index including both objective and subjective measures. Is such an index suitable, and if so which method would be favoured and why?
5. How can the list of features suggested by the Sarkozy Commission be used and applied in Scotland? Which features should be emphasised?
Part III: Sustainability and Environment
6. From a practical perspective, how can a National Performance Framework better take into accounts both the current and future well‐being in a comprehensive way, identifying the intersection when necessary?
7. Could carbon budgets in Scotland be utilised to provide a current performance indicator that also provides a measure of potential for future well‐being?
8. It has been recognised that maintenance of our ecosystems goes further than measuring greenhouse gas/carbon emissions. Limits have to be set for a more comprehensive panel of natural assets. Which natural assets are relevant for Scotland with regards to the issue of
11 EHRC (2009), ‘Developing the Equality Measurement Framework: selecting the indicators’, London: Equality and Human Rights Commission. 6 ecological limits? For which environmental assets should an economic valuation be emphasised? How can Scotland ensure that such an evaluation does not become the default rule?
7
A Round Table on Measurement of Economic Performance and Social Progress in Scotland
Meeting 1, Technical Paper 1.1: Classical GDP Issues
R1: When evaluating material well‐being, look at income and consumption rather than production
The Sarkozy Commission (SC) underlines the limits of GDP as a measure of economic well‐being. The starting point resides in realising that GDP is exclusively a measure of a country’s market production, and that market production cannot be conflated as economic well ‐being in itself.
An immediate adjustment needed to improve GDP as a measure of economic performance is to account for depreciation, degradation and depletion (DDD).
The Depreciation of capital goods results from their wearing out or obsolescence and the shortening of their future lifespan. While GDP overestimates the level of output produced, net measures should be emphasised over gross measures. The issue lies in the fact that depreciation is hard to estimate. Therefore improvements have to be made to better encapsulate the true economic depreciation (e.g. tracking changes in the structure of production).
But NDP is only one part of the story. Their standard measures have not taken into account either the Degradation in quality of the natural environment or the Depletion of natural resources. A remedy could be adjusting Net Domestic Product (NDP) for these capital losses. Another option is the elaboration of Environmental satellite Accounts,1 that foresee entries for the appearance and disappearance of natural economic assets as well as quality change in these assets due to economic uses. These questions will be further developed when tackling the two last recommendations.
UK Illustration The UK Government’s Blue Book2 explores and explains other well established indicators in the National Accounts alongside the GDP (Net National Product, Gross National Product, Net Domestic Product).
These adjustments are made to improve GDP as a measure of economic performance. It deals therefore with the supply side of the economy. However, the aim of the Sarkozy Commission’s first recommendation is to get a better track of people’s material living standards.
Material living standards are more closely associated with measures of real income and consumption – production can expand while income decreases or vice versa when account is taken of depreciation, income flows into and out of a country, and differences between the prices of output and the prices of consumer products (SC, p. 39).
1 The Net National Disposable Income (NNDP) is therefore recommended as a more appropriate measure of a nation’s material living standard. Indeed, this latter deduces from the production some of the generated income sent abroad and adds the income residents receive abroad (SC, p.95).
R2: Emphasise the household perspective
In order to go a step further in tracking standards of living, assessing individual’s economic situation is more relevant than focusing on indicators for the entire economy. To illustrate this point, the OECD Annual National Accounts show that for many countries, real household disposable income and GDP do not necessary follow the same tracks, and are therefore not good substitutes for the other (SC, p.109). Therefore, the household disposable income (HDI) provides more reliable information.
The track of a relevant indicator of material living standard has not ended yet. One more adjustment needs to be considered. Properly defined, household income and consumption should also reflect the value of in‐kind services provided by government, such as subsidized health care and educational services. As shown in Box 1, adjusted household disposable income (AHDI) and actual final consumption are measures that accommodate with this requirement, as far as they add to household income and to household consumption expenditure the equivalent of the goods and services provided in kind by the government.
When accounting for government services in kind, the Sarkozy Commission aims at providing an accurate measure of material living standard. At this stage, a normative issue arise.
Firstly, by definition, individual public services (namely education and health) have no price because they are not traded on a market. In many countries, and in the United Kingdom from the early 1960s to 1998, the output of the government sector has been measured by convention as of value equal to the total value of the inputs, e.g. education services are evaluated through expenditures on education, mainly compensation of the teachers3. Such an approach does not allow for evaluating the quality and efficiency of the educational or health system. These limits have been recognised by the UK Government. The Atkinson Review analyses how a method based on output (e.g. the amount of care received by a patient) should be prioritized, as it better reflects changes in productivity than an input method4.
Focusing on inputs/outputs rather than outcomes (e.g. indicators of the level of education of the population, life expectancy) has an important normative scope. Indeed, no information is reflected in GDP on the nature and the impacts of these systems on the members of the society and the way they live together. This is why in its work on the measurement of government output, ONS has made quite clear that there is a difference between National Accounts estimates of output, on the one hand, and performance measures for the management of public services on the other hand. National income is an indicator of the contribution to welfare of specified economic activities; it is not a measure of total economic welfare; aggregate welfare is not the only objective of government policy5.
This latter consideration is recognised by the SC as well when it states that the time is ripe for our measurement system to shift emphasis from measuring economic production to measuring people’s well‐being and the starting point resides in realizing that GDP is exclusively a measure of a country’s market production.
2
As government services are non‐market by definition, is trying to include them in measures of National Income the best way to emphasise the importance of the government in fostering capabilities and sources of human flourishing? Isn’t there a risk to focusing on income generated through market activities and diminishing the importance of state as a provider of social bond and collective solidarity?
3 Box 1. Two concepts of household consumption
Source: Sarkozy Commission, p. 113.
Other indicators adopt a far different approach to assess services provided by the government. The Esping‐Andersen decommodification index, for instance, is a combined measure of major social‐ insurance programs which reports how a country’s welfare system allows its individuals to maintain a standard of living outside the labour market structure6.
4 If it is time to measure well‐being rather than production, outcomes rather than outputs, performance rather than national income, then such approaches have to be further explored.
R3: Consider income and consumption jointly with wealth
A wealth measure is central for both the assessment of material living standard and the measurement of sustainability.
With regard to the material living standard, consumption possibilities over time are what matters in the end. From this perspective, income flows alone are not a sufficient gauge, as shown by the following illustration: a low‐income household with above‐average wealth is better off than a low income household without wealth (SC, p. 29). As income doesn’t necessary equal consumption, a measure of wealth is therefore crucial, for both the household level and the economy as a whole.
Wealth measures for the economy as a whole are fundamental for sustainability. What is carried over into the future necessarily has to be expressed as stocks – of physical, natural, human or social capital.
The joint UNECE/OECD/Eurostat Working Group identifies five components of the Total National Wealth which have to be managed in a way that secures their maintenance over time: financial capital like stocks, bonds and currency deposits; produced capital like machinery, buildings, telecommunications and other types of infrastructure; natural capital in the form of natural resources, land and ecosystems providing services like waste absorption; human capital in the form of an educated and healthy workforce; and, finally, social capital in the form of functioning social networks and institutions7.
UK Illustration The current measures of capital tend to focus on financial and produced capital while natural, human, and social capital are subjected to national experiments. Indeed, the Assets & Wealth Survey (December 2009)8 at the household level, as well as the UK Economic Accounts9 at the national level are the tools which allow an assessment of financial and produced wealth. But they should be completed by indicators relating to natural capital, human capital and social capital. As this recommendation is strongly linked with the sustainability issue, relevant UK Government initiatives contributing to give a fuller picture of the total National wealth will be examined below.
R4: Give more prominence to the distribution of income, consumption and wealth
At the level of society as a whole, even if the population gets richer, some people are better off than others, and evidence suggests that distributional advantages are often for the top of the deciles at the expense of the bottom. A rise in average income could be unequally shared across groups, leaving some households relatively worse‐off than others (SC, p.40). Confirmation of such a trend for UK could be found in Jackson (2008).10
Thus, average measures of income, consumption and wealth should be accompanied by indicators that reflect their distribution. Conventional methods of measuring income inequalities refer to UK Studies dealing with the percentage of the population below 60% of the median income or with the Gini Coefficient. The Gini coefficient is a measure of income inequality taking values between 0 and 100, with
5 higher values denoting higher levels of inequality. A value of 0 indicates complete equality in the distribution of household income (all households have the same equivalised income). A value of 100 indicates complete inequality (one household has all the income, and the others have none).11
UK Illustration Redistribution of Income survey (ROI), Households below average Income survey (HBAI).12
Table 1. Percentage of people in households below 60 per cent median income by family type.
1981 1991‐1992 1996‐97 1998‐99 1999‐00
Single people without children 8 18 16 15 16 Single pensioners 15 29 23 23 23 Lone parents 22 46 38 36 35 Couples without children 5 10 10 10 10 Pensioner couples 17 29 20 23 21 Couples with children 15 20 19 18 17
All individuals 13 21 18 18 18
Note 1: Income refers to equivalised disposable income before housing costs. See appendix, Part 5: Households below average income survey. Note 2: Data for 1981 and 1991‐1992 are based on the Family Expenditure Survey which covers the United Kingdom. Data for 1996‐97 to 1999‐00 are based on the Family Resources Survey which covers Great Britain only. Source: Households Below Average Income series, Department for Work and Pensions
Figure 1. Gini Coefficients.
Source: ONS, The distribution of household income 1977 to 2006/2007, Economic & Labour Market Review.
6 Nevertheless, these objective surveys fail to take into account the loss of welfare associated with more unequal societies. And as our main concern is to have a full picture of the factors affecting well‐being, more consideration should be given to this crucial aspect. This involved a further exploration measures which includes both objective and subjective aspects.
National Statisticians often show an aversion against aggregate variables as it both involves arbitrary choices to weight the various components of the indicator and it implies several difficulties in gathering information from different sources. However, combined indexes which overcome these difficulties have already been set out and presented as valuable alternatives by the SC (SC, p.115). These indexes both measures objective and subjective aspects of inequality and synthesize relevant information into one single number, circumventing the problem of a too exhaustive dashboard. They could serve as a basis for an appropriate measure of welfare losses from having an unequal distribution of income. Two of these indexes are explored in Box 2.
Box 2. Unequal distribution of income: welfare losses
Atkinson index (1970): this measure is interpreted as the loss in wellbeing associated with having a distribution of incomes that is more unequal than preferred. As shown in Figure 1, evidence suggests that society in the UK is increasingly unequal in spite of an apparent preference for greater equality.
Figure 2. Income inequality in the UK 1960–2000.
Source: Updated from Stymne and Jackson (2000) using data from Goodman and Oldfield (2004)13
Yitzhaki index(1979); this measure shows that the product of the Gini coefficient and average income reflects a concept of relative deprivation where people’s living standards not only depend on the absolute income or consumption possibilities but also on where their consumption possibility are with regard to a reference group.
7 R5: Broaden income measures to non‐market activities.
The 5th Recommendation of the SC report underlines the importance of including unpaid services that household produce for themselves in expanded measures of household income. The consideration of the former is indeed likely to change the level, distribution and growth of the latter. The main justification of this recommendation resides in the invariance principle exposed below.
Many services that have been produced by the households for themselves are now purchased on a market. This results into a rise of income, as measured in the national account, and this may give a false impression of a change in living standards. On the strength of the invariance principle, which holds for government activities, a shift from private to public provision of a particular product should not affect measured output. Similarly, measured output should not be affected by a shift of production from market to household production or vice versa. And therefore, a more complete picture of household production could be drawn by constructing a full set of accounts for households, including the services that households produce for themselves.
UK Illustration Households Satellite Accounts (HHSA)
The ONS has considered this task and elaborated some experimental household satellite accounts (HHSA).14 These accounts look at non‐market production by households using the ‘thirdparty’ criterion first developed by Margaret Reid in the 1930s – if someone else could be paid to provide this service for you, then it should be measured. One possible method of valuation is the elaboration of satellite accounts. The satellite accounts have been elaborated to expand the analytical capacity of national accounting for selected areas of social concern. They are linked to the central framework of National Accounts but are also linked to the information system relevant to the field or topic to be analysed.15
In the case of the HSSA, the last step is indeed to compare its results with GDP in the National Accounts. It could be done by subtracting from GDP the amounts which are implicitly or explicitly included in the HHSA – imputed rent of owner occupiers, tenant rents which are inputs to household production, and any other Household Final Consumption Expenditure which we have reclassified as intermediate consumption or final consumption. This adjusted GDP becomes Gross Market Product, and can be added to Gross Household Product – the value added by households as calculated in the HHSA – to give Gross Economic Product.16
As noted by Duncan Ironmonger,17 measuring and valuing unpaid work is part of a process of “making visible about one half of all valuable economic activity” which until here had no "value" and was hence unworthy of consideration. Surveys of the uses of time provide a relevant illustration of the size of the household unpaid work, as shown in Figure 3.
8 Figure 3. Housework, paid work and leisure Minutes per day and person, latest year available*
Note: Using normalised series for personal care; Unites States: 2005, Finland 1998, France 1999, Germany 2002, Italy 2003, United Kingdom 2001. Source: OECD (2009), Growing Unequal? Income Distribution and Poverty in OECD Countries; Paris.
As recognised by Jackson (Prosperity without Growth, 2010, p.155), a key point in measuring unpaid work is the better recognition for those engaged in child‐care, care for the elderly or the disabled and volunteer work. It would shift the balance of incentives away from competition and materialistic outcomes achieved through the market, and towards a more cooperative society that has its seeds in non‐market activities. These non‐market activities include the household unpaid work but are not restricted to them. Indeed, a similar lack of recognition is valid for what is commonly called the third sector.
Generally speaking, the concept of third sector is able to encapsulate this “sphere of economic activities that occupied the space between the point where the private sector ends and the point where the state sector begins”.18 The United Nations (UN) describes this sector as made up of organisations that are neither market firms nor state agencies nor part of the household sector. Such social institutions are variously referred to as “non‐profit”, “voluntary”, “civil society” or “non‐governmental” organizations and collectively as the “third”, “voluntary”, “non‐profit” or “independent” sector.19
Such non‐profit institutions are currently covered by the System of National Account (SNA). However, SNA does not group them into a single economic sector, underestimates their non‐market production and does not cover the voluntary work.20 These limits have been remedied through the Handbook on Non‐Profit Institutions in the System of National Accounts developed by the UN in order to gain a clearer overview of the broader Non‐Profit Institutions (NPIs) sector.
Finally, the common purpose in measuring the household and the non‐profit institutions sector is a better valuation of a significant and growing economic force. However, these forces have distinct features from the market economy. These include notably their non‐profit character, the employment
9 of people on a voluntary basis, the provision of public‐goods that are labour intensive. These features justify treating them as a separate sector.
As highlighted by Jackson, this formal recognition is the first step of a move from a time‐poor, materialistic, supermarket economy to an economy that employs people in ways that contribute meaningfully to community and human flourishing.21 Therefore, the method of valuation of this specific sector is crucial.
As mentioned above, the satellite accounts, both recommended by the SC and the UN Handbook, provide a solution to a better recognition. However, their methodology implies the conversion of the measured output of the specific sector in monetary terms in order to allow a comparison with the National Accounts, namely the GDP. If conversion of time in monetary terms is emphasised, then the focus tends to be on materialistic outcomes and income. It therefore overshadows the direct contribution to well‐being that procures such kind of activity. And as mentioned by the UN Handbook, ‘Ideally, we want to know what non‐profit organizations contribute to the health, education, welfare, sense of satisfaction and general wellbeing of the population.’ It underlines that attention should be paid to the method of valuation of such specific sectors as it involves normative choices.
10
References
1 UK Environmental satellite accounts, available at http://www.statistics.gov.uk/STATBASE/Product.asp?vlnk=3698 2 Available at http://www.statistics.gov.uk/statbase/product.asp?vlnk=1143. 3 Atkinson, A. (2005) Atkinson Review: Final Report. Measurement of Government Output and Productivity for the National Accounts, p.12. London: TSO. Available at www.statistics.gov.uk. 4 Ibid. 5 Ibid., p. 185. 6 Esping‐Andersen, G. (1990), The Three Worlds of Welfare Capitalism, Princeton: Princeton University. 7UNECE/OECD/Eurostat Working Group (2008), Measuring Sustainable Development, New York and Geneva: United Nations. 8 Available at http://www.statistics.gov.uk/cci/nugget.asp?id=2338. 9 Available at http://www.statistics.gov.uk/StatBase/Product.asp?vlnk=1904&Pos=&ColRank=1&Rank=272. 10 Jackson, T. (2008) 'Where is the “wellbeing dividend”? Nature, structure and consumption inequalities', Local Environment, 13:8, 703 ‐723. 11 For further details see: www.statistics.gov.uk/about/methodology_by_theme/gini/default.asp 12 Annan, D., Jones, F., Shah, S. (2008) ‘The distribution of household income 1977 to 2006/2007’, Economic & Labour Market Review, 2:12, 18‐31. London: Office for National Statistics. 13 Goodman, A., Oldfield, Z. (2004) Permanent differences? Income and expenditure inequality in the 1990s and 2000s. London: Institute for Fiscal Studies; Stymne, S., Jackson, T. (2000) ‘ Intragenerational equity and sustainable welfare’, Ecological Economics, 33 (2),219–236. 14 UK Household Satellite Accounts, available at http://www.statistics.gov.uk/hhsa/hhsa/index.html. 15 UN (1993), System of National Accounts, Ch. XXI. New York: United Nations. 16 As described by Duncan Ironmonger in Ironmonger, D. (1993) “Why Measure and Valu e Unpaid Work?” in International Conference on the Measurement and Valuation of Unpaid Work, Proceedings Ottawa: Statistics Canada. 17 Ibid. 18 Landeau, D. (1995) ‘Royaume‐Uni: social economy and voluntary sector’, RECMA, 257, 5‐7. 19 UN (2003), Handbook on Non‐Profit Institutions in the System of National Account, New York: United Nations. 20 Mertens, S. (2009), ‘Measuring the Social Economy in the Framework of the National Accounts’, in Defourny J., Develtere P., Fonteneau B. and Nyssens M. (eds.), The Worldwide Making of the Social Economy: Innovations and Changes, ACCO, Leuven. 21 Thiry, G., Cassiers, I. (2010), ‘Alternative Indicators to GDP: Values behind Numbers‐ Adjusted Net Savings in Question’, IRES, Discussion Paper 18. Belgium: Institut de recherches Economiques et Sociales de l’Université Catholique de Louvain.
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A Round Table on Measurement of Economic Performance and Social Progress in Scotland Meeting 1, Technical Paper 1.2: Quality of life
R6‐R7 Objective and subjective measures
Three conceptual approaches have been chosen by the SC to measure quality of life, based on three different notions: subjective well‐being, capabilities and fair allocations.
Subjective well‐being
Presumption: enabling people to be satisfied with their life is the ultimate goal of politics.
Implications: this approach is strongly connected with psychological research and views individuals as the best judges of their own conditions. In order to get a satisfactory appreciation of people’s lives, cognitive evaluations (summarising the full range of elements that people value), positive and negative affects (people’s actual feelings) should be measured separately.
Capabilities
Presumption: respecting the individual’s ability to pursue and realise the goals that he or she values is the ultimate goal of politics.
Implications: this approach has its roots in the philosophical notion of social justice and conceives a person’s life as a combination of various observable achievements of each person (functionings), and assesses Quality of Life (QoL) in terms of a person’s freedom to choose among the various combinations of these functionings (capabilities).
While subjective states may be considered as being part of the set of capabilities considered, the capability approach emphasises that people may adapt to their life‐circumstances, and that this adaptation makes subjective feelings inadequate as the sole metric for assessing QoL.
Fair allocations
Presumption: respecting individual preferences in the weighting of the various dimensions of QoL.
Implications: this approach has its roots in welfare economics and aims at comparing individuals’ multidimensional situations (with regards to all aspects of quality of life) in a way that respects their preferences. This method consists of selecting a “reference” set of individual situations that are easy to rank from better to worse; then the conditions of any given person are assessed by identifying the particular situation in this reference set that is equivalent to his current situation according to his own preferences.
1 In practice, all approaches to QoL share an emphasis on a range of features in people’s lives. Therefore, it is important to determine which these features are. This depends on value‐judgments that can be collected through deliberative processes. In practice, when the different initiatives attempting at measuring societal progress are compared,1 some recurrent themes appear, including both measures of people’s subjective states (overall life satisfaction) and measures of people’s objective conditions and opportunities (health, education, personal activities, political voice, social connections, environmental conditions and insecurity). Figure 1 shows theses nine recurrent themes with examples of related indicators (subjective and objective). These domains, embedded in the 7th and 6th recommendations, have helped the ONS to structure actions and plans for the better measurement of QoL.
R6: Measures of subjective well‐being provide key information about people’s quality of life. Statistical offices should incorporate questions to capture people’s life evaluations, hedonic experiences and priorities in their own surveys.
R7: Quality of life also depends on people’s objective conditions and opportunities. Steps should be taken to improve measures of people’s health, education, personal activities, political voice, social connections, environmental conditions and insecurity.
At this stage, it is worthwhile noting that measures of people objective conditions such as crime or healthy life expectancy usually move differently to GDP per head over time.2 This reflects that how societies are organised makes a difference for people’s lives which is not captured by conventional economics. Figure 1 highlights different features and shows how they could be measured either through objective or subjective indicators.
Figure 1.
Features Measures Objective Indicators Subjective Indicators Health mortality, morbidity healthy life expectancy, self‐reported general mental health, smoking, health obesity level Education* input, output, throughput, people’s School enrolment, competencies education expenditures, completed schooling years.
Personal activities paid work, unpaid work, commuting, Time, decent work (wage, feelings associated leisure, housing gender gap, work‐life with this activity, balance,...) hedonic experience
Political voice & institutional features, governance universal suffrage, free rule of law, legislative Governance media, civil society guarantees organizations
Social services provided to people through membership in voluntary satisfaction with connections* community networks groups participation
Environmental human health, environmental services, number of people who lack conditions environmental amenities, climate access to water, number of change premature deaths from exposure to air pollution Personal crime, accident, natural disaster, crime rate fear of crime insecurity climate change
2 Economic unemployment, illness, old age insecurity
Overall life Cognitive valuation, positive & Overall Personal well‐ satisfaction negative affects being
* The education and social connections features are viewed here as a dimension of quality of life rather than as a factor underpinning economic production. Indeed, education and social connections bring non‐monetary returns which benefit both the person investing in it and the community in which they live (better health, greater engagement in political and civic life, better probability of finding a job, less crime...).
R8‐R9‐R10 Cross‐cutting issues
R8: Quality‐of‐life indicators in all the dimensions they cover should assess inequalities in a comprehensive way.
This recommendation implies that each dimension of quality‐of‐life requires appropriate measures of inequality, with each of these measures being significant in itself and none claiming absolute priority over others. Inequalities should be assessed across people, socio‐economic groups and generations.
An excellent illustration of this recommendation is delivered by the UK Equality Measurement Framework (EMF).3 This is a 3D Matrix (see Figure 2) where the rows represent three aspects of inequality– inequality of outcomes, autonomy and process ‐ and the columns represent the ten domains of central and valuable freedoms. The layers of the matrix then represent the different characteristics of the groups of particular concern such as social class, gender, ethnicity etc.
The approach taken in the EMF aims to embrace aspects of equal treatment, equality of opportunity and equality of outcome, which are assumed to be interconnected. It means having more real opportunities to achieve the things we want to achieve in life, having more independence and genuine choices available, being treated with dignity and respect and having more of a say about important decisions in our own lives.
Moreover, the ten domains of central and valuable freedoms refer to the human capabilities for flourishing. They aim at covering multiple domains in which inequality ‘matters’. The recurrent themes identified above could fit with the matrix.
Finally, combinations of characteristics can also be used to identify intersectional group concerns i.e. those that cut across different characteristics, which is in accordance with the R9 exposed below.
Figure 2: EMF Matrix
3
R9: Surveys should be designed to assess the links between various quality of‐life domains for each person, and this information should be used when designing policies in various fields
Different features of quality of life could have cumulative effects which could be mutually supportive or have consequences such as multiple disadvantages far exceed the sum of their individual effects. Education and social connections provide a good illustration of the first case, as better educated people have stronger social connections and social connections improve school performance within a community. On the other hand, being poor and sick has more significant consequences than would be shown from simply adding up the effect of being poor with the effects of ill‐health.
Ignoring the cumulative effect of multiple disadvantages leads to sub‐optimal policies. Therefore, progress can be achieved by developing information about the “joint distribution” of the most salient features of quality of life (such as hedonic experiences, health status, education, political voice) across all people. Moreover investigating causality and conditions which determine the state of societal well‐ being is further recommended.
R10: Statistical offices should provide the information needed to aggregate across quality‐of‐life dimensions, allowing the construction of different scalar indexes.
While assessing quality‐of‐life requires a plurality of indicators, there are strong demands to develop a single scalar measure. Several scalar measures of quality of life are possible, depending on the question addressed and the approach taken.
Examples National well‐being accounts, HDI, Happy Planet Index.
References
1 See, for example, the Taxonomy developed by the OECD in the context of the “Global Project on Measuring the Progress of Societies’ (www.oecd.org/progress/taxonomy).
4
2 ONS (2010), ‘There is more to life than GDP but how can we measure it?’, Economic & Labour Market Review, Vol4 No9. London: Office for National Statistics. 3 EHRC (2009), ‘Developing the Equality Measurement Framework: selecting the indicators’, London: Equality and Human Rights Commission.
5
A Round Table on Measurement of Economic Performance and Social Progress in Scotland Meeting 1, Technical Paper 1.3: Sustainable development and environment
1. Introduction: current and future well‐being
The concept of wealth is crucial. Indeed, as it is expressed in terms of stocks, it relates directly to the potential for future well‐being.
In its third part, the Sarkozy Commission (SC) emphasises that appropriate measures of well‐being can provide a current picture of the situation on that particular area but do not in themselves provide information about the potential for future well‐being or on sustainable development more generally. Whilst a new indicator set to measure well‐being must sit within an indicator set on sustainable development (and therefore include both current well‐being and future well‐being), the Government will need to set out its aims for each theme separately as the two are not synonymous. With regards to the current work of DEFRA/ONS, it seems that the focus sits on current well‐being indicators, while information about potential for future well‐being needs to be better introduced.
Equally, identifying where the two areas intersect will be an important task to achieve. On this latter point, as stressed out by Cassiers,1 a criticism that could be directed at the SC is the radical wainscoting it operates between the different parts. This is clearly mentioned from the beginning: the assessment of sustainability is complementary to the question of current well‐being or economic performance, and must be examined separately (p.19). Understanding properly the different components of both future and present well‐being is a necessary but not sufficient step. Indeed, an analysis of the links which lie between these different components is the next stage that is not tackled properly by the SC.
To illustrate this, Cassiers uses the following analogy: how to make some links between current individual preferences (I like driving my 4x4), the general well‐being at the same time (towns are polluted and suffer from traffic when you add up all these individual behaviours) and the future well‐ being (the future generations are threatened by the excess of CO2 generated by our current behaviour).
The intra‐generational well‐being issue has been examined in the previous annexes (the distribution issues, R4&R8). The intergenerational well‐being issue is the aim of this annexe. It can be summarised in the following words, from the Norwegian Policy oriented capital Framework2: “What is the (best) future welfare development we can expect to achieve given the present day starting point? This question draws the attention to what resources we have at our disposal today, and towards the issue whether we manage these in ways that make it possible to maintain and further develop the resource base over time”.
2. A Dashboard of Indicators
1 R11 (1st part): Sustainability assessment requires a well‐identified dashboard of indicators. The distinctive feature of the components of this dashboard should be that they are interpretable as variations of some underlying stocks
The approach advised by the SC as well as by the OECD to evaluate the potential for future well‐being is the so‐called “stock‐based” or “capital‐based” or “wealth‐based” approach to sustainability. The SC’s argument is that, ultimately, the sustainability issue is about how much stock of resources we leave for future generations/periods, and the question is whether we leave enough of these to maintain opportunity sets at least as large as the one we have inherited of.
A common misunderstanding of using the word capital or wealth is that it refers to the neo‐classical theory which traditionally restricts to understanding economic development through expansion of markets and increases in human‐made capital.3 However, the sustainable development perspective calls for a broader view of capital, which includes all what matters for future well‐being, and does not restrict to the future economic well‐being.
At this stage, one general recommendation can already be made. Indeed, the approach promoted by any new dashboard measuring progress towards sustainable development should be such that conventional economics fit with sustainable development, not the other way around. And this is unfortunately not what is suggested by the current focus on financial and produced assets, as well as human capital restricted to its productive potential, as demonstrated below.
The joint UNECE/OECD/Eurostat Working Group4 identifies five components of the Total National Wealth which have to be managed in a way that secures their maintenance over time: financial capital like stocks, bonds and currency deposits; produced capital like machinery, buildings, telecommunications and other types of infrastructure; natural capital in the form of natural resources, land and ecosystems providing services like waste absorption; human capital in the form of an educated and healthy workforce; and, finally, social capital in the form of functioning social networks and institutions.
However, the current measures of capital tend to focus on the first two while the latter three are subjected to national pilots or research (see Annex 1). They should therefore be completed by indicators relating to natural capital, human capital and social capital. The UK Government initiatives contributing to give a fuller picture of the total National wealth are examined below, starting with the environmental assets and ending with the social and human capital.
3. Environmental Stocks and environmental limits
The capital approach described above assumes a certain degree of substitutability between the assets. This substitutability is achievable through aggregation of heterogeneous types of capital in a same unit, namely the monetary unit. Clearly, such an assumption constitutes a weak sustainability approach. Such an approach admits that destruction of natural capital could be compensated through an increasing of another type of capital, e.g., improved knowledge (human capital) or green technologies (produced capital).5 Conversely, the strong approach of sustainability advocated by the Sustainable Development Commission (SDC) refuses substitutability between natural capitals and other types of capitals and raises
2 the question of ecological limits. The SDC therefore favours tracking variations of stocks separately, as suggested by R12.
R12: The environmental aspects of sustainability deserve a separate follow‐up based on a well‐chosen set of physical indicators. In particular there is a need for a clear indicator of our proximity to dangerous levels of environmental damage (such as associated with climate change or the depletion of fishing stocks).
Living within ecological limits is one of the five Sustainable Development Principles agreed by the four UK governments. This Principle sets out the simple fact that our natural resources are finite and should not be outstripped, in order to protect and maintain the wellbeing they provide. We would go further to define an environmental limit as:
The critical point(s) at which pressure on a natural resource or system creates unacceptable or irreversible change to the resource or system itself and to the detriment of the [humans and] organisms to which it provides a service.
An indicator of environmental wealth therefore must reflect the need to keep a safe operating distance away from such critical points. The UK carbon budgets provide the potential for including an indicator that not only measuring the degradation of environmental capital but also captures the notion of an environmental limit and a sense of how much of a critical environmental capital is left.
However, the maintenance of our ecosystems goes further beyond the carbon asset. Limits have to be set for a more comprehensive panel of natural assets, including air quality, water (addressing scarcity and quality), biodiversity and habitat (quality, quantity and connectivity), soil productivity, land use, etc.
One might think that the UK Environmental Satellite Accounts6 are a good starting point as they provide information on the environmental impact of UK economic activity (in particular on the emissions of pollutants) and on the importance of natural resources to the economy. Most data are provided in units of physical measurement (volume or mass), although some are in monetary units, where this is most relevant or the only available data. However, the issue of limits is not tackled by such accounts.
The work of The Economic of Ecosystems and Biodiversity (TEEB) and the UK National Ecosystem Assessment (UK NEA) 7 also offer the opportunity to develop an indicator measures the proximity we are to critical environmental limits. The UK National Ecosystem Assessment is the first analysis of the UK’s natural environment in terms of the benefits it provides to society and continuing economic prosperity.
Nevertheless, as one of the NEA’s latest reports assesses,8 the focus is on applying economic analysis techniques to ecosystem service assessments. Economic analysis of the role and value of ecosystem services begins through isolating their contribution to welfare bearing goods. This contribution is then valued through the application of a range of methods and techniques ranging from adjustments of
3 market prices to the measurement and valuation of preferences for non‐market goods. As a solution to the depletion of ecosystem assets and the avoidance of stock threshold and tipping point effects, safe minimum standards are adopted. They consist in as a precautionary approach to the management of a natural asset; i.e. economic decision making prevails unless a threshold threat is identified.
As the R11 (2nd part) underlines, A monetary index of sustainability has its place in a dashboard but, under the current state of the art, it should remain essentially focused on economic aspects of sustainability
However, the brief analysis of several initiatives in terms of assessing the value of ecosystems shows that economic valuation is the default rule. Other measures including physical or non‐utilitarian measures only complete the picture when the necessary assumptions allowing a proper economic valuation are not encountered. This suggests that the approach adopted is such that sustainable development fits with conventional economics, not the other way around. The attempts to measuring human and social capital confirm this trend, as showed below.
4. Beyond the productive potential of social and human wealth
Human Capital
Valuing the human capital stock is part of a ONS recent research project.9 The estimates of human capital stocks are derived by applying10 a lifetime labour income methodology to data from the UK Labour Force Survey. Using an annual discount rate of 3.5 per cent and assuming long term annual labour productivity growth of 2 per cent, the market value of the UK’s human capital stock was £16,750bn in the final quarter of 2009.
A potential application of this measure of human capital recognised by the paper is its use as a measure of future societal well‐being, ‘as the empirical work on economic growth suggests that countries with higher levels of human capital, other things being equal, have greater potential output and income in the future.’
However, the SDC’s main criticism of this approach is that it reduces human wealth to its productive capacities, leaving little space to other dimensions that have to be transmitted to the future generations, such as social cohesion, respect, altruism, culture. Once more, the focus is on competition rather than on cooperation. Furthermore, reducing human capital to a market value recalls the “arrogance of economics” highlighted by Fine and Green11, in assuming the superiority of its own methodologies over those of other disciplines.
Social Capital
The work undertaken by ONS12 to measuring social capital suffers from the same pitfall, as it focuses on social capital as an independent variable explaining the variations of economic growth, crime, health or well‐being. Nevertheless, capturing the complexities of the circuits of social capital through the formalised mathematical models of conventional econometrics is viewed as impossible by Fine and Green.
4 One might think that measuring social capital is a purely analytical task, without any political implications. However, as highlighted by the SC itself, what we measure shapes what we collectively strive to pursue, and what we pursue determines what we measure. Therefore, when measuring social capital, it is essential for the Government to determine what it pursues.
As argued by Fine and Green, economists either approach social capital in an attempt to draw all areas of social life into the conceptual framework of utility maximisation or reject the concept as imprecise and confounding of equations. Confirming this latter trend, Arrow urges the abandonment of the metaphor of capital as the essence of social networks is that they are built up for reasons other than their economic value.
The SDC goes beyond and concurs with Baron et al.13 view of social capital. Beyond the importance of its understanding and its policy implications, the social capital’s strongest claims are in challenging existing modes of thinking and strengthening the point of complex and multi‐dimensional investigation.
References 1 Cassiers, I., Thiry, G. (2009) ’Au delà du PIB : réconcilier ce qui compte et ce que l’on compte’, Regards Economiques, n°75. 2 Thorvald, M. (2007) ‘The Norwegian Model of Sustainable Development‐ A policy oriented capital framework for measurement and policies.’ Oslo: Finansdepartmentet. 3 UNECE/OECD/Eurostat Working Group (2008), Measuring Sustainable Development, p.5. New York and Geneva: United Nations. 4 Ibid. 5 Pillarisetti, J., Vvan den Berghe, J. (2008) ‘Sustainable Nations: what do aggregate indicators tell us?’, Tinbergen Institutes Discussion Paper, TI 2008‐012/3. 6 UK Environmental Satellite Accounts, available at www.statistics.gov.uk/STATBASE/Product.asp?vlnk=3698 7 See www.teebweb.org/ (TEEB) and http://uknea.unep‐wcmc.org/ (UK NEA) 8 CSERGE, Bateman, I. J. et al. (2010)’ Economic Analysis for Ecosystem Service Assessments’. London: Centre for Social and Economic Research on the Global Environment. 9 ONS (2010),’ Measuring the UK’s Human Capital Stock’, London: Office for National Statistics. 10 Fine, B. and Green, F, ‘Economics, Social Capital, and the Colonization of the Social Sciences’ in Baron, S., Field, J. and Schuller, T. (2000) eds. Social Capital: Critical Perspectives, Ch1. Oxford: Oxford University. 11 Ibid. 12 ONS (2005), ‘The measurement of social capital in the UK’, London: Office for National Statistics; ONS (2001), ‘Social Capital: a review of litterature’, London: Office for National Statistics. 13 Baron, S., Field, J. and Schuller, T. (2000) eds. Social Capital: Critical Perspectives,Ch1.Oxford: Oxford University.
5
A Round Table on Measurement of Economic Performance and Social Progress in Scotland
Meeting 1, Technical Paper 2: Monitoring Performance: A review of the National Performance Framework
Introduction All activity of Government in Scotland is intended to help achieve a Purpose of Government, namely ‘to focus Government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth’. Progress in achieving this Purpose is measured by the National Performance Framework (“the Framework”).
The inspiration for the Scottish Government’s framework comes from the ‘Virginia Model’,1 a performance model developed and used in the State of Virginia, USA. It is based on ‘outcomes’ (i.e. end results) rather than ‘outputs’ (i.e. specific actions undertaken). In Scotland, policy in some areas (e.g. health) has for many years had an outcome focus. However, this is the first time that such an approach has been applied across all areas of Government.
In this paper we set out the Commission’s view on the alignment of the Framework with sustainable development and its effectiveness in supporting moves towards a more sustainable Scotland. The analysis draws on work undertaken for the Commission’s annual assessments of Government performance.
Analysis of the National Performance Framework: Overall Overall the Commission believes the Framework provides greater clarity about Government delivery and greater emphasis on performance against outcomes. Taking each element of the framework in turn we would make the following comments.
The Purpose The central Purpose, underpinned by the Framework, gives greater coherence to policy and strategy across Government.
The Purpose of Government is potentially compatible with sustainable development but this is dependent on how it is applied. Stakeholders2 have commented that in practice it has been used to support actions that could be deemed sustainable but also those that could not.
Stakeholders also felt there was a lack of clarity over whether the core of the Purpose is ‘all of Scotland to flourish’ or ‘sustainable economic growth’. Framing the Scottish Government’s Purpose around the vision of
1 www.VAperforms.virginia.gov 2 As part of the process of drafting annual assessments, SDC Scotland seeks views of stakeholders through on‐line surveys and in‐depth group discussion meetings
1 a ‘flourishing Scotland’ remains a progressive commitment. However, ministers, officials and government publications have tended to define the Purpose as ‘sustainable economic growth’. While this is a step forward from the previous administration’s commitment to ‘economic growth’, the Commission sees this as evidence that the Scottish Government has failed to secure common agreement amongst ministers, officials and key stakeholders on what a sustainable Scotland means.
The National Performance Framework The Framework has helped create a clearer structure for Government. In particular the five Strategic Objectives (e.g. Greener, Smarter, etc) have helped ensure new strategies and plans better consider economic, social and environmental impacts.
The Framework has also influenced the work of Government agencies and NDPBs. In general it has helped set their work within a broader context. Organisations with a narrow policy focus now better consider the wider impacts of their work. That being said, some stakeholders are concerned that there has not been a uniform adoption of this approach. There is a perception that environmentally focused NDPBs have incorporated economic considerations more than economy focused bodies have incorporated environmental considerations.
Despite the Framework, there are as yet few examples in the public sector of collaborative actions leading to the delivery of shared outcomes by public bodies. One positive example is the Central Scotland Green Network which is being taken forward jointly by Scottish Enterprise and Health Scotland working with Scottish Natural Heritage, Forestry Commission Scotland and local government. We believe government should encourage such collaborative work.
We undertook a full review of the Framework and its individual indicators in our Second (2008) Assessment. This is set out below. However, our overall view is, then as now, that the Framework gives a clearer direction to Government policy than was previously the case. Improvements can be made in terms of the breadth of indicators and their alignment with the most important outcomes of policy. In particular we believe that GDP has serious limitations as an indicator of economic wellbeing. This is a limitation also highlighted by the Government’s own Council of Economic Advisers.
NPF’s practical impact:
• The Framework has led to closer working between Scottish Government researchers/statisticians and policy staff. However, there is still not a sense that policy is consistently driven by evidence of what is required to address key challenges and deliver desired outcomes. For example in transport the evidence of negative trends does not appear to be leading to a fundamental change in direction • The Framework includes indicators and targets that are affected by policy at the UK and European level over which the Scottish Government has little control. For other areas where the Scottish Government does hold most of the levers, such as river quality, indicators are not included in the Framework. The question therefore is whether the Scottish Government views the Framework as providing a picture of sustainability in Scotland or as measuring the direct performance of the administration • There needs to be better links between the targets and indicators in the Framework and the allocation of budget and resources across Government portfolios. It is not always clear that negative trends as shown by indicators and other evidence are driving spending decisions or the rethinking of the approach to an issue.
2
The SNP’s 2007 Manifesto noted “The SNP in government will produce an annual ‘Health of the Nation’ report, bringing together key targets on crime, health, education, the environment, opportunity, social mobility, life expectancy, business start‐ups and the number of Scots who are economically active. We must be in a position to judge Scotland’s progress, and be able to link what we know about the economy and society to tailor new policies, ensuring that no section of Scotland is left behind.”
Though the Government provides regularly updated and well presented information on performance through the ‘Scotland Performs’ web‐pages, this annual report has not materialised. The SDC believes such a report, coupled with associated debate in Parliament, would better highlight what progress is being made on the Purpose and across the Framework indicators. If properly publicised, this would also increase public understanding of Government progress towards sustainability. Most importantly it would give Scottish Ministers the opportunity to set out how they are seeking to reconcile the tensions between different aspects of Government policy in its drive to deliver sustainable economic growth and a flourishing Scotland. In turn Parliament would have a clearer opportunity to hold Government to account on this critical issue.
Detailed review of the National Performance Framework Set out below are comments on each of the elements of the Framework.
Purpose targets The Spending Review sets out nine Purpose targets to guide delivery. These are set out and appraised in Table 1 below. Each indicator/target is reviewed in terms of its ‘SMARTness’.3 A capital letter means that the indicator/target fully meets that aspect of SMARTness; a lower case letter means there is a partial meeting of the criteria.
Table 1: Purpose Targets and SMART analysis
Economic Growth (GDP) SMART Comment Analysis To raise the GDP growth rate to the UK SMarT Clear SMART targets although as discussed below level by 2011 GDP is not an indicator of the overall sustainability of the Scottish economy. SMarT To match the growth rate of small As it is a relative measure could be achieved by a independent EU countries by 2017 decline in growth in the UK/EU rather than by an increase here Productivity To rank in the top quartile for SmaRT The Commission would support a target that productivity amongst our key trading focuses on productivity improvements based on partners in the OECD by 2017 enhanced resource use efficiency Participation To maintain our position on labour SMArT market participation as the top performing country in the UK and to close the gap with the top 5 OECD economies by 2017 Population To match average European (EU15) SMarT The secondary objective of increased life
3 SMART stands for “Specific, Measurable, Appropriate, Realistic, Timed”
3 population growth over the period from expectancy is not SMART as a clear target has not 2007 to 2017, supported by increased been set healthy life expectancy in Scotland over this period Solidarity Increase overall income and the SMArT proportion of income earned by the three lowest income deciles as a group by 2017 Cohesion Narrow the gap in participation between sMaRT Not clear by how much the Government wishes to Scotland’s best and worst performing narrow the gap between best and worst regions by 2017 performing regions Sustainability Reduce emissions over the period to MarT Long term target quantified but 2011 target should 2011 be for a specified amount of emission reduction
Reduce emissions by 80% by 2050 SMarT
Taken as a whole there is a good degree of SMARTness in the purpose targets. The only non‐specific element relates to the near term goal for climate change. We also believe it is important that productivity is defined to include resource productivity as a key element in pursuing sustainable economic growth.
Regarding GDP, the Commission accepts that it is the most widely used measure of economic progress and thus one that offers the ability to compare Scotland with other nations. However, we view GDP as an incomplete measure of economic development as it fails to distinguish between expenditure that contributes to a more sustainable society (e.g. spending on improvements to the housing stock) and expenditure that is the result of unsustainable outcomes (e.g. car accidents). As a result, the focus on GDP may not provide an indication of whether or not sustainable economic growth has been attained.
Strategic Objectives The Government’s Strategic Objectives are broadly in line with the principles of sustainable development. The attempt within the Spending Review to integrate action across the five Strategic Objectives is also welcome, although there is not a consistent integration of all Objectives into policy in every area.
National outcomes The national outcomes are, as defined by the Government, broadly consistent with an integrated approach to economic, social and environmental issues. As with the Purpose targets there is potential for conflict between different outcomes and again it is important that Government establishes mechanisms to monitor and address these tensions.
It is also the case that most national outcomes are actually ‘compound’ outcomes. For example ‘Our young people are successful learners, confident individuals, effective contributors and responsible citizens’ actually combines a number of separate outcomes. This again may make assessment of progress more difficult to monitor.
4 National Indicators Using the existing Scottish and UK sustainable development indicator sets as a guide there are a range of important issues not addressed by the national indicators and targets. These are:
• Workless households (population living in workless households (a) children (b) working age) • Households living in Fuel Poverty • Air quality • Road Accidents (number of people killed or seriously injured) • River quality (Length of poor and seriously polluted rivers) • Water resource use (total abstractions and leakage losses) • Environmental Equality (populations living in areas with, in relative terms, the least favourable environmental conditions).
Further important sustainable development issues not included in the Framework are:
• Active community participation/volunteering • Voting/Participation in Decision‐Making • Millennium Development Goals.
The Commission understands that there is a need to limit the size of the Framework. However, the Framework is intended to be the lens through which Government performance is viewed. As such, it is suggested that in any future iteration of the Framework, consideration is given to the potential for inclusion of indicators addressing the issues noted above.
It is also essential that both indicators and targets address each sustainable development issue directly if they are to be fully useful in appraising progress towards sustainable development.
Table 2 summarises our analysis of the extent to which each of the 45 indicators and targets can be considered SMART.4 The overall analysis shows that many current indicators are only partially SMART.
Table 2: Summary of the ‘SMARTness ‘of national indicators and targets
Characteristic of indicators and targets Number of Indicators Fully SMART 19 Has four of the five characteristics of a SMART 19 indicator/target Has three of the five characteristics of a SMART 6 indicator/target Has two of the five characteristics of a SMART 0 indicator/target Has one of the five characteristics of a SMART 1 indicator/target
4 The Commission is very grateful to Ian Thompson of Strathclyde University for his wider contribution to this Chapter.
5 For example, in energy, the fundamental sustainability objectives are to cut GHG emissions, reduce energy consumption, secure supply and address fuel poverty and affordability. The Government’s target, to ensure that 50% of electricity generated in Scotland to come from renewable sources by 2020 (interim target of 31% by 2011) is Specific, Measurable, Realistic and Timed. It is appropriate in one sense in that it is aligned with the Government’s renewable energy target and achievement of the target will contribute to sustainable energy. But it does not encapsulate fully the desired sustainable development outcome – the target could be met but overall greenhouse gas emissions from electricity could still rise based on the other elements of the overall energy mix. More appropriate targets or indicators would relate to overall energy use or greenhouse gas emissions.
Other examples of indicators and targets that do not meet the criteria outlined above are:
• The indicator to increase the proportion of journeys to work made by public or active transport does not tell us whether the overall usage of private cars for journeys is in decline • The target to reduce the number of Scottish public bodies by 25% by 2011 does not illustrate directly whether the Government is achieving its desired outcomes of greater public sector efficiency and more joined‐up service provision • The target to reduce the proportion of driver journeys delayed due to traffic congestion does not inform us as to whether this has been achieved through enhancement of public transport alternatives or by increased road building • The target to reduce to 1.32 million tonnes of waste sent to landfill by 2010 does not consider whether total waste arisings have been reduced, or whether the waste has been diverted from landfill to the most sustainable alternative option.
We would therefore recommend that the Government, in future revisions of the National Performance Framework, considers the revision of these indicators and targets and the inclusion of indicators/targets that cover the issues identified above.
6
A Round Table on Measurement of Economic Performance and Social Progress in Scotland
Meeting 2, Technical Paper 1: A review of the National Performance Framework in light of the Stiglitz Report Recommendations
Introduction
The aim of this paper is to review the structure of the Scottish National Performance Framework (NPF) against the 12 recommendations set out in the Stiglitz Report,1 as reviewed at the Round‐Table’s first meeting. The full NPF is set out in Annexe One of this paper.
The analysis focuses on the “high level Purpose targets” relating to the Purpose. We see the NPF, and in particular it’s nine high level purpose targets as a basic dashboard. Taken together this set of targets are intended to help measure progress towards the Scottish Government’s “Single Purpose” which is:
To focus government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth.
The Scottish Government describes these Purpose targets as “specific benchmarks for sustainable economic growth [which can also] ensure that growth is shared by all of Scotland.” The Government also notes that “Together, these targets help define the characteristics of the economic growth that we want to see – a growth that is sustainable, cohesive and which builds solidarity in all of Scotland’s regions. They also set a whole new level of ambition for economic performance, not only over the lifetime of this term of the Parliament, but for the long term.” 2
The nine Purpose targets Indicator Target Economic Growth (GDP) • To raise the GDP growth rate to the UK level by 2011 • To match the growth rate of small independent EU countries by 2017 Productivity • To rank in the top quartile for productivity amongst our key trading partners in the OECD by 2017 Participation • To maintain our position on labour market participation as the top performing country in the UK and to close the gap with the top five OECD economies by 2017 Population • To match average European (EU15) population growth over the period from 2007 to 2017, supported by increased healthy life expectancy in Scotland over this period Solidarity • To increase overall income and the proportion of income earned by the three lowest income deciles as a group by 2017 Cohesion • To narrow the gap in participation between Scotland’s best and worst performing
1 Also known as the Stiglitz‐Sen‐Fitoussi Report, or more formally the report of the Commission on the Measurement of Economic Performance and Social Progress. See www.stiglitz‐sen‐fitoussi.fr 2 Scottish Government, 2007, Comprehensive Spending Review, Chapter 8
1 regions by 2017 Sustainability • To reduce emissions over the period to 2011 • To reduce emissions by 80 per cent by 2050
Indeed, the idea of reporting through a dashboard of indicators which can effectively convey a high level measure of progress is emphasised and supported by the Stiglitz Report. Inevitably a dashboard cannot tell the whole story, so the high‐level indicators must also be disaggregated to an appropriate level to show, for example, the distributional effect across social grade, ethnicity, age, level of deprivation, gender, income, and whether the social and environmental footprint is positive or negative.
We would argue that both a dashboard and a full indicator set (Scotland’s National Performance Framework also has 15 National Outcomes and 45 National Indicators and Targets; here we refer to the latter as National Indicators) are necessary to allow effective performance management, but that one can be a subset of the other. Therefore, our analysis will focus on the high level targets (called the “dashboard” in the following paper). However, references to the national outcomes and the national indicators and targets will be made to complete the analysis when necessary.
Moreover, through this analysis, Amartya Sen’s capabilities approach will be emphasised. Indeed, the Scottish Government’s Purpose has parallels to this, containing the goal of “flourishing”. Sen insists that the key questions we should be asking are to do with how well people are able to function in any context (e.g. Are they well‐nourished? Can they take part in the life of community? Can they find worthwhile jobs?).3 From this perspective, it is worth highlighting that Scotland’s dashboard relies on the assumption that economic growth is the key driver to ensure capabilities for all of Scotland to flourish. However, this correlation is not always obvious as the following analysis will show.
Another relevant question is whether it is sufficient that the objective is to create “opportunities for” flourishing, rather than flourishing itself.4
As part of this paper we will also examine carefully the sustainability subset of the dashboard. It needs to be emphasised that the SDC departs from the Stiglitz Report in how we would recommend measuring and reporting on sustainability. Our view is that sustainability requires a separate and integrated approach. It means that environmental, social and economic objectives are mutually supportive, without one gaining the upper hand on the other. But it also means that simply using indicators to measure the current situation is insufficient. Instead sustainability monitoring requires also taking future well‐being into account.
The following sections will reorder the 12 Stiglitz Recommendations into 7 challenges that have to be faced when measuring societal progress. We will assess the NPF with regard to these challenges and suggest further developments that have to be made.
3 Sen, Armatya (1998) ‘The living standard’. Chapter 16 in Crocker, D. And T. Linden (eds) (1998) The Ethics of Consumption. New York: Rowman and Littlefield, 287‐311. 4 See Annexe 2 of this paper for more background on Capabilities for flourishing.
2 Recommendations
From production to well‐being
R1: When evaluating material well‐being, look at income and consumption rather than production
This recommendation has its roots in the general consideration that, if we take the problem of measuring societal progress seriously, then our focus should shift from focusing on measuring economic production to wider concerns on well‐being. In other words, GDP is not the relevant measure to assess what really matters for people, and the focus should be on appropriate measures of well‐being. The focus has to be on human ends rather than on means to achieve it, as suggested by the capabilities approach. Material well‐being is recognised by the Stiglitz Report as one of the central capabilities that can be measured through consumption and income.
The dashboard is not in line with this capabilities approach as it focuses on means to deliver the desirable outcomes rather than on human ends. The economic growth and productivity purposes are assumed to provide a range of outcomes including higher quality public services, better opportunities for people, widely shared employment, and high quality environment.
However, the assumption that economic growth effectively delivers these outcomes is to be questioned. Indeed, as underlined in Prosperity without Growth, economic growth in its current form is unsustainable as burgeoning resource consumption and rising environmental costs are compounding profound disparities in social well‐being. This is also shown by the current status of Scottish performance, namely a decline in economic growth at the same time as an improvement in the sustainability target (CO2 emissions).
Moreover, Scotland’s dashboard still takes the GDP as a measure even if its limits as a good indicator of economic performance have been clearly recognised, notably by the Stiglitz report (First Part: Classical GDP issues), mainly because it does not show how growth is created. Indeed, destruction, crime and disease improve the GDP as it generates economic activity. And it led R. Kennedy to state that “GDP measures everything, in short, except that which makes life worthwhile.”
Finally, even if the dashboard still focuses on production rather than on well‐being, it partially respects the recommendation of looking at material well‐being as the solidarity purpose looks at increasing overall income and the participation purpose looks at increasing participation on labour market. However, with the capabilities approach in mind, it should be emphasised that focusing on increasing income and increasing labour market participation gives value to materialistic outcomes rather than to qualitative outcomes such as a decent level of material living standards or meaningful employment.
Summary Conclusion: Within a dashboard that focuses on well‐being, other measures than GDP should be given greater priority to assess the material living standard component.
3 The household perspective ☺
R2: Emphasise the household perspective
By explicitly referring to how the Gross Household Disposable Income increases over years, the solidarity purpose embeds the household perspective. However, the Stiglitz Report goes one step further and recommends looking at the household adjusted disposable income. It implies taking into account the value of social transfers in kind that households receive from government. Since the UK Government’s Atkinson Review,5 this calculation has been done by assigning monetary values to outputs delivered by the government (e.g. number of care services provided, number of students in a school) rather than inputs, in order to encapsulate changes in productivity in the public sector.
However, if the purpose of measuring services provided in kind is to emphasise the role of the government in fostering capabilities and sources of human flourishing, then neither an output nor an input measure is appropriate. A focus on outcomes delivered by the government is suitable. In that perspective, the National Indicators provide a good framework as they aim at improving public sector efficiency, people’s perception of quality of public services, quality of healthcare experience.
Summary Conclusion: When measuring household income, it needs to be decided whether it is appropriate to include the government services as part of the material living standard component of well‐being or whether they deserve a separate approach based on outcomes.
The distribution issue
R4: Give more prominence to the distribution of income, consumption and wealth
R8: Quality‐of‐life indicators in all the dimensions they cover should assess inequalities in a comprehensive way.
Scotland’s solidarity purpose target clearly focuses on reducing income inequalities through increasing both overall income, and income of the three lowest income deciles, whereas the participation and cohesion purpose targets emphasise the participation in the labour market (at the UK & regional level) as a means to support a more equitable distribution of the benefits of growth. These purpose targets are summarised in the strategic objective wealthier & fairer.
This approach assumes that inequalities should be tackled through increasing growth. However, the automatic link between wealthier and fairer is far from being obvious. Indeed, as demonstrated by many authors as well as by the World Bank,6 there is little or no evidence in favour of the Kuznets’s hypothesis which states that as economy grows, levels of inequalities fall. Therefore, if the ultimate
5 The Atkinson Review was a review of the measurement of UK government output and productivity. See www.statistics.gov.uk/cci/article.asp?id=1144 6 Stymne and Jackson 2000, Goodman and Oldfield 2004, FT, 2006. China’s poorest worse off after boom. Financial Times online: http://www.ft.com/cms/s/e28495ce‐7988‐11db‐b257‐ 0000779e2340,dwp_uuid¼9c33700c‐4c86‐11da‐89df‐0000779e2340.html [Accessed 20 April 2007].
4 purpose of the Scottish Government is to tackle significant inequalities, the means to ensure it should be questioned more rigorously and better measures adopted.
It is worth highlighting that the labour market is often seen as the panacea to tackle inequalities. This tends to lead to a focus on inequalities of income, and fails to fit with the multi‐dimensional approach recommended by the Stiglitz Report. Indeed, this multi‐dimensional approach does not appear in Scotland’s dashboard. It is only included in the National Outcomes (“tackle the significant inequalities”; however it does not refer only to income inequalities) and partially in the National Indicators (“reducing number of working age people with severe literacy and numeracy problems”; this implicitly refers to inequalities in education) which have clearly less impact on decision making than the purpose targets.
At this stage, it is worth highlighting that work undertaken through the Equality and Human Right’s Commission’s Equality Measurement Framework7 provides a good illustration of the Stiglitz Recommendations, as it is based on the capabilities approach to assess inequalities in all dimensions of well‐being.
Finally, as the Government’s Purpose consists in providing opportunities for all of Scotland to flourish, and as unequal societies are proved to undermine this purpose (see Wilkinson and Pickett, 2009), tackling systemic inequalities is vital.
Summary Conclusion: Measuring inequalities in the light of the Stiglitz recommendations implies recognising that relative income is more important than absolute income. In this perspective, measuring loss of welfare triggered by inequalities in all dimensions of quality of life should be undertaken.
The non‐market activities issue
R5: Broaden income measures to non‐market activities
The purpose of the recommendation starts from the acknowledgment that many services that households produce for themselves are not recognised in official income and production measures, yet they constitute an important aspect of economic activity. The same is also true for activities of the third sector. A solution to a better recognition of the household and third sectors is to broaden income measures to include non‐market activities through the use of satellite accounts.
Scotland’s dashboard does not currently measure non‐market activities, so fails the tests of the Stiglitz Report. However, the solidarity purpose could at least partly contribute to a better recognition of the third sector, since it encourages changes in the income differential between the lowest and highest paid occupations. Usually, as the third sector is labour intensive (see below), increases in productivity and thus in wages will not be significant, increasing the gap between the wages earned in the market economy and the third sector economy.
7 See Annexe 3 provided by the EHRC for the Round‐Table’s 2nd meeting.
5 Furthermore, by focusing on labour productivity (as GDP per hour worked), the dashboard tends to restrict the economic activity to its market side and therefore ignore the household and third sectors. However, the distinct features of the household and the third sector is that they are not‐for‐profit; employment of people is primarily on a voluntary basis; and, the personal and social services provided are labour intensive.
In other words, this sector is unproductive by conventional standards (it is recognised by economists as the Baumol’s “disease”).8 The quality of its output is more dependent on human interaction and could be undermined by the pursuit of productivity. Moreover, relentless pursuit of labour productivity often hits the meaningful work ‐ the people’s capabilities for flourishing ‐ and the positive contribution to community that these sectors provide.
Secondly, by focusing on increasing labour market participation, the dashboard rewards competitive and materialistic outcomes and shift the balance of incentives away from those engaged in social services and voluntary work; even if these services are more inclined to deliver the capabilities for human flourishing than for example a simplistic “supermarket economy”.
The only mention of these non‐market activities in the NPF lies in the National Indicators, one of which aims at increasing the turnover of the social economy. However, the turnover refers to materialistic outcomes expressed in monetary terms and thus overshadows the direct contribution to well‐being of such activities, and the human interaction which are a more fundamental characteristic.
Summary Conclusion: Measuring non‐market activities (third sector and household activity) is part of the process of recognising a more rounded set of economic activities and “goods”. However, the specific features that characterise this sector can only be measured if the direct contribution to well‐being of these activities rather than the material output they generate is emphasised.
Subjective/objective measures
R6: Measures of subjective well‐being provide key information about people’s quality of life. Statistical offices should incorporate questions to capture people’s life evaluations, hedonic experiences and priorities in their own surveys.
R7: Quality of life also depends on people’s objective conditions and opportunities. Steps should be taken to improve measures of people’s health, education, personal activities, political voice, social connections, environmental conditions and insecurity.
These recommendations implicitly refer to the Amartya Sen’s Capabilities approach (see Annexe 2). This approach relies on the assumption that the ultimate goal of politics is respecting the individual’s ability to pursue and realise the goals that he or she values.
This approach has its roots in the philosophical notion of social justice and conceives a person’s life as a combination of various observable achievements of each person (functionings), and assesses Quality of
8 Jackson, 2009, Prosperity without Growth, p.131
6 Life (QoL) in terms of a person’s freedom to choose among the various combinations of these functionings (capabilities). While subjective states may be considered as being part of the set of capabilities taken into account, the capability approach emphasises that people may adapt to their life‐ circumstances. This need for adaptation makes subjective feelings inadequate as the sole metric for assessing QoL and therefore objective measures are also required.
While Scotland’s dashboard only contains objective measures, its National Indicators complete the picture with numerous subjective measures (e.g. people’s perception of quality of public services delivered, percentage of adults who rate their neighbourhood as a good place to live, perception of the crime rate, perception of Scotland’s reputation).
However, further work on the dashboard would improve how it measures and reports on quality of life and capabilities.
Dealing specifically with Stiglitz’ R8 to include a subjective measure, a recommended approach is to include an index of people’s overall life satisfaction within the dashboard.
On R9, the objective measures in Scotland’s dashboard refer mostly to people’s set of opportunities within the economic environment (economic growth, productivity, participation, solidarity) while other freedoms are ignored (e.g. participation in political decision‐making, joining organisations at work and in society).
Furthermore, indicators of people’s objective conditions within the dashboard are limited (i.e. description of individuals’ states such as life expectancy, education attainment). However, objective conditions are extensively included in the five strategic objectives, the National Outcomes and the National Indicators. These last two also contain references to people’s set of opportunities which might be more appropriate and specific than the ones contained in the dashboard (life chances for children, more and better employment opportunities, increasing business start‐up rate).
Summary Conclusion: A NPF should be such that it includes at least a general subjective measure, the objective opportunities are not restricted to the economic environment but include other freedoms and the indicators describe the state of objective conditions within the nation rather than the means to reach them.
Cross‐cutting issues: linkage, aggregation
R9: Surveys should be designed to assess the links between various quality of‐life domains for each person, and this information should be used when designing policies in various fields.
R10: Statistical offices should provide the information needed to aggregate across quality‐of‐life dimensions, allowing the construction of different scalar indexes.
The obvious implication of the R9 lies in how Scotland needs to better understand the causality and conditions which determine the state of societal well‐being. The current dashboard assumes some strong links between its Purpose (opportunities for all of Scotland to flourish) and the means to reach this Purpose (increasing sustainable growth). This is also true for the several purpose targets e.g. securing a high quality environment through economic growth. However, those links are not always obvious so need to be explored more carefully, with the empirical research supporting the policy process.
7 This recommendation is also important for the overall coherence of the dashboard. The NPF is very large and eclectic, and a concern is over whether its effectiveness is diminished because of its heterogeneity. The concern is that there is a lack of information or interpretation highlighting causal links between the indicators, their relationship to Purpose, and/or hierarchies amongst the indicators used.
At this stage, it is worthwhile mentioning that the DPSIR framework has been used by some countries9 to present indicators in a comprehensive way. DPSIR stands for driving forces (D), pressure (P), state (S), impact (I) and response (R). This approach underlines the possible links between the social, environmental and economic components of development and helps to understand the interactions between the issues dealt.
Concerning, the R10, the most important aggregate index appearing in the NPF are the GDP (purpose target) and the ecological footprint (a National Indicator). Such indicators circumvent the problem caused by the richness of dashboards by synthesising the abundant and purportedly relevant information into a single number. However, their role should be limited to an easily understandable invitation at looking at the various components. With regard to the GDP, its ability to accurately measure and portray an aggregation of quality of life factors has been seriously questioned in the first section. The ecological footprint as an aggregate index of sustainability dimensions is analysed in the next section.
Summary Conclusion: Comprehensiveness of the NPF should be ensured through investigating the link between the several indicators/outcomes and through the elaboration/selection of relevant aggregate indexes as a headline which allow an overview of several components.
The wealth issue
R3: Consider income and consumption jointly with wealth. Consumption possibilities over time (= one component of well‐being) depends on both income and wealth.
R11: Sustainability assessment requires a well‐identified dashboard of indicators. The distinctive feature of the components of this dashboard should be that they are interpretable as variations of some underlying stocks. A monetary index of sustainability has its place in such a dashboard, but under the current state of the art, it should remain essentially focused on economic aspects of sustainability.
R12: The environmental aspects of sustainability deserve a separate follow‐up based on a well‐chosen set of physical indicators. In particular there is a need for a clear indicator of our proximity to dangerous levels of environmental damage (such as associated with climate change or the depletion of fishing stocks).
As regards R3, the aim is allow us to better assess people’s material living standards and the sustainability (i.e. future condition) of these living standards. As consumption depends on income and
9 Belgium (http://www.plan.be/Desc.php?lang=en&TM=60&IS=57), The Netherlands (http://www.pbl.nl/en/publications/2009/Sustainability‐Monitor‐for‐the‐Netherlands‐2009.html). DPSIR has also been adopted by the European Environment Agency.
8 wealth, such an assessment requires an indicator of households’ financial wealth. Scotland’s dashboard clearly does not contain such an indicator as the solidarity purpose only aims at increasing overall income without any reference to wealth. Neither the National Outcomes nor the National Indicators refer to a household wealth indicator.
Firstly, it is important to emphasise the importance of consistency and taking an integrated approach required by sustainable development principles. In the NPF, and in particular its dashboard, the economic objective seems to gain upper hand over the other objectives. For example, it is stated that Scotland's environment and natural heritage is a key asset and source of competitive advantage (sustainability purpose) and that a supply of education and skills that is both responsive to, and aligned with, actions to boost demand for skills is an action to be taken to influence productivity (productivity purpose). Although the environment and social systems do rightly contribute significantly to well‐being through the economy, they also contribute to well‐being directly; something which is not reflected in the dashboard.
Secondly, whereas the sustainability purpose refers to a key environmental asset (greenhouse gas emissions) in physical terms (tonnes), and it does not tell how far we are from the environmental damage that would occur if a limit was breached. Critically, the tonnage of CO2 emissions is not a very informative number if we do not have some reference for how many tonnes can be emitted each year without breaching recognised limits (a better indicator could now be developed by Scotland that references agreed carbon budgets and the cumulative reduction Scotland has committed to as part of its statutory target to reduce emissions to 80% of 1990 levels by 2050).
Thirdly, the sustainability target only considers climate change. While this is an important issue other key environmental assets such as biodiversity are not measured. This lack might be remedied through adjusting National Indicators which measure to biodiversity, protected nature sites and ecological footprint. However, there is an obvious lack of comprehensiveness in the choice of these measures, and they do not embed the notion of environmental limits, except for the ecological footprint.
On the issue of measuring ecological footprint, the Stiglitz report (p. 70) highlights that as a composite index, its role in a dashboard should be restricted to an invitation to look more closely at various components and to give us a general picture of how far we are from sustainable targets.
This means that a comprehensive composite index is required so that current and predicted future environmental performance ‐ and their impacts on well‐being – is better understood. We recommend the use of a hybrid approach to deal with the complexity of measuring sustainability, namely a limited number of indicators – a “micro”dashboard –based on a clear notion of what sustainability means.
The relevant test for whether the dashboard accords with the Stiglitz Report recommendations and effectively measures sustainability could be summarised as follows:
assuming we have been able to assess what is the current level of well‐being, the question is whether the continuation of present trends does or does not allow it to be maintained.
This question draws attention to what resources we have at our disposal today, and onto how we manage these in ways that make it possible to maintain and further develop this resource over time.
9 On that point, the NPF fails Stiglitz’ R11 because the current sustainability target (made up of two climate change targets) is made up of one single indicator which does not reflect actual limits or stocks, and which excludes any other type of stocks which underpin human well‐being, namely financial, produced, human, and social capital (as classified by the OECD).10
On this perspective, the Scotland’s Sustainable Development Indicators11 better followed the Stiglitz recommendations as they measure several assets which underpin human well‐being (economic, human,12 social, natural). Concerning the environment assets, they are reported in physical terms. Moreover, both of them (marine, river quality) explicitly set a target that has to be reached to avoid environmental damage.
Summary Conclusion: The NPF should assess the sustainability of the current well‐being through a wide range of indicators which assess whether the continuation of present trends does or does not allow it to be maintained. It requires an extensive measure of the resources underpinning human well‐being, including economic, social, environmental stocks.
Conclusion
An important introductory note is that the National Performance Framework suffers from a lack of homogeneity. Even if the Government’s Purpose is quite clear, the linkage between the dashboard (high level targets) and both the National Outcomes and the National Indicators and Targets are unfortunately not such that one could be considered as the sub‐set of the other.
Reviewing the NPF against Sen’s Capabilities approach, it can be seen that the NPF has the potential to follow this approach because it already seeks to embed as its main purpose the end goal, namely “opportunities for all of Scotland to flourish”. Opportunities could be taken as equivalent of providing “abilities” or “capabilities”. However, this potential could be undermined by the fact that the dashboard focuses on the means rather than on this end, because of the prevalence of high level targets linked to measuring production and GDP.
In its annual assessments, the SDC has been critical of the Scottish Government’s focus on sustainable economic growth rather than the end goal of a flourishing Scotland. Perhaps the Government’s reluctance to focus on flourishing stems partly from its lack of definition. This is maybe demonstrated by the fact that its targets (in what we refer to as its dashboard) are primarily focused on economic factors.
Economic growth is indeed taken as the panacea to ensure flourishing. The main message of the dashboard could be summarised as follows:
10 UNECE/OECD/Eurostat Working Group (2008), Measuring Sustainable Development, p.5. New York and Geneva: United Nations. 11 These indicators were published in June 2006 to follow Scotland’s 2005 Sustainable Development Strategy Choosing Our Future. Their use continued up to February 2009, but are now not reported against. See www.scotland.gov.uk/Topics/Environment/SustainableDevelopment/measuring‐progress/background 12 An assessment of Human capital has been set up by the ONS in autumn 2010 (ONS (2010),’ Measuring the UK’s Human Capital Stock’, London: Office for National Statistics). However, human capital is only reported in monetary terms and therefore only refers to the economic aspects of sustainability. The Scottish Human Capital Indicators shows some similarities with the Canadian measurement of human capital sustainability, that is more in accordance with the integrated approach required by SD (CSLS, The development of indicators for Human Capital Sustainability, McGill University, Montreal, June 1‐3, 2001).
10 As far as we have economic growth, which supposes a higher productivity, then income for all could be increased and shared equally among the deciles (solidarity) and the regions (cohesion). This implies however a growth in population as well as an increasing participation of people on the labour market.
However, it is increasingly recognised and understood that economic growth and well‐being do not necessarily go hand in hand.13 Therefore, if we acknowledge that economic growth and its derivatives do not automatically deliver Scotland’s stated Purpose, a relevant question is whether they still deserve a central place in a dashboard?
On the other hand, if we assume that economic growth is still an appropriate measure ‐ e.g. to generate greater and more widely shared employment or to change the income differential between the lowest and highest paid occupations ‐ then, we have ask if measuring economic growth is objectively neutral in how it supports delivery of the Purpose. From this perspective, it would make sense to specify the qualitative outcomes that we want growth to provide (e.g. meaningful employment, less polluting production processes, prevention of stress, diseases and insecurity, well‐built sense of community). These specified outcomes could then make up measures that are contained within a Scottish dashboard. This approach would better accord with Sen’s Capabilities approach and the Stiglitz Report than the current dashboard manages.
Another critical point is that the Scottish Government’s National Outcomes provide a more sophisticated definition of a flourishing Scotland. However, these Outcomes do not link easily to the overall Purpose targets (which we have called a dashboard) that sit above them, or the National Indicators that sit beneath them. This confused hierarchy needs to be better structured. The primary focus needs to be the high level targets which clearly have the greatest political traction.
Finally, it is worth highlighting the fact that the Scottish Government has already made an important distinction between economic growth and sustainable economic growth (simply characterised this could be between any growth and better or good growth).
Its assumption is that if growth is sustainable (sustainability), then the issue regarding the link between growth and its ability to generate flourishing could be resolved. Unfortunately, this is not clearly obvious. As an illustration, the current status of Scotland’s performance shows a decline in economic growth coincident to an advance in sustainability targets. Once we have recovered from the economic crisis, would this improvement remain? A first step is to acknowledge that sustainability is not only about reducing greenhouse gas emissions but a wider understanding of future stocks (including economic, environmental and social ones).
Sustainability implies asking ourselves: What is the (best) future welfare development we can expect to achieve given the present day starting point? Sen’s Capabilities for flourishing (which the Stiglitz Report relies heavily upon) are a good starting point from which to define what is present‐well‐being. But as the SDC has previously highlighted in Prosperity without Growth, this notion has to be interpreted as a range of bounded capabilities to live well. This means living within certain clearly defined limits, and a critical limit is the finite nature of the ecological resources needed to sustain a good quality (human) life on earth.
13 See IRES, Cassiers, I., Delain, C. (2006) ‘ La croissance ne fait pas le bonheur : les économistes les savent‐ils ?’, Regards économiques, no 38. Belgium : Instituts de Recherches Economiques et Sociales.
11 WEALTHIER & FAIRER SMARTER HEALTHIER SAFER & STRONGER GREENER
CHAPTER 8: A NATIONAL PERFORMANCE FRAMEWORK
The preceding chapters set out the Scottish Government’s ambitious agenda to make Scotland a more successful country. This chapter sets out the new national performance framework, fully integrated into the Spending Review, which will underpin delivery against the government’s agenda.
This framework is designed to be clear, logical and easy to understand. It replaces a proliferation of competing priorities, set by the previous administration, providing a unified vision and quantifiable benchmarks against which future progress can be assessed. In developing the national performance framework we have drawn on the successful outcomes-based model of the Commonwealth of Virginia, USA. We believe it will allow us more clearly and openly to demonstrate our performance as a government and sharpen the focus of all those responsible for public services on the delivery of Scotland’s priorities.
Each part of the performance framework, as Figure 8.01 shows, is directed towards, and contributes to, a single overarching Purpose.
Our Purpose To focus government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing economic sustainable growth
Figure 8.01: National performance framework
PURPOSE
PURPOSE TARGETS
STRATEGIC OBJECTIVES
NATIONAL OUTCOMES
NATIONAL INDICATORS AND TARGETS
43 SECTION 1 DELIVERING THE SCOTTISH GOVERNMENT’S PURPOSE AND STRATEGIC OBJECTIVES
As part of the Government Economic Strategy, we have identified a set of high level Purpose targets that include specific benchmarks for sustainable economic growth and to ensure that growth is shared by all of Scotland. There is no doubt that if we are to match the economic performance of the UK as a whole, and the Arc of Prosperity countries that surround us, we will need to focus on: • improving our productivity and competitiveness; • increasing our labour market participation; and • stimulating population growth.
Together, these targets help define the characteristics of the economic growth that we want to see – a growth that is sustainable, cohesive and which builds solidarity in all of Scotland’s regions. They also set a whole new level of ambition for economic performance, not only over the lifetime of this term of the Parliament, but for the long term.
Five Strategic Objectives support delivery of the Purpose and, in turn, these are supported by 15 national outcomes which describe in more detail what the government wants to achieve over a ten year period. Progress on these outcomes will be measured through 45 national indicators and targets. We acknowledge the need for government to take a more strategic approach to target setting. We have, therefore, set targets where we judge that it will be an incentive to delivery. Elsewhere, we have established the direction of travel in which we expect indicators to move in the Spending Review period.
Purpose Targets
INDICATOR TARGET Economic • To raise the GDP growth rate to the UK level by 2011 Growth (GDP) • To match the growth rate of small independent EU countries by 2017 Productivity • To rank in the top quartile for productivity amongst our key trading partners in the OECD by 2017 Participation • To maintain our position on labour market participation as the top performing country in the UK and to close the gap with the top five OECD economies by 2017 Population • To match average European (EU15) population growth over the period from 2007 to 2017, supported by increased healthy life expectancy in Scotland over this period Solidarity • To increase overall income and the proportion of income earned by the three lowest income deciles as a group by 2017 Cohesion • To narrow the gap in participation between Scotland’s best and worst performing regions by 2017 Sustainability • To reduce emissions over the period to 2011 • To reduce emissions by 80 per cent by 2050
44 WEALTHIER & FAIRER SMARTER HEALTHIER SAFER & STRONGER GREENER
NEW APPROACH TO GOVERNMENT We are moving the whole of government to an outcomes-focused approach to performance. This means that we will be judged – as we should be – on the results that we achieve; results which reflect real and meaningful improvements in public services and quality of life for people in Scotland.
Our approach focuses government on the key long term challenges for Scotland and will enable, and encourage, more effective partnership working right across the public sector and with stakeholders. The whole of the public sector will, for the first time, be expected to contribute to one overarching Purpose and all performance management systems will therefore be aligned to a single, clear and consistent set of priorities.
The transition to an outcomes-based approach with delivery partners, including local government, will leave the detailed management of services to those who can best understand and tailor their resources and activities in line with local priorities. The Scottish Government will concentrate on providing leadership and direction, and focus on strategic priorities. The proposed approach for Single Outcome Agreements with local government is covered in more detail in chapter 17.
45 SECTION 1 DELIVERING THE SCOTTISH GOVERNMENT’S PURPOSE AND STRATEGIC OBJECTIVES
NATIONAL PERFORMANCE FRAMEWORK
THE GOVERNMENT’S PURPOSE TO FOCUS GOVERNMENT AND PUBLIC SERVICES ON CREATING A MORE SUCCESSFUL COUNTRY, WITH OPPORTUNITIES FOR ALL OF SCOTLAND TO FLOURISH, THROUGH INCREASING SUSTAINABLE ECONOMIC GROWTH
HIGH LEVEL TARGETS RELATING TO THE PURPOSE GROWTH PRODUCTIVITY PARTICIPATION POPULATION SOLIDARITY COHESION SUSTAINABILITY
STRATEGIC OBJECTIVES
WEALTHIER SMARTER HEALTHIER SAFER & GREENER & FAIRER STRONGER
We live in a Scotland that is the most attractive place for doing business in Europe
We realise our full economic potential with more and better employment opportunities for our people
We are better educated, more skilled and more successful, renowned for our research and innovation
Our young people are successful learners, confident individuals, effective contributors and responsible citizens
Our children have the best start in life and are ready to succeed
We live longer, healthier lives
We have tackled the significant inequalities in Scottish society
We have improved the life chances for children, young people and families at risk
We live our lives safe from crime, disorder and danger
NATIONAL OUTCOMES NATIONAL We live in well-designed, sustainable places where we are able to access the amenities and services we need
We have strong, resilient and supportive communities where people take responsibility for their own actions and how they affect others
We value and enjoy our built and natural environment and protect it and enhance it for future generations
We take pride in a strong, fair and inclusive national identity
We reduce the local and global environmental impact of our consumption and production
Our public services are high quality, continually improving, efficient and responsive to local people’s needs
46 WEALTHIER & FAIRER SMARTER HEALTHIER SAFER & STRONGER GREENER
Achieve annual milestones for reducing inpatient or day At least halve the gap in total research and development case waiting times culminating in delivery of an 18 week compared with EU average by 2011 spending referral to treatment time from December 2011 Reduce the proportion of people aged 65 and over admitted Increase the business start-up rate as emergency inpatients two or more times in a single year
Reduce mortality from coronary heart disease among Grow exports at a faster average rate than GDP the under 75s in deprived areas
Improve public sector efficiency through the generation Increase the percentage of people aged 65 and over with of 2% cash releasing efficiency savings per annum high levels of care needs who are cared for at home
Improve people’s perceptions of the quality of public All unintentionally homeless households will be entitled services delivered to settled accommodation by 2012
Reduce the number of Scottish public bodies by 25% Reduce overall reconviction rates by 2 percentage points by 2011 by 2011
Reduce the proportion of driver journeys delayed due Reduce overall crime victimisation rates by 2 percentage to traffic congestion points by 2011 Increase the percentage of Scottish domiciled graduates Increase the percentage of criminal cases dealt with from Scottish Higher Education Institutions in positive within 26 weeks by 3 percentage points by 2011 destinations Improve knowledge transfer from research activity Increase the rate of new house building in universities Increase the proportion of school leavers Increase the percentage of adults who rate their (from Scottish publicly funded schools) in positive and as a good place to live sustained destinations (FE, HE, employment or training) neighbourhood Increase the proportion of schools receiving positive Decrease the estimated number of problem drug users inspection reports in Scotland by 2011
Reduce number of working age people with severe Increase positive public perception of the general literacy and numeracy problems crime rate in the local area
Increase the overall proportion of area child protection Reduce overall ecological footprint committees receiving positive inspection reports
Increase to 95% the proportion of protected nature sites Decrease the proportion of individuals living in poverty in favourable condition
60% of school children in primary 1 will have no signs Improve the state of Scotland’s Historic Buildings, AND TARGETS INDICATORS NATIONAL of by 2010 monuments and environment NATIONAL INDICATORS AND TARGETS INDICATORS NATIONAL dental disease
Biodiversity: increase the index of abundance of Improve the quality of healthcare experience terrestrial breeding birds
Increase the proportion of pre-school centres receiving Increase the proportion of journeys to work made by positive inspection reports public or active transport
Increase the proportion of adults making one or more Increase the social economy turnover visits to the outdoors per week Reduce the rate of increase in the proportion of children 50% of electricity generated in Scotland to come from with their Body Mass Index outwith a healthy range by 2020 (interim target of 31% by 2011) by 2018 renewable sources Increase the average score of adults on the Warwick- Reduce to 1.32 million tonnes of waste sent to landfill Edinburgh Mental Wellbeing Scale by 2011 by 2010
Increase healthy life expectancy at birth in the most Increase to 70% key commercial fish stocks at full deprived areas reproductive capacity and harvested sustainably by 2015
Reduce the percentage of the adult population who smoke Improve people’s perceptions, attitudes and awareness to 22% by 2010 of Scotland’s reputation
Reduce alcohol related hospital admissions by 2011
DELIVERY, ACCOUNTABILITY: PARTNERS’ CONTRIBUTIONS ACROSS THE PURPOSE AND ALL STRATEGIC OBJECTIVES - MEASURED BY PERFORMANCE MANAGEMENT REGIMES
47
A Round Table on Measurement of Economic Performance and Social Progress in Scotland
Meeting 2, Technical Paper 2: The capabilities approach (reproduced from Sen and Alkire in the Stiglitz Report, p. 151)
1. The notion of capabilities and its implications
While psychological studies of Quality of life(QoL) focus on people’s own feelings, other approaches broaden the information set relevant for valuing people’s lives, beyond their self‐reports and perceptions.
The most prominent of these approaches is rooted in the notion of “capabilities” (Sen, 1987, 1993). This approach conceives a person’s life as a combination of various “doings and beings” (functionings), and assesses QoL in terms of a person’s freedom to choose among the various combinations of these functionings (capabilities).
• Functionings is a broad term used to refer to the activities and situations that people spontaneously recognise to be important. These can also be conceived as a collection of the observable achievements of each person (e.g. their health, knowledge or having a meaningful job). Some of these achievements can be quite elementary, such as being safe and well‐ nourished, and others quite complex, such as being able to express oneself in public without shame. As people in different places and times have different values and experiences, the list of the most relevant functionings depends on circumstances and on the purpose of the exercise. In this perspective, the well‐being of a person is a summary index of the person’s functionings.
• Freedom requires expanding the range of information relevant for assessing people’s lives beyond their observed achievements, to the full range of opportunities open to them. The limits of focusing on achievements for assessing QoL become obvious when considering cases where a low observed functioning (e.g. low calorie intake) reflects a choice (as in the case of fasting) or where a high level of functioning reflects the choices of a benevolent dictator. The concept of freedom emphasises the importance of empowering people to help themselves, and of focusing on individuals as the actors of their own development.
The intellectual foundations of the capability approach include a number of notions.
o First is a focus on human ends, and on the importance of respecting people’s ability to pursue and realise the goals that he or she values. o Second is the rejection of the economic model of individuals acting to maximise their self‐ interest heedless of relationships and emotions, and the recognition of the diversity of human needs and priorities. o Third is an emphasis on the complementarities between the various capabilities for the same person (while valuable in themselves, many of these capabilities are also means of expanding others, and leveraging these interconnections increases quality of life) and their dependence on the characteristics of others and on the environment where people live (e.g. illness may spread from one person to another and be influenced by public health and medical programmes). o A last feature of the capability approach is the role played by moral considerations and ethical principles, and its central concern with justice, in the form of either bringing each person above a given threshold for each capability, or assuring equal opportunities to all in the “capability space” (Alkire 2003).
The implications of the capability approach are not limited to the measurement of QoL but extend to the evaluation of policies. Policies supportive of human development should expand the opportunities available to people, which would be valuable irrespectively of the effect on people’s subjective states1. While subjective states may be considered as being part of the set of capabilities considered, the capability approach emphasises that people may adapt to their life‐circumstances, and that this adaptation makes subjective feelings inadequate as the sole metric for assessing QoL.
2. The different steps of the capabilities approach
The practical implementation of the capability approach requires taking a number of steps.
A first one is choosing among dimensions. While some authors have strongly argued in favour of specifying a single list of “central” capabilities as a necessary step to make the capability approach operational2, others have argued against “freezing” a list of capabilities based on expert views. In practice, most of the methods used in empirical applications of this approach select dimensions (or capabilities) based on the following: what type of data are actually available; a priori assumptions about what people do or should value; existing lists that have achieved some degree of political legitimacy (e.g. universal human rights, the Millennium Development Goals); surveys on what people value as important; and participatory processes that periodically elicit people’s values and perspectives (Alkire, 2008).
A second practical step in the implementation of this approach is getting data and information on these various dimensions. Here a practical difficulty is that most data generally refer to functionings (i.e. description of individuals’ states) rather than to capabilities (i.e. the set of opportunities that are available to each person). However, many functionings, such as health and education, also determine capabilities (to consume, to move, to participate), while some data may directly refer to people’s sights and freedoms (e.g. to participate in political decision‐making, to join organizations at work and in society). In addition, information on capabilities is sometimes available from surveys that probe respondents for their reason for not doing something (i.e. whether people did not consume more of a good because of preferences or constraints) or through additional information on the extent of choice that people have. More generally, one can imagine a broader framework in which both capabilities and achieved functionings serve to describe individual situations (Sen, 1985 and 1992).
A third step in the implementation of this approach involves valuing the different capabilities. This valuation allows converting the vector of functionings and capabilities into a scalar measure of well‐ being or advantage. While this step raises a number of difficult issues (which are further discussed in the last section of the QoL chapter in S/S), the capability approach emphasises that several sources of information can be used, separately or jointly, for that valuation (e.g. survey‐data on Subjective Well‐ being provide evidence on valuation), that people may differ in their valuation of a given vector of functionings and capabilities, and that such differences may imply recognizing the “partial” nature of
1 This will apply even when measures of subjective states do reflect changes in objective features of QoL. 2 Nussbaum (2000) lists the following ten “central human functional capabilities”: i) life, i.e. being able to live to the end of a human life of normal length; ii) body health, i.e. having good health and shelter, and being adequately nourished; iii) bodily integrity, i.e. being able to move freely, being secure against assault and violence, having opportunities for sexual satisfaction and choice in matters of reproduction; iv) senses, imagination and thought, which include the ability to do things in an informed and cultivated way, to use one’s mind in ways protected by guarantees of freedom, to have pleasurable experiences and avoid unnecessary pain; v) emotions, such as to love, grieve, experience longing, gratitude and anger; vi) practical reason, i.e. being able to form a conception of the good and to engage in critical reflection about the planning of one’s life; vii) affiliation, in terms of being able to live for and towards others and having the social basis of self‐respect and non‐humiliation; viii) other species, in the sense of being able to live with concern for and in relation to the world of nature; xi) play, i.e. being able to laugh, play and enjoy recreational activities; and x) control over one’s environment, in terms of being able both to participate in political choices that govern one’s life and to hold property, both formally and in terms of real opportunities. these rankings (i.e. two persons may agree that both states A and B are superior to C, while disagreeing on the ranking of A and B); in these conditions, the intersection of these partial orderings may reflect the minimum that could safely be said while respecting both the incompleteness and conflicts of people’s valuations (Sen, 1987).
3. The capabilities approach in practice
In practice, a large body of empirical research has drawn inspiration from the capability approach.
o The “human development index” (HDI)
Launched by the UNDP in 1990, the HDI is rooted in a notion of development conceived as a process of enlarging people’s choices and opportunities. More recently, the Oxford Poverty and Human Development Initiative has aimed to develop specific survey questions (on employment, empowerment, safety and security, meaning and value, and ability to go without shame) to give operational content to a measure of poverty in a space of capabilities3.
o The “Equality Measurement Framework” (EMF) (see the Cabinet Office, Equality Review (ER), February 2007)
The ER accepted the recommendation of a Measurement Steering Group that a definition of equality should be based on the ‘capabilities approach’ developed by Professor Amartya Sen and others, because ‘it focuses on what matters to people and recognises that people have diverse goals in life’ (ER p 126).
The capabilities approach defines equality as equality of ‘substantive freedoms’. Substantive freedoms are described as what individuals are able to do or be in their lives. Equality of substantive freedoms incorporates aspects of equality of process, outcome or opportunity.
In line with the capabilities approach, the ER defines an equal society in the following way:
‘An equal society protects and promotes equal, real freedom and substantive opportunity to live in the ways people value and would choose, so that everyone can flourish. An equal society recognises people’s different needs, situations and goals and removes the barriers that limit what people can do and be’ (ER p 126).
References
Alkire, S. (2002), Valuing Freedoms: Sen’s Capability Approach and Poverty Reduction, Oxford University Press, Oxford.
Alkire, S. (2008), “The Capability Approach to the Quality of Life”, background report prepared for the Commission on the Measurement of Economic Performance and Social Progress, Paris. Sen, A. (1987), Commodities and Capabilities, Oxford University Press, Oxford.
Sen, A. (1992), Inequality Re‐examined, Clarendon Press, Oxford.
3 See http://www.ophi.org.uk/
A Round Table on Measurement of Economic Performance and Social Progress in Scotland
Meeting 2, Technical Paper 3: EHRC’s Equality Measurement Framework
Purpose
1. The Equality and Human Rights Commission (the Commission) was established on 1st October 2007. It aims to champion equality and human rights for all, work to eliminate discrimination, reduce inequality, protect human rights and build good relations, and ensure that everyone has a fair chance to participate in society.
2. The purpose of this paper is to provide a brief summary of the Commission’s Equality Measurement Framework and an outline of how the Commission and others are using it as a tool for change.
Background
3. The Commission, in partnership with the Government Equalities Office, has been developing an ‘Equality Measurement Framework’ (EMF). This is a comprehensive framework that provides a new way to measure and monitor equality across a range of areas of life appropriate and relevant to twenty‐first century Britain.
4. The need for a new way of measuring and monitoring equality was a key finding of the Equalities Review (2007)1. It found that the causes of chronic and persistent inequality include a lack of consensus on equality:
a lack of awareness and understanding about what equality means, how it relates to what organisations do, what is required (or permitted) under the law in practice, and who is responsible for delivering on this.
5. The EMF addresses this lack of consensus by providing a framework for action that focuses directly on the central and valuable things in life that people say are important for them to actually do and be. For example, the EMF can provide a baseline of evidence and measure progress on the extent to which people enjoy an adequate standard of living, are healthy, engage in education and learning, enjoy legal security, and are free from crime and the fear of crime. In particular, it is concerned with the position
1 Cabinet Office (2007) Fairness and Freedom: the final report of the Equalities Review. Available at: http://archive.cabinetoffice.gov.uk/equalitiesreview/upload/assets/www.theequalitiesreview.org.uk/equality_revie w.pdf
1 of individuals and groups in relation to their age, disability, ethnicity, gender and transgender, religion or belief, sexual orientation and social class.
6. The EMF will enable the Commission to discharge its legal duties to monitor social outcomes under the Equality Act 2006 as well as provide a baseline of evidence to evaluate progress and inform policy priorities. The EMF will also provide evidence to help Government and public bodies to agree policy priorities, set targets and evaluate progress, as well as help them prioritise their activities to meet their public sector duties on equality.
The Foundations of Equality Measurement Framework
7. The development of the EMF has drawn on three key inputs. Firstly, the theoretical underpinning of the capability approach developed by Amartya Sen. This approach provides an opportunity to move beyond, and address the limitations of, traditional approaches to equality by:
• Focusing on what matters to people; • Recognising diversity of needs; • Emphasising barriers, constraints, structures and processes; and • Recognising diversity in goals.
8. Secondly, the international human rights framework as the starting point to develop a core human‐ rights based list of freedoms that represent the outcomes we should be working towards. And, thirdly, democratic deliberation and debate to supplement and refine this list. This involved extensive consultation with the general public, individuals and groups at risk of discrimination and disadvantage.
9. These inputs led to the adoption of a single equality concept (Box 1) and an agreed list of freedoms (Appendix 1).
Box 1: The Single Equality Concept
“An equal society protects and promotes the central and valuable freedoms and real opportunities of each person, securing human rights for all and ensuring that no‐one is unfairly disadvantaged.
In an equal society, central and valuable freedoms and real opportunities are not unconstrained but are limited by the need to guarantee the same freedoms and opportunities for all.
In an equal society, institutions and individuals respect the diversity of people and their goals, address their different needs and situations, and remove the barriers that limit what people can do and can be”.
10. This concept has a number of advantages. It uses plain English, making it easier for people to use and explain to others. It recognises diversity and reflects current disadvantage, not just aspirations. It incorporates responsibility and obligations of individuals and institutions and includes human rights in a way that explains what the term means. It clarifies the connection between individuals’ values and
2 freedom for everyone, and includes the concept of fairness. It is this concept that has formed the bedrock for further development of the EMF.
11. The freedoms that form the basis of the EMF are based on what people say are critical to an equal society, on the experiences of equality groups and on the theoretical approach underpinning the single equality concept.
Selecting the indicators
12. Indicators to measure progress towards these freedoms were then developed. To make it manageable, extensive consultation and statistical and theoretical work has been done to select and agree 48 indicators, in the first instance, which collectively cover important aspects of the freedoms. The Commission carried out an in‐depth consultation which included:
• The Government Equalities Office, other government departments and Scottish and Welsh Governments • Ten GB wide stakeholder events in London and full‐day events in Edinburgh and Cardiff attended by just under 200 people • Web consultation with responses from 18 organisations • One‐to‐one meetings with 20 data providers, including presentation to the ONS Equality Measurement Group.
13. The final set of indicators was identified via an in‐depth analytical process, which prioritised indicators based on their relevance and meaning to stakeholders, their salience (that they would highlight particular problems), whether they could be disaggregated by equality group, and the fact that they would show clear results2. A full list of the indicators is outlined in Appendix 2.
Next Steps
14. Further work is underway to develop indicators that will measure good relations across social interactions, attitudes, participation and belonging, and human rights across structures, processes and outcomes. We will also develop indicators to cover the specific experiences of children. This will expand the Measurement Framework to cover the Commission’s full mandate, and will be continually reviewed over time to ensure it is effective.
The equality measurement framework as a tool for change
15. The EMF provides the Commission, together with government and others, with a tool to help build a consensus on what we mean by equality, how we measure it and the benefits of working towards equality at the national, local and community level.
2 Developing the Equality Measurement Framework; Selecting the Indicators’ EHRC July 2009
3
16. Some of the uses of the EMF are outlined below.
Monitoring society's progress on equality and human rights
Triennial Review
The Commission has a statutory obligation to monitor the progress that society is making towards becoming one that is more equal, where every individual has the opportunity to achieve their potential, and where people treat each other with dignity and respect. This progress must be reported to Parliament every 3 years.
The first triennial review ‘How fair is Britain?’ brings together evidence from a range of sources, including Census data, surveys and research, to paint a picture of how far what happens in people’s real lives matches up to the ideals of equality. In essence, it helps answer the question, how fair is Britain today?
The starting point of the review was the EMF. The EMF operated as a skeleton which allowed the Commission to conduct some initial data‐scoping exercises in relation to the EMF indicators, and identify any gaps in data that could be filled. The Commission then contracted external researchers to conduct gap‐ filling research and analysis for the triennial review, focusing on secondary analysis of existing data, identifying small‐scale and qualitative research projects, and gauging the performance of the protected equality groups against the indicators in the EMF.
This baseline of evidence uncovered many instances of unfairness and unequal outcomes. In order to target resources more effectively, and focus society’s and the Commission’s energies and efforts, the Commission carried out further analysis to identify the most pressing and significant inequalities most urgently in need of resolution.
The Commission identified 15 significant challenges. These challenges will inform the Commission’s work programme and strategic priorities for the future.
Agreeing priorities for action, setting targets and evaluating progress towards equality
Scottish Government
The Commission has been working with the Scottish Government to align the EMF with the National Performance Framework. In particular, the Scottish Government intend to use the EMF in relation to National Outcome 7: ‘we have tackled the significant inequalities in Scottish society’. The existing measurement for this outcome is largely based on socio‐economic inequality and does not capture group based inequality. The Scottish Government therefore intend to use the EMF to tell a more comprehensive story of inequality in Scotland.
Public Sector Equality Duties
4 The Public Sector Equality Duty (‘PSED’) was introduced by the 2010 Equality Act and consists of a general equality duty and specific duties designed to help public bodies meet the general duty. The proposed specific duties require public authorities to consider relevant evidence to assess impact, and prepare, publish and report on progress towards equality outcomes.
The Scottish Government’s consultation on the Public Sector Equality Duty Draft Regulations and Order acknowledges a key challenge in making the transition to these new duties is ensuring data and evidence is available for all protected groups. The Regulations state that the Scottish Government will work with the Commission to use and build on the EMF as a tool to help address this challenge. The EMF may therefore provide public bodies with a useful tool to set outcomes as well as measure progress towards them, using relevant evidence.
In addition, the Association of Chief Police Officers of Scotland (ACPOS) has requested the Commission to deliver a training seminar on the EMF as part of the Scottish Police Service Continuous Professional Development programme. This request is a result of discussions with ACPOS, the Crown Office and Procurator Fiscal Service and the Scottish Court Service, and the inclusion of the EMF in the draft Regulations. The learning seminar will aim to raise awareness of the EMF and to better understand how the EMF can be used by the criminal justice sector in Scotland to improve services.
Edinburgh City Council
Edinburgh City Council is using the areas of life and substantive freedoms within the EMF to develop and organise their Equalities Outcome and Action Plan 2009‐12. Using the EMF as a starting point, the council identified indicators to measure local equality outcomes. The council has also used the EMF areas of life to develop a data repository for relevant local research, statistics and information. Using the EMF in this way has enabled the council to adopt and outcomes‐based approach to equality, and to begin to evidence a more local understanding of equality.
One of the benefits of this approach is that the council has begun to think more explicitly and consistently about evidence for equality. In particular, they have started identifying potentially useful local data sources and making use of these. A positive outcome of this has been the ability to inform strategic planning in a more bespoke manner that meets specific needs. For example, while going through the process of identifying and improving local data, the council uncovered evidence that showed an increasing number of people with learning disabilities on waiting lists for accommodation. As a result of this information, the council included an objective to reduce waiting lists for people with learning disabilities in their Single Outcome Agreement.
Using the EMF has allowed the council to begin to build a shared understanding of equality among staff and has provided more rigour to the council’s equality work.
Using and developing data to improve local equality outcomes
5 The Commission, the Improvement Service, Scottish Government and the Convention of Scottish Local Authorities have been working together to consider how best to support Local Authorities, and their Community Planning Partners (CPPs), to meet the challenge of developing the equalities evidence base in order to identify, measure and track progress on key outcomes for their area.
A major reduction in public spending means public bodies will need to ensure they prioritise outcomes and target limited resources to the areas of most need. The Commission is keen to ensure that decision makers have the evidence, advice and tools to enable them to make fair, accountable and transparent decisions. However, the Commission is acutely aware that there is a lack of robust equalities evidence at a local level. To begin to address this, the Commission is funding an action research project that will be managed and delivered by the Improvement Service, and supported by the Scottish Government. This project aims to:
• Pilot the use of the EMF as a practical tool to help Local Authorities and their CPPs better understand how equality outcomes can be better identified, measured and tracked through SOAs, performance management and self evaluation frameworks.
• Develop concrete, effective and practical solutions to improve the equalities evidence base at the local level, and pilot a sample of these solutions that we can tackle within the scope of this project.
• Develop a shared understanding of equality and ‘what works’ around equalities measurement and management for participating councils and the wider local government and public services community.
The intention is to provide practical, hands‐on, specialist support to a maximum of four councils / CPPs to improve the availability of robust equalities evidence to support local approaches to performance management and self evaluation in an outcomes context.
The starting point for the work is the EMF. The support available will involve actively engaging each council/ CPP in a range of activities, which will work through a detailed outcomes methodology, tailored to the specific needs of each council/ CPP. The hands‐on work and support activities will run over a number of months, commencing in January 2011 and ending January 2012.
In conclusion, one of the main uses of the EMF is to help build a consensus on what we mean by equality and how we accurately assess the extent of inequality in different contexts. This will ultimately help to identify the priority areas for future action. In order to realise its potential there are important challenges to overcome. The Commission is in a process of learning how the EMF can be used beyond its statutory function and in different contexts. To make good use of this framework, there are considerable evidence needs that must be addressed. We are working in partnership with the Improvement Service, Scottish Government, Local Authorities, and CPPs where appropriate, to clarify and develop an understanding of how the EMF can be used in a local context to begin to address these needs.
6 Appendix 1: The list of central and valuable freedoms for adults
The capability to be alive including, for example, being able to:
• avoid premature mortality through disease, neglect, injury or suicide • be protected from being killed or murdered
The capability to be healthy including, for example, being able to:
• attain the highest possible standard of physical and mental health, including sexual and reproductive health • access to timely and impartial information about health and healthcare options, including contraception • access healthcare, without discrimination and in a culturally sensitive way • be treated medically, or subject to experiment, only with informed consent • be assured of patient confidentiality and be free from the stigmatisation associated with some health conditions • maintain a healthy lifestyle including exercise, sleep and nutrition • live in a healthy and safe environment including clean air, clean water, and freedom from pollution and other hazards
The capability to live in physical security including, for example, being able to:
• be free from violence including sexual and domestic violence and violence based on who you are • be free from cruel, inhuman or degrading treatment or punishment • be protected from physical or sexual abuse (especially by those in positions of authority) • go out and to use public spaces safely and securely without fear The capability of knowing you will be protected and treated fairly by the law including, for example, being able to:
• know you will be treated with equality and non‐discrimination before the law • be secure that the law will protect you from intolerant behaviour, and from reprisals if you make a complaint • be free from arbitrary arrest and detention • have fair conditions of detention • have the right to a fair trial • access to affordable and high‐quality information and advocacy as necessary • have freedom of movement • have the right to name, gender and nationality • own property and financial products including insurance, social security, and pensions in your own right • know your privacy will be respected.
7 The capability to be knowledgeable, to understand and reason, and to have the skills to participate in society including, for example, being able to:
• attain the highest possible standard of knowledge, understanding and reasoning • be fulfilled and stimulated intellectually, including being creative if you so wish • develop the skills for participation in productive and valued activities, including parenting • learn about a range of cultures and beliefs and acquire the skills to participate in a diverse society, including learning English • access education, training and lifelong learning that meets individual needs • access information and technology necessary to participate in society
The capability to enjoy a comfortable standard of living, with independence and security including, for example, being able to:
• enjoy an adequate and secure standard of living including nutrition, clothing, housing, warmth, social security, social services and utilities, and being cared for and supported when necessary • get around inside and outside the home, and to access transport and public places • live with independence, dignity and self‐respect • have choice and control over where and how you live • have control over personal spending • enjoy your home in peace and security • access green spaces and the natural world • share in the benefits of scientific progress including medical advances and information and technology
The capability to engage in productive and valued activities including, for example, being able to:
• have a decent paid job, with support where necessary • care for others, including children and parents • do something useful and have the value of your work recognised even if unpaid • have rest and leisure, including holidays, and respite from caring responsibilities • choose a balance between paid and unpaid work, care and leisure on an equal basis with others • work in just and favourable conditions, including health and safety, fair treatment during pregnancy, maternity and paternity, fair pay, reasonable hours, and freedom from harassment or discrimination • not be forced to work in a particular occupation or without pay • not be prevented from working in a particular occupation without good reason
The capability to enjoy individual, family and social life
8 including, for example, being able to:
• develop as a person, including self‐identity • develop your sense of values and other beliefs • formulate and pursue goals and objectives for yourself • hope for the future • develop and maintain self‐respect, self‐esteem and self‐confidence • have a private life and some personal space, including protection of personal data • access emotional support • know that someone will look out for you • have peace of mind • form intimate relationships, friendships and a family • celebrate on special occasions • be confident that your primary relationships will be treated with dignity and respect • spend time with, and care for, others, including wider family • enjoy independence and equality in primary relationships including marriage • be free in matters of sexual relationships and reproduction • enjoy special support during pregnancy, maternity, paternity and adoption
The capability of being and expressing yourself, and having self‐respect including, for example, being able to:
• have freedom of conscience, belief and religion • have freedom of cultural identity and expression of gender • have freedom of expression • communicate, including using information and communication technologies, and use your own language • engage in cultural practices, in community with other members of your chosen group or groups and across communities • have self‐respect • live without fear of humiliation, harassment, or abuse based on who you are • be confident that you will be treated with dignity and respect • access and use public spaces freely
The capability to participate in decision‐making, have a voice and influence including, for example, being able to:
• participate in decision‐making and make decisions affecting your own life independently • participate in the formulation of government policy, locally and nationally • participate in non‐governmental organisations concerned with public and political life • participate in democratic free and fair elections • get together with others, peacefully • participate in the local community • form and join civil organisations and solidarity groups, including trade unions
9 Appendix 2: Summary of indicators corresponding to the capability list for adults
A. LIFE 1. Life expectancy 2. Homicide 3. Other specific‐cause mortality rates 4. Death rates from non‐natural causes for people resident or detained in public or private institutions
B. HEALTH 1. Limiting illness, disability and mental health 2. Subjective evaluation of current health status 3. Dignity and respect in health treatment 4. Healthy living 5. Vulnerability to accidents
C. PHYSICAL SECURITY 1. Proportion that are victims of violent crime 2. Proportion that are victims of hate crime 3. Physical security for people resident or detained in public and private institutions 4. Fear of Crime
D. LEGAL SECURITY 1. Offences reported and brought to justice: rape, domestic violence and hate crime 2. Equal treatment by the police and criminal justice system (objective and subjective measures) 3. Deprivation of liberty: numbers and conditions 4. Equal protection and support for individuals with justiciable civil justice problems
E. EDUCATION AND LEARNING 1. Basic skills 2. Educational qualifications 3. Participation in lifelong learning 4. Use of the internet 5. Being treated with respect in education
F. STANDARD OF LIVING 1. Housing quality and security 2. Poverty and security of income 3. Access to care 4. Quality of the local area 5. Being treated with respect by private companies and public agencies in relation to your standard of living
G. PRODUCTIVE AND VALUED ACTIVITIES 1. Employment rate 2. Earnings 3. Occupation 4. Discrimination in employment
10 5. Unpaid care and free time
H. INDIVIDUAL, FAMILY AND SOCIAL LIFE 1. Availability of support 2. Being free from domestic abuse (emotional or financial) 3. Being able to participate in key social and cultural occasions which matter to you 4. Being able to be yourself 5. Being able to form and pursue the relationships you want
I. IDENTITY, EXPRESSION AND SELF‐RESPECT 1. Freedom to practice your religion or belief 2. Cultural identity and expression 3. Ability to communicate in the language of your choice 4. Self respect 5. Freedom from stigma
J. PARTICIPATION, VOICE AND INFLUENCE 1. Formal political participation 2. Perceived influence in local area 3. Political activity 4. Taking part in civil organizations 5. Being treated with dignity and respect while accessing and participating in decision‐making forums
11
A Round Table on Measurement of Economic Performance and Social Progress in Scotland Meeting 3, Technical Paper 1: Introduction to Growth in Transition
‘For years, statistics have registered an increasingly strong economic growth as a victory over shortage until it emerged that this growth was destroying more than it was creating. The crisis does not only make us free to imagine other models, another future, another world. It obliges us to do so.’ President Nicolas Sarkozy, September 2009.
Introduction: the dilemma of growth
As recommended through the Stiglitz report, the present Roundtable has initiated the debate about measuring societal progress in Scotland. From the beginning, Stiglitz is clear that governments need to move ‘beyond GDP ‘when assessing national performance.
The work of Stiglitz is grounded on an increasing array of economic literature and study, as well as significant debate and discussion internationally. Many of these debates have found that once they start to think about what might lie ‘beyond GDP’, they then need to discuss more fully what is meant by a ‘sustainable economy’, ‘green growth’, or ‘sustainable growth’.
In looking more closely at these issues, many interested groups and countries are effectively recognising that their understanding of what they mean by growth is in transition.
This international debate is notably underpinned the dilemma of growth which were set out through the SDC report Prosperity without Growth (PWG, p. 65)1:
Current Growth is unsustainable:‐increased consumption of raw material and natural resources triggered through our current form of growth lead the earth on the verge of an ecological disaster, with climate change and loss of biodiversity being the main concerns.
De‐growth is unstable:‐ growth is functional for the stability of our economy. If the economy contracts, consumer demand declines, unemployment rises, competitiveness falls. The economy starts to collapse, affecting human well‐being.
For some, lack of growth is therefore untenable. Others see this instability as a sign of lack of resilience of the system, commenting that if our economic model is unable to withstand and adapt to stresses and shocks, then it is bound to endure periodic crises because periods of declining or steady‐state economic output are unavoidable (cf “the end of boom and bust”).
Some see that a middle way through this dilemma is the idea of ‘Decoupling’ (PWG, p.67). This concept refers to a decline in the ecological intensity of the economic output, i.e. the economy continues to grow (to prevent from any unstable recession) while material throughput decreases, and by consequence ecological limits are not breached.
1 Jackson, T. (2009) Prosperity without Growth‐ Economics for a finite planet, Earthcan, London, 264 pp.
1 However, as shown through Prosperity without Growth, there is little evidence for the decoupling (namely reductions in material throughputs, improved resource efficiency and extended use of renewable energy). There is some relative decoupling, but almost no absolute decoupling present, meaning that some dismiss decoupling as an insufficient response to stabilising the climate and protecting us against resource scarcity (PWG, p. 75‐86).
Increased awareness that current models of economic growth threaten longer term well‐being, economic performance and environmental conditions (the three put together = sustainability) therefore obliges us to question the emphasis on economic growth, to confront the structure of market economies, and to work out in more detail what a transition towards a sustainable economy would be like.
Whether this transition should operate towards maximizing green growth or move towards replacing growth maximisation by improving quality‐of‐life is at the core of this debate.
This paper aims to give an overview of both the international and national initiatives which sit around the ‘growth in transition’ issue. It concludes with some criteria/ recommendation for how this process of transition could happen in Scotland.
International Initiatives on measuring societal progress
Questioning growth as the engine of modern societies and GDP as the ultimate measure of their progress and well‐being has led to a number of important international initiatives over the last few years, especially in the context of the economic turmoil. These initiatives either aim to rise the ‘beyond GDP debate’ or involve in technical engagement on measuring progress:
• United Nations (UN) initiatives such as UNDP Human Development Index (HDI) (since the 1990s) and The Economics of Ecosystems and Biodiversity (TEEB) (since 2007),2 • European Commission (EU) initiatives such as the EU high‐level Conference ‘Beyond GDP’ (2007) and the EU communication ‘GDP and Beyond’ (2009),3 • The joint UNECE, OECD and EUROSTAT Working Group on Statistics for Sustainable Development,4 • The Commission on the Measurements of Economic Performance and Social Progress (referred to as Stiglitz Commission/Report).5
The recent Quarterly Report by the European Sustainable Development Network (ESDN) underlines the similarities between these initiatives6:
• These Initiatives start with the view that GDP is a useful indicator of economic growth, while recognising that it has to be complemented with environmental and societal indicators. Supplementing GDP with two levels of information instead of replacing or adjusting it is indeed seen as the politically most feasible way. • Adopting environmental indicators includes both environmental accounts at the national level and an Environmental Performance Index at the international/EU level. • Societal indicators relate to well‐being, viewed as multidimensional and including both subjective and objective measures. This multidimensional aspect of well‐being also cautions that the use of aggregate indexes such as the Human Development Index has to be restricted. These aggregate
2 HDI report (2010) available at http://hdr.undp.org/en/ and TEEB report (2010) available at http://www.teebweb.org/ 3 EU communication ‘GDP and Beyond’ available at http://eur‐ lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2009:0433:FIN:EN:PDF 4 Measuring Sustainable Development Report (2008) available at http://www.unece.org/stats/archive/03.03f.e.htm 5 Stiglitz Report, available at http://www.stiglitz‐sen‐fitoussi.fr/documents/rapport_anglais.pdf 6 ESDN Quartely Report December 2010, pp. 9‐11.
2 indicators should only be used as a communication tool to raise political and societal awareness on progress and well‐being, not as detailed measures per se. • Sustainable Development is regarded as a concept which includes inter‐and intra‐generational aspects of economic, environmental and social issues, and therefore needs a separate follow‐up based on a ‘stock approach’.
The ESDN report concludes that these initiatives provide a useful guidance to frame this debate around the role of GDP in policy making.
At the European level, the recent High‐level Roundtable on “The nature of economic growth: In search of a new framework for progress and prosperity” set out by the Friends of Europe aimed at determining whether Europe needs a new economic growth agenda and whether the EU’s 2020 strategy for “smart, sustainable and inclusive growth” was the right framework for future prosperity.7
At a broader scale, the UN Rio+20 Earth Summit will consider the key theme of Green Economy, underpinning that the achievement of collective global prosperity rests upon an economic system that has human and environmental well‐being at its heart, rather than the blinkered pursuit of profits and wealth.8
This international debate about the transition we want our economy to achieve has led to several national initiatives. These are analysed in the next section.
National Initiatives questioning the current form of growth
Austria and Finland: Growth in Transition9
The Austrian initiative started in 2008. It aims at raising awareness among the policy‐makers on what kind of growth is being targeted for the future and intends to trigger a dialogue among institutions and stakeholders about how the transformation process can be shaped towards sustainable economic growth.
The institutions and stakeholders involved included government ministries (Ministry of Agriculture, Environment, Forestry & Water Management; Ministry of Finance; Ministry of Labour, Social Affairs and Consumer Protection; Ministry of Science and Research), a research institute (ERI), a consultancy as well as the National Austrian Bank, the Club de Rome, municipalities...
One component of the initiative was the organisation of an International Conference in January 2010 in Vienna. The conference debated approaches for delivering high quality‐of‐life and sustainable prosperity for everyone around the several topics e.g. Growth and Resource Use, Macroeconomics for Sustainability, Quality of Life & Measurement of Prosperity.
Inspired by the Austrian initiative, A Finnish Growth in Transition Conference was organized in September 2010 and brought together over 550 participants including academics, politicians, NGOs, businesses, the media, and the general public, to explore limits to growth as well as possibilities for ecologically and socially responsible economic model.
NEF’s initiative ‘Global Transition’ 10
7 For further information, see http://www.friendsofeurope.org/Events/tabid/452/EventType/EventView/EventId/511/EventDateID/518/PageID/ 2745/ThenatureofeconomicgrowthInsearchofanewframeworkforprogressandprosperity.aspx 8 Earth Summit 2012, Introductory Briefing Note: the Green economy, available at http://www.earthsummit2012.org/index.php/green‐economy‐landing/235‐green‐econ‐definition 9 For further information, see http://www.growthintransition.eu/conference (Austria) and http://www.degrowthfinland.fi/konferenssi/virtuaalikonferenssi (Finland) 10 For further information, see http://www.earthsummit2012.org/index.php/green‐economy‐landing/267‐global‐ transition
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As part of the preparation for the UN’s Earth Summit 2012, the New Economics Forum (NEF), together with the UN Stakeholder Forum, are forming an exciting partnership to build an international movement for a 'Global Transition' towards Rio+20. The partnership will involve building a coalition of actors across North and South to outline a vision for a Global Transition that will inspire decision‐makers to take action and deliver change. The aim is to present this to countries attending the Earth Summit
Criteria for transition to a sustainable economy
A common feature of the several initiatives analysed throughout this paper shows that there is a recognition of some kind of structural change, though there is often uncertainty or disagreement about what this is, beyond the use of new measures of performance/progress.
The conditions for this transition to be achieved could be shaped through several channels:11
• Policy innovation: a new paradigm is needed, which frame the issue and hierarchies the goals. Whether the structural change should operate towards the paradigm of sustainable and greener growth or towards the paradigm of a steady‐state economy whose main goal is maximising quality of life is a matter of policy decision. Political will is essential for the achievement of the three following levers of change. • Societal Discourse/priorities: the public debate on the need for a new paradigm has to be put forward, involving many stakeholders (e.g. Growth in transition Conference involving NGOs, academics, government ...) • Business Confidence: the transition could be achieved through both strategic reorientation (change in technology) and strategic recreation (change in firm’s missions, core beliefs and business models) • Social Acceptance: beyond symbolic innovation (e.g. participation in recycling), consumers have to adopt green innovations and make significant changes in their behavioural practices.
Conclusion‐Recommendation
The Round Table has looked at options for measuring economic performance and societal progress. It is clear that there is agreement with the Stiglitz Report view that well being should be the objective of society, so be the primary “thing” that should be measured.
However, there is disagreement and confusion about the role of economic growth in delivering well being. Does the Round Table want to see:
a. continued growth (where growth is seen as an amalgam of economic activity, quality of life and environmental protection, or b. continued economic growth, but with the less troublesome/damaging aspects removed?
Choosing between these two could be characterised as taking a weak or strong approach to sustainability, or having no confidence or confidence in decoupling. Currently Scotland is engaged on a route that fits (b): developing a low carbon economy that can deliver economic advancement and fund wider benefits (e.g. tackling of inequalities).
11 For more the details about the transition process, see: Geels, F. Innovating for a transition to a sustainable economy, SDRN, December 2010, London; Jacobs, M., Seminar on 'Making climate change policy: the view from inside’, RESOLVE, Surrey, October 2010.
4 The difficulty that the Round Table has had in getting to a shared view on this topic is symptomatic of the difficulties inherent in this debate.
It is proposed by the Secretariat that a recommendation of the Round Table’s report is for the Scottish Government to work with civil society to run a ‘Growth in Transition’ initiative which aims to:
• Contribute to the societal debate on the need for a new economic paradigm: what kind of growth/de‐growth is targeted for the future? • Determine how quality of life and welfare can also be reached with considerably lower use of energy and resources, • Investigate whether decoupling of production growth and resource consumption is achievable before the global population development.
Annexes show in more detail how this has been attempted elsewhere.
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A Round Table on Measurement of Economic Performance and Social Progress in Scotland Meeting 3, Technical Paper 2: Mental wellbeing and measuring quality of life
The Stiglitz Report reinforces the importance of wellbeing statistics and the need for both subjective and objective measures. It recommends that ‘surveys should be designed to assess the links between various quality‐of‐life domains for each person, and this information should be used when designing policies in various fields.’
One key domain of health is mental wellbeing, which can also factor into determining physical wellbeing. It can influence social circumstances such as employment, family relationships and community participation. Addressing mental wellbeing is, therefore, a consideration in a range of government objectives. Mental health issues are often particularly acute with those on the margins of society and need to be tackled to improve progress on social inclusion objectives. Conversely, mental wellbeing is also influenced by a range of social factors, so is a reasonable indicator of broad government performance.
Mental Health and Quality of Life
Mental health strengthens and supports our ability to have healthy relationships, make good life choices, maintain physical health and well‐being, handle the natural ups and downs of life and discover and grow toward our potential.
When we are free of depression, anxiety, excessive stress and worry, addictions, and other psychological problems, we are more able to live our lives to the fullest. Peace of mind is a natural condition, and is available to everyone.
• Employment and income can improve social position and a sense of control over life situations. • Problem‐coping and solving skills can improve sense of control and alleviate anxiety. • Physical health can influence ability to undertake life tasks including employment. • Self‐respect and esteem can allow a positive outlook on life situations. • The quality of the physical and social environment can influence the sense of control and support networks to individuals. • Access to good quality services can help to build improved strategies for coping and getting on with life.
1 Effective Mental Healthcare Reduces Medical Costs
Many research studies have shown that when people receive appropriate mental health care, their use of medical services declines. For example, one study of people with anxiety disorders showed that after psychological treatment, the number of medical visits decreased by 90%, laboratory costs decreased by 50%, and overall treatment costs dropped by 35%.
Other studies have shown that people with untreated mental health problems visit a doctor twice as often as people who receive mental health care.
Excessive anxiety and stress can contribute to physical problems such as heart disease, ulcers and colitis. Anxiety and stress can also reduce the strength of the immune system, making people more vulnerable to conditions ranging from the common cold to cancer.
Psychological problems also increase the likelihood that people will make poor behavioural choices which can contribute to medical problems. Smoking, excessive alcohol or drug use, poor eating habits, and reckless behaviour can all result in severe physical problems and the need for medical services.
"The burden of mental illness on health and productivity in the United States and throughout the world has long been profoundly underestimated. Data developed by the massive Global Burden of Disease study, conducted by the World Health Organization, the World Bank, and Harvard University, reveal that mental illness, including suicide, ranks
second in the burden of disease in established market economies, such as the United States ... Nearly two‐thirds of all people with diagnosable mental disorders do not seek
treatment ... When people understand that mental disorders are not the result of moral failings or limited will power, but are legitimate illnesses that are responsive to specific treatments, much of the negative stereotyping may dissipate." Mental Health: A Report from the Surgeon General
Mental Health is Good for Businesses
Businesses benefit when employees have good mental health. Good mental health is associated with higher productivity, better performance, more consistent work attendance, and fewer workplace accidents.
By eliminating the causes of productivity loss, absenteeism, and worker accidents, mental health services increase a company's efficiency, productive capacity, and quality of goods and services.
2 Scottish Government Indicator
The Scottish Government considers mental health a priority area, as is reflected within the NPF. There is already an existing performance indicator to measure subjective mental wellbeing, which is to ‘increase the average score of adults on the Warwick‐Edinburgh Mental Wellbeing Scale (WEMWBS) by 2011’
The questionnaire has been included in the Scottish Health Survey from 2008 onwards to allow for future monitoring of trends in mental wellbeing. There has been no significant change since the survey started.
The WEMWBS asks respondents to read 14 separate statements describing feelings relating to mental wellbeing, and indicate how often they have felt this way over the last two weeks, using a 5 point scale (ranging from none of the time to all of the time). The overall score is calculated by totalling the scores for each item (minimum possible score is 14 and the maximum is 70); the higher a person's score, the better their level of mental wellbeing.
WEMWBS is a peer‐reviewed measure of mental well‐being focusing entirely on positive aspects of mental health. As a short and psychometrically robust scale, with no ceiling effects in a population sample, it offers promise as a tool for monitoring mental well‐being at a population level.
The Scottish Government’s methodology is that annual increase in the mean WEMWBS score greater than or equal to 0.4 point will indicate performance improving. An annual decrease of greater than or equal to 0.4 point will indicate performance worsening. An annual change within 0.4 point either way will indicate performance maintaining.
Creating health and wellbeing indicators for Glasgow
The Glasgow Centre for Population Health is leading the development of Health and Wellbeing (HWB) indicators for Glasgow (to be launched soon). This work is in part a response to the city strategy action plan of Nov 2008 which proposed research into such indicators for the city. It is also a response to the recent Health Commission report ‐ a set of HWB indicators will allow progress to be measured against the recommendations of that report.
This work follows the methodology and recommendations of Stiglitz so its conclusions should be relevant to the work of this group. Echoing Stiglitz, they stress the importance of a basket of indicators; focus on themes; providing a strategic overview; trends to be monitored over time; focus on inequality and comparability. They have used data that is broadly comparable with cities across the UK and abroad, so also hope that the work will highlight relevant position. The Glasgow indicators have been developed with the close cooperation of the City Council and other key stakeholders, and there is interest in looking at how these indicators can be used to inform decision making by the Council and Government.
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Measuring What Matters: Report of the Round Table on Measuring Economic Performance and Social Progress in Scotland Annex 2: The Importance of Redefining Prosperity
The SDC has taken a close interest in the role of Government indicators and wider questions about redefining prosperity. This work culminated in its groundbreaking report – Prosperity without Growth? ‐ written by SDC’s Economics Commissioner Professor Tim Jackson.i The key arguments from this report are summarised here.
1 Introduction
Climate change, ecological degradation and the spectre of resource scarcity compound other economic problems such as failing financial markets and the current prospect of lengthening recession. An essential starting point to addressing this is to set out a coherent notion of prosperity that doesn’t rely on default assumptions about consumption growth.
It is imperative to search for alternative visions – in which humans can still flourish and yet reduce their material impact on the environment. Beyond the narrow economic framing of the question, there are some strong competing visions of prosperity.
Prosperity has undeniable material dimensions. It’s perverse to talk about things going well where there is inadequate food and shelter. But it is also clear that the simple equation of quantity with quality, of more with better, is false in general.
An even stronger finding is that the requirements of prosperity go way beyond material sustenance. Prosperity has vital social and psychological dimensions. To do well is in part about the ability to give and receive love, to enjoy the respect of your peers, to contribute useful work, and to have a sense of belonging and trust in the community.
In short, an important component of prosperity is the ability to participate meaningfully in the life of society. This view of prosperity has much in common with Amartya Sen’s vision of development as ‘capabilities for flourishing’. Such an approach emphasizes functional capabilities (such as the ability to live to old age, engage in economic transactions, or participate in political activities). Poverty can be seen as the deprivation of capability. This does not mean a set of disembodied freedoms, but rather a range of ‘bounded capabilities’ to live well – within certain clearly defined limits. A fair and lasting prosperity cannot be isolated from material conditions. Capabilities are bounded on the one hand by the scale of the global population and on the other by the finite ecology of the planet. To ignore these natural bounds to flourishing is to condemn our descendents and other life on earth to an impoverished planet. Conversely, the possibility that humans can flourish and at the same time consume less is an intriguing one. Nevertheless, it offers the best prospect we have for a lasting prosperity.
2 Key findings from Prosperity without Growth?
2.1 Material opulence as a condition for flourishing and the shortcut of GDP as an indicator of this flourishing
Our ability to flourish declines rapidly if we don’t have enough food to eat or adequate shelter. And this motivates a strong call for increasing incomes in poorer nations. But in the advanced economies, aside from some pernicious inequalities, we are largely past this point. Material needs are broadly met and disposable incomes are increasingly dedicated to different ends: leisure, social interaction, experience. Clearly though, this hasn’t diminished our appetite for material consumption.
The Easterlin Paradox concerns whether we are happier and more contented as our living standards improve. It is based upon studies which show that, although successive generations are usually more affluent that their parents or grandparents, people seemed to be no happier with their lives. Easterlin argued that life satisfaction does rise with average incomes but only up to a point. Beyond that the marginal gain in happiness declines. One of Easterlin’s conclusions was that relative income can weigh heavily on people’s minds.
The clue to these puzzles lies in our tendency to imbue material things with social and psychological meanings. A wealth of evidence from consumer research and anthropology now supports this point. Consumer goods provide a symbolic language in which we communicate continually with each other, not just about raw stuff, but about what really matters to us: family, friendship, sense of belonging, community, identity, social status, meaning and purpose in life.ii
It’s tempting to think that this is a predominantly western (and relatively modern) phenomenon. However, numerous studies suggest otherwise. The objective of the consumer, quite generally, according to anthropologist Mary Douglas, is ‘to help create the social world and find a credible place in it.’iii The symbolic role of material commodities has been identified, by anthropologists, in every single society for which records exist.
The importance of income in wellbeing is largely played out (within nations) through relative effects. What matters – more than the absolute level of income – is having more or less than those around us.iv This is particularly true in highly unequal societies where income disparities signal significant differences in social status. Income levels speak directly of status; and sometimes of authority, power and class as well. But, in addition, as we now see, income provides access to the ‘positional’ or status goods that are so important in establishing our social standing.
We have persuasive evidence on the pernicious health effects of income inequality. Healthy life expectancy for English females was 16 years higher for those in the top decile in the late 1990s than it was for those in the bottom decile.v The importance of social position is reinforced by Defra’s recent ground‐breaking study of the distribution of subjective wellbeing in the UK. Figure 7 shows reported satisfactions with different life ‘domains’ across different ‘social grades’. Those in the higher social grades tend to report significantly higher levels of satisfaction than those in the lower social grades.vi
Being at or near the top of the pile matters, it seems, both in terms of health and in terms of happiness or subjective wellbeing.
Figure 1: Well‐being inequalities in England (from Prosperity Without Growth, p. 40)
Unfortunately, this study did not include Scotland and an equivalent survey has not been undertaken in Scotland. Nevertheless, the similarities between Scottish society and that of the rest of the UK make this compelling evidence.
2.2 Exploration of the link between GDP and the basic entitlements (health and education)
The possibility that certain basic entitlements – such as life expectancy, health and educational participation – rely inherently on rising income, would cast a serious doubt on our ability to flourish without growth.
The following paragraphs test this proposition using cross‐country correlations between income and certain key components of human flourishing. The analysis uses data collected over several decades by the United Nations Development Programme. These data in themselves can neither prove nor disprove a causal link between income and prosperity. But they provide a useful starting point in understanding how important GDP might be in human flourishing.
Figure x, for example, maps life expectancy against average annual income levels in 177 different nations. The pattern is similar to the one observed when looking at the relationship between life satisfaction and income.
Figure 2: Life Expectancy at Birth vs Average Annual Income (from PWG, p.41)
The difference between the poorest and the richest countries is striking, with life expectancies as low as 40 years in parts of Africa and almost double that in many developed nations. But the advantage of being richer as a nation shows diminishing returns. As income rises, the additional benefits in terms of increased life expectancy are reduced.
Some low‐income countries have life expectancies that are on a par with developed nations. Chile (with an average annual income of $12,000) has a life expectancy of 78.3 years, greater than that of Denmark (whose average income is almost three times higher at $34,000). But it is also possible to find countries with incomes in the same range as Chile (South Africa and Botswana, for instance) where life expectancy is 30 years lower. The ambivalent relationship between income and health indicators is echoed in the relationship between income and education. The Human Development Report’s Education Index – based on a composite of educational participation rates – illustrates the same disparity between the very poor and the very rich. It also shows the familiar pattern of diminishing returns with respect to income growth (Figure 3).
Figure 3: Participation in education vs income per capita (from PWG, p.43)
Once again, it is possible to find low income countries providing educational participation rates that are as high as the most developed nations. Kazakhstan, with in average income of less than $8,000, scores higher on the index than Japan, Switzerland or the US, countries with income levels four and five times higher. Equally though, it isn’t hard to find countries with income levels of $8,000 whose educational participation rates are only two thirds of those in most developed nations.
Interestingly, there is no hard and fast rule here on the relationship between income growth and improved flourishing. The poorest countries certainly suffer extraordinary deprivations in life expectancy, infant mortality and educational participation. But as incomes grow beyond about $15,000 per capita the returns to growth diminish substantially. Some countries achieve remarkable levels of flourishing with only a fraction of the income available to richer nations.
More exploration of these relationships is warranted. Understanding the structural dependencies between income and human flourishing is a vital subject for study.vii One of the questions that needs answering is how things change over time, within countries.
Fig4
2.3 Well‐Being: A Paradox?
The above graph on subjective well‐being shows that as GDP grows, wellbeing increases. By many standards, humans are doing quite well. From a historical perspective, global production is near the highest it's ever been and in spite of the recent recession, world economic growth exceeds global population growth. Literacy rates and life expectancy are at the highest they've ever been and continue to rise. Countries like China and India that were recipients of foreign charity 50 years ago are now major exporters and will soon eclipse the economies of the US and Europe to be the largest economies in the world. There are more middle‐class working people in China and India respectively than in the US or Europe. Yet we know our planet is under stress and the world appears in bad shape due to human exploitation. This paradox has not been lost on environmental scholars. Researchers at the American Institute of Biological Sciences have released a report analyzing the paradox of "How, with the planet in such stress, how can humans do so well?" They suggest that the paradox comes about because a misunderstanding of the meaning of "well being." (1) We have measured well‐being incorrectly; (2) We have been measuring well‐being based on our dependency on food services, which are increasing, rather than on other ecological services that are in decline; (3) We are allowing technology to decouple our well‐being from nature; (4) We are not accounting for time lags in future declines in well‐being. An additional observation is that, beyond a certain income level, life satisfaction levels off and does not rise permanently in response to increased income. As figure xx illustrates, the so‐called life‐satisfaction paradox is largely a malaise of the advanced economies. It is only after an income level of about $15,000 per capita, that the life‐satisfaction score barely responds at all even to quite large increases in GDP. In fact the assumed relationship between income and life‐satisfaction can be turned on its head here. Denmark, Sweden, Ireland and New Zealand all have higher levels of life‐satisfaction than the USA, but significantly lower income levels.
By contrast, at very low incomes there is a huge spread in terms of life satisfaction, but the general trend is a quite steeply rising curve. A small increase in GDP leads to a big rise in life satisfaction.
These data underline one of the key messages of Prosperity Without Growth. There is no case to abandon growth universally. But there is a strong case for the developed nations to make room for growth in poorer countries. It is in these poorer countries that growth really does make a difference. In richer countries the returns on further growth appear much more limited. In the language of economics, marginal utility (measured here as subjective wellbeing) diminishes rapidly at higher income levels.
The below figure illustrates how static life satisfaction remains against rising income levels in the UK.
Figure 5: GDP per head and life satisfaction
3. What does the GDP actually measure?
There are three distinct way of thinking about the GDP: the expenditure‐based GDP, the national income, or the total value added in the economy. The different calculations all come up with more or less the same total and can be thought as measuring the volume of economic flow at different points around the circular economy.
The economy is in equilibrium when the aggregate supply equals the ‘aggregate demand’, relating to the expenditure‐based GDP. To help understanding the different computations of the GDP, an over‐simplified picture of the circular flow of the economy is provided by Figure XX.
Figure 6: The ‘Engine of Growth’ in Market Economies (PWG, p.61)
The expenditure‐based GDP refers to the sum of all final expenditures on goods and services in the economy, namely private consumer expenditure, public government expenditure, gross investment in fixed capital and net exports.
In the above graph, the aggregate demand is shown by the left flow (consumer spending, investment).
Note that missing in this graph are the public sector and the foreign sector, therefore government expenditure and net exports and do not appear. Removing these crucial elements from the equation gives us a picture of a closed economy without a public sector. It allows us to understand the basics of the circular economy driven by increasing productivity.
The ‘aggregate supply’ (total value added or national income) is shown by the right flow (produced goods and services/ incomes). The total value added refers to the output of goods and services from all the productive enterprises within a nation while the National Income refers to the sum of all incomes earned by people living in the country.
It is estimated through a production function which tells us how much (in monetary terms) an economy is capable of producing with any given input of the factor of productions (=capital, labour, technological efficiency, represented by the inside flow of increasing productivity)
3.1 What does GDP not measure?
‘The GDP is really nothing more or nothing less than a measure of ‘busy‐ness’ of the economy’
To put it in a nutshell, the above graph discloses the GDP as a monetary measure of things exchanged on markets. However, lot of things happen outside of markets that result from or impact on economic activity. These are positive (value of household work, caring and voluntary work) or negative (ecological and social damage from economic activities). The shortfalls of GDP as a useful measure of even economic well‐being could be summarized in the following points. The GDP fails to:
o Account for changes in the asset base (depreciation of capital stocks and level of indebtedness)
o Adjust for the costs associated with the degradation and depletion of natural capital (finite resources and ecosystem services) generated through economic activities.
o Incorporate the real welfare losses from having an unequal distribution of income
o Correct for defensive expenditures (costs of crime, car accidents, industrial accidents, family breakdown, ...)
o Account for non‐market services such as domestic labour and voluntary care
3.2 The dilemma of growth
Having this vision to hand doesn’t ensure that prosperity without growth is possible. Though formally distinct from rising prosperity, there remains the possibility that continued economic growth is a necessary condition for a lasting prosperity. And that, without growth, our ability to flourish diminishes substantially.
There are three principal and related propositions in defence of economic growth. The first is that material opulence is (after all) necessary for flourishing. The second is that economic growth is closely correlated with certain basic ‘entitlements’ – for health or education, perhaps – that are essential to prosperity. The third is that growth is functional in maintaining economic and social stability.
There is evidence in support of each of these propositions. Material possessions do play an important symbolic role in our lives, allowing us to participate in the life of society. There is some statistical correlation between economic growth and key human development indicators. And economic resilience – the ability to protect jobs and livelihoods and avoid collapse in the face of external shocks – really does matter. Basic capabilities are threatened when economies collapse.
Growth has been (until now) the default mechanism for preventing collapse. In particular, market economies have placed a high emphasis on labour productivity. Continuous improvements in technology mean that more output can be produced for any given input of labour. But crucially this also means that fewer people are needed to produce the same goods from one year to the next.
Figure 7: UK Consumer debt and Household Savings 1993‐1998 (PWG, p. 22)
4. The Myth of Decoupling
The conventional response to the dilemma of growth is to call for ‘decoupling’: continued economic growth with continually declining material throughput.
Since efficiency is one of the things that modern capitalist economies are supposed to be good at, decoupling has a familiar logic and a clear appeal as a solution to the dilemma of growth.
It’s vital to distinguish between ‘relative’ and ‘absolute’ decoupling. Relative decoupling refers to a situation where resource impacts decline relative to the GDP. Impacts may still rise, but they do o more slowly than the GDP. The situation in which resource impacts decline in absolute terms is called ‘absolute decoupling’. Needless to say, this latter situation is essential if economic activity is to remain within ecological limits.
Evidence for declining resource intensities (relative decoupling) is relatively easy to identify. The energy required to produce a unit of economic output declined by a third in the last thirty years, for instance. Global carbon intensity fell from around one kilo per dollar of economic activity to just under 770 grams per dollar.
Evidence for overall reductions in resource throughput (absolute decoupling) is much harder to find. The improvements in energy (and carbon) intensity noted above were offset by increases in the scale of economic activity over the same period. Global carbon emissions from energy use have increased by 40% since only 1990 (the Kyoto base year).
There are rising global trends in a number of other resources – a range of different metals and several non‐ metallic minerals for example. Worryingly, in some cases, even relative decoupling isn’t happening. Resource productivity in the use of some structural materials (iron ore, bauxite, cement) has been declining globally since 2000, as the emerging economies build up physical infrastructures, leading to accelerating resource throughput. The scale of improvement required is daunting. In a world of nine billion people, all aspiring to a level of income commensurate with 2% growth on the average EU income today, carbon intensities (for example) would have to fall on average by over 11% per year to stabilise the climate, 16 times faster than it has done since 1990. By 2050, the global carbon intensity would need to be only six grams per dollar of output, almost 130 times lower than it is today.
Substantial economic investment will be needed to achieve anything close to these improvements.
Lord Stern has argued that stabilising atmospheric carbon at 500 parts per million (ppm) would mean investing 2% of GDP each year in carbon emission reductions. Achieving 450 ppm stabilisation would require even higher levels of investment. Factor in the wider capital needs for resource efficiency, material and process substitution and ecological protection and the sheer scale of investment becomes an issue.
More to the point, there is little attempt in existing scenarios to achieve an equitable distribution of incomes across nations. Unless growth in the richer nations is curtailed, the ecological implications of a truly shared prosperity become even more daunting to contemplate.
The truth is that there is as yet no credible, socially just, ecologically sustainable scenario of continually growing incomes for a world of nine billion people.
In this context, simplistic assumptions that capitalism’s propensity for efficiency will allow us to stabilise the climate and protect against resource scarcity are nothing short of delusional. Those who promote decoupling as an escape route from the dilemma of growth need to take a closer look at the historical evidence – and at the basic arithmetic of growth.
Figure 8: Carbon intensities Now and Required to meet 450ppm Target (PWG, p.55)
4.1 Decoupling covers more than Carbon emissions
Figure 9 Global Trends in Primary Metal Extractions: 1990‐2007 (PWG, p.52)
However, it is not just carbon emissions that are inextricably tied to economic growth. Many of the earth’s finite resources are being used at increasing and unsustainable rates as the world’s economies grow. Ultimately what count most in terms of global limits are worldwide statistics. Both climate change and resource scarcity are essentially global issues. So the final arbiter on the feasibility of absolute decoupling – and the possibilities for escaping the dilemma of growth – are worldwide trends. We know there is a rising global trend in fossil fuels and carbon emissions. Figure xx shows the global trend in the extraction of another vital set of finite resources – metal ores.
What’s striking from Figure 9 is not just the absence of absolute decoupling. There is little evidence of relative decoupling either. Some improved resource efficiency is evident in the earlier years, but this appears to have been eroded more recently. Particularly notable is the increased consumption of structural metals. Extraction of iron ore, bauxite, copper and nickel is now rising faster than world GDP.
It’s clear that history provides little support for the plausibility of decoupling as a sufficient solution to the dilemma of growth. But neither does it rule out the possibility entirely. A massive technological shift; a significant policy effort; wholesale changes in patterns of consumer demand; a huge international drive for technology transfer to bring about substantial reductions in resource intensity right across the world: these changes are the least that will be needed to have a chance of remaining within environmental limits and avoiding an inevitable collapse in the resource base at some point in the (not too distant) future.
The message here is not that decoupling is unnecessary. On the contrary, absolute reductions in throughput are essential. The question is, how much is achievable? How much decoupling is technologically and economically viable? With the right political will, could relative decoupling really proceed fast enough to achieve real reductions in emissions and throughput, and allow for continued economic growth? These critical questions remain unanswered by those who propose decoupling as the solution to the dilemma of growth. More often than not, the crucial distinction between relative and absolute decoupling isn’t even elucidated.
5. Conclusions: 12 steps to a sustainable economy
Ecosystems
Ecological investment ecological Ecosystem productivity services
Ecological enterprise
Participation Capabilities
improved flourishing
People
Figure 10: A bounded economy of capabilities for flourishing (Book PWG, p. 195)
5.1 Building a Sustainable Macro‐Economy
It is time to develop a new macro‐economics for sustainability that does not rely for its stability on relentless growth and expanding material throughput.
9 Developing macro‐economic capability
Tools have to be developed to explore different configurations of the key macro‐economic variables and to map the interactions between these and ecological variables.
9 Investing in jobs, assets and infrastructures
Investment emerges as a key component of both economic recovery and new macroeconomics for sustainability, whose targets include public sector (transport, public spaces, and public assets) and ecosystem maintenance and protection (clean technology, renewable energy, carbon‐saving measures, resource efficiency, support to green businesses).
9 Increasing financial and fiscal prudence We have to move from a debt‐driven materialistic consumption to a stronger regulation of (inter)national financial markets through an increasing public control (of money supply, market practices) and incentivising domestic savings.
9 Improving macro‐economic accounting
There is an urgent need to develop more robust measures of economic well‐being than GDP that account systematically for ecological and social factors.
5.2 Protecting Capabilities for Flourishing
Lasting prosperity implies freeing people from materialistic consumerism as the basis for participating in life of society and providing them opportunities for sustainable and fulfilling lives.
9 Sharing the work and improving the work‐life balance
People’s jobs and livelihoods have to be protected through working time policies (reduction or/and greater choice of working hours, better incentives to both employer and employees for family time, parental leave, sabbatical breaks...).
9 Tackling systemic inequality
To prevent income inequality to undermine a nation’s well‐being as a whole, redistributive mechanisms and policies should be further implemented, going from revised income tax structures to improving local environment in deprived areas.
9 Measuring prosperity
An appropriate measurement framework for a lasting prosperity has to be defined, which would entail the assessment of people’s capabilities for flourishing through the measurement of outcome variables.
9 Strengthening human and social capital
Resilient social communities have to be created that enhance people’s capabilities for flourishing and protect them from economic shocks
9 Reversing the culture of consumerism
Incentives towards materialistic consumption and unproductive status competition have to be dismantled.
5.3 Respecting Ecological Limits
Establishing clear resource and environmental limits and integrating these limits into both economic functioning and social functioning is essential.
9 Imposing clearly defined resource/emissions caps
The contraction and convergence model developed for climate‐related emissions should be applied more generally. Effective mechanism to impose declining caps and sustainable yields for respectively non‐ renewable and renewable resources should be set in place.
9 Fiscal Reform for sustainability An ecological tax reform has to be designed by the government as an appropriate mechanism for shifting the burden of taxation from incomes onto resources and emissions.
9 Promoting Technology Transfer and Ecosystem Protection
Some room has to be made for poorer nations to expand their economies in a sustainable way and within ecological limits through the establishment of a global technology investment fund.
i Sustainable Development Commission (SDC) (2009) Prosperity without Growth?, p.55 ii For more insight on the symbolic role of consumer goods see (eg): Bauman 2007; Douglas and Isherwood 1996; Dittmar 1992; Baudrillard, J 1998; McCracken 1990. On its relevance for sustainable consumption see Jackson in particular 2005a&b, 2006b, 2008b. iii Douglas 2006. iv Evidence of the importance of relative income was first highlighted by Richard Easterlin (1972). For more recent confirmation see Easterlin 1995, Dolan et al 2006 & 2008. v Data from the Health Survey for England, Madhavi Bajekal, National Centre for Social Research, cited in Marmot 2005. See also Wilkinson 2005, Marmot and Wilkinson 2005. vi The most notable exception to the rule that higher social grades show higher satisfaction is in the domain of community, where the lower social grades profess themselves more satisfied on average than the higher grades. vii There are some notable recent attempts to develop this field of study, in particular Hans Rosling’s interactive GAPMINDER project. Online at http://www.gapminder.org.
Measuring What Matters: Report of the Round Table on Measuring Economic Performance and Social Progress in Scotland
Annex 2: Evaluating Scotland’s approach to measurement of progress
1 Introduction
The National Performance Framework (NPF) was published in October 2007, two years before the Stiglitz Report. In some ways, this means that the NPF was ahead of the curve of political thinking, in that Scotland clearly has a more developed model to measure performance against than many of the western Governments now attempting to review the Stiglitz Report. It is worth looking at the NPF in light of the Stiglitz Report recommendations to help guide work on any successor frameworks.
Our review focused on the Government’s single Purpose and the related Purpose Targets (see below), though we also took into account the wider objectives, outcomes and indicators. Focusing on the Purpose Targets is relevant because the Scottish Government itself describes them as “specific benchmarks for sustainable economic growth [which can also] ensure that growth is shared by all of Scotland.” 1
The Government also says that “Together, these targets help define the characteristics of the economic growth that we want to see – a growth that is sustainable, cohesive and which builds solidarity in all of Scotland’s regions. They also set a whole new level of ambition for economic performance, not only over the lifetime of this term of the Parliament, but for the long term.” 2
A critical recommendation of the Stiglitz Report is that Government cannot expect to accurately measure progress using a single indicator, so must use a “dashboard” that sets out a mixture of critical individual and aggregate indicators. The Round Table was of the strong view that Scotland has already embraced this concept and that the Purpose Targets in use represented such a dashboard.
The nine Purpose targets
Indicator Target Economic Growth (GDP) • To raise the GDP growth rate to the UK level by 2011 • To match the growth rate of small independent EU countries by 2017 Productivity • To rank in the top quartile for productivity amongst our key trading partners in the OECD by 2017 Participation • To maintain our position on labour market participation as the top performing country in the UK and to close the gap with the top five OECD economies by 2017 Population • To match average European (EU15) population growth over the period from 2007 to 2017, supported by increased healthy life expectancy in Scotland over this period Solidarity • To increase overall income and the proportion of income earned by the three lowest income deciles as a group by 2017 Cohesion • To narrow the gap in participation between Scotland’s best and worst performing regions by 2017 Sustainability • To reduce emissions over the period to 2011 • To reduce emissions by 80 per cent by 2050
An important element of the Round Table’s work has been its use of Amartya Sen’s capabilities approach, which the Stiglitz Report makes wide use of. Sen asks if people have “capabilities for flourishing” and insists that the key questions we should be asking are to do with how well people are able to function in any context (e.g. Are they well‐nourished? Can they take part in the life of community? Can they find worthwhile jobs?).3
The Scottish Government’s Single Purpose is itself based on the notion of flourishing, something the Round Table is very supportive of. However, the NPF then relies too heavily on the assumption that economic growth is the key driver to ensure capabilities for all of Scotland to flourish. However, this correlation is not always obvious as the following analysis will show.
Our Round Table’s has broken down its consideration of the Stiglitz Report into seven separate tests. We have found that only one of these seven is satisfactorily covered by the NPF. Three are partially covered, and three not covered. A detailed analysis is set out in the online Annexes accompanying this Report. Below we summarise our findings on each of the seven issues raised by the Stiglitz Report, while Table XX sets out a summary of our review.
2 Evaluating the NPF against the Stiglitz Report Recommendations
2.1 Moving from Production to material well‐being In line with most governments and most economies, measuring Scotland’s performance of the economy is of primary importance to this Government. In looking at the limits of GDP as a useful indicator, the Stiglitz Report is clear that not only should we not expect GDP to be a useful barometer of wider well being and quality of life, having a society solely or primarily focused on economic progress itself is inadequate. Instead we should be trying to measure is Scotland’s material well‐being.
By itself GDP cannot measure our material well‐being, because broadly speaking it is simply a measure of the ‘busy‐ ness’ of the economy.1 All it really does is count up the economic activities going on within a particular area or country.
What GDP does not do is measure changes in the asset base. Gross fixed capital investment is measured, but depreciation of capital stocks goes unaccounted for and GDP is almost completely blind to levels of indebtedness.
The point is not that GDP is a bad indicator – it is clearly a useful measure of one part of economic activity – but that we are asking too much of it. As the Stiglitz Report notes, measuring production – a variable which determines the level of employment – is essential for the monitoring of economic activity. However, the Stiglitz Report is also clear that the time has come to shift emphasis from measuring economic production to measuring people’s well‐being. And this means that while GDP should remain on a longer list of economic statistics, the time has come to move it from the head of the list.
Round Table Conclusion 2: Focusing on delivering economic growth as the end rather than the means is inadequate. Our collective purpose should be improving people’s well being, so the time is right for Scotland to shift its emphasis from measuring economic production to measuring people’s well‐being.
Two of the Scottish Government’s purpose Targets use GDP as a measurement of success, while the third measures relative economic productivity. Yet economists understand that production can expand while income decreases, or vice versa. So to have a proper measure of how economic activity affects people’s well being, a wider set of measures than GDP should be used’. The Stiglitz Report is clear that people’s material living standards are more closely linked to net national income, real household income and consumption.
1 For a more detailed explanation of what GDP measures see Chapter 2. Round Table Conclusion 3: The Scottish Government should continue to measure GDP, but greater prominence and importance needs to be given to measures of net national income, real household income and consumption.
2.2 Measuring material well‐being at the household level The Stiglitz Report makes clear that while it is useful and informative to track the performance of an economy at a national level, if we want to follow trends in the material living standards of Scottish people, then it is better to use measures of household income and consumption.
Measuring material well‐being from the perspective of the Scottish household would mean taking account of payments between sectors such as taxes going to government, social benefits coming from government, and interest payments on household loans going to banks. If done properly, any measures of household income and consumption should also reflect the contribution of in‐kind services provided by government, such as health care and education. Stiglitz Issue Relevant element of NPF Rating Recommendation Report
Purpose Targets: Economic The Government relies too heavily on GDP as an indicator of economic performance. GDP From production to well‐being R1 Growth, Productivity, Solidarity, has its place in a longer list of economic measures, but greater importance should be given Participation to measures of net national income, real household income and consumption.
Government measures income and relative income through its Solidarity target. However, it Household perspective R2 Purpose Targets: Solidarity ☺ should consider factoring in the use of government services (e.g. health and care services) as part of the measurement of material living standard.
Purpose Targets: Solidarity, The Stiglitz Report recognises the importance of measuring relative income. The Scottish Participation Distribution/inequalities R4, R8 Government should undertake to measure loss of welfare triggered by inequalities in all Plus: National Outcomes and dimensions of quality of life. National Indicators
Purpose Targets: Productivity, The Purpose Targets do not measure non‐market activities (third sector and household Non‐market activities R5 Participation activity), though doing so is part of the process of recognising a more rounded set of Plus: National Indicators economic activities and “goods”.
The NPF does make use of subjective and objective measures. However, these need to take Purpose Targets: Economic account of a wider group of non‐economic issues, and include other freedoms important to Growth, Productivity, Solidarity, Scottish life (e.g. participation in democracy). This is based on a recognition of the Subjective/objective measures R6, R7 Participation difference made by Sen between functionings (activities and situations that people Plus: National Outcomes and spontaneously recognise to be important) and freedoms (the ability to choose between a National Indicators combination of functionings).
Purpose Targets: Economic The NPF does set out a structure that links its different parts. In practice the links and Growth (GDP), hierarchy are not sufficiently clear. Government needs to remedy this by investigating the Cross‐cutting issues R8, R9 Plus: Government's single link between the several indicators/outcomes and through developing aggregate indicators Purpose and National Indicators that can sit within the top level Purpose Targets/ dashboard. (ecological footprint) Current sustainability Purpose targets only consider greenhouse gas emissions, and the wider set of indicators used is insufficient. A dedicated set of sustainability indicators are Purpose Targets: Sustainability, required that better measure future economic, environmental and social stocks. Sustainability R3, R11, R12 Solidarity, Productivity Environmental indicators – e.g. on greenhouse gas emissions – need to be reframed to show distance from limits or dangerous levels. The Scottish Government already measures overall income through its Solidarity Purpose Target. This is a good start, but to fully meet Stiglitz Report’s second recommendation, the Scottish Government also needs to measure consumption. It must also look at how these household level measurements can take account of in‐kind public services.
Round Table Conclusion 4: In any set of Purpose Targets or headline indicator set, the Scottish Government should publish measures of household consumption alongside its current measure of household income.
2.3 Measuring distribution and inequalities The Scottish Government already measures income alongside “the income earned by the three lowest income deciles as a group” through its Solidarity Purpose Target. This is welcomed by the Round Table. However, Scotland’s Participation and Cohesion Purpose Targets measure participation in the labour market (at the UK & regional level) as a means of providing a more equitable distribution of the benefits of growth.
This means that the Scottish Government’s current approach assumes that inequalities should be tackled through increasing growth. Access to employment and associated income is one element of equality. However, as demonstrated by many authors including the World Bank,iv there is little or no evidence in favour of the (Kuznets’s) hypothesis which states that as economy grows, levels of inequalities fall. Therefore, if the ultimate purpose of the Scottish Government is to tackle significant inequalities, the means to ensure it should be questioned more rigorously and better measures adopted.
It is worth highlighting that the labour market is often seen as the panacea to tackle inequalities. This approach tends to lead to a focus on inequalities of income. This approach goes against the multi‐ dimensional approach recommended by the Stiglitz Report. Indeed, this multi‐dimensional approach does not appear in Scotland’s dashboard.
As part of its work, our Round Table looked at the Equality and Human Right’s Commission’s (EHRC) Equality Measurement Framework (EMF).v The EMF is a good illustration of the Stiglitz Recommendations, as it is based on the capabilities approach to assess inequalities in all dimensions of well‐being.
The Round Table has been impressed by the EMF and pleased to hear that the Scottish Government is currently working with the EHRC to align the NPF with it. We understand that the Scottish Government intend to use the EMF in relation to National Outcome 7 (‘We have tackled the significant inequalities in Scottish society’). The existing measurement for this outcome is largely based on socio‐economic inequality and does not capture group based inequality, so using the EMF will allow the Scottish Government to tell a more comprehensive story of inequality in Scotland.
As well as continuing its work with the EHRC on measuring equality, to meet the Stiglitz Report’s third recommendation, the Scottish Government must also collect data on the distribution of income, consumption and wealth.
To be most effective the Scottish Government should use measures that show average and median income, consumption and wealth. It also needs to report (as it is mostly doing) what is happening in the lowest income/wealth deciles. The Round Table also agree with the Stiglitz Report findings that tracking experiences across different income/wealth deciles is important to properly measure a range of quality‐ of‐life outcomes. This point is returned to below. Round Table Conclusion 5: The Scottish Government must supplement measures on income distribution with ones that show distribution of wealth and consumption. The Government also needs to measure inequalities in other dimensions of quality of life such as health and education.
2.4 Measuring non‐market activities The way in which Scotland’s economy and society functions has changed significantly over time. Most relevant here is the shift away from people receiving services from other family members or their community to purchasing them on the market. This is particularly apparent in child care and social services.
With GDP as our conventional measure, such a shift is seen as a rise in income. In actual fact, it may simply be that the level of service provided has remained the same, but it is being purchased rather than gained for free, so this change may actually mask a fall in living standards.
Many services that households produce for themselves are not captured by official income and production measures, yet they make up an important part of economic activity. As the Stiglitz Report makes clear this is an area fraught with difficulties. The Round Table follows the Stiglitz Report in recommending that the Scottish Government should start with information about how people spend their time that is comparable both over the years and across countries. This would involve production of comprehensive and periodic accounts of household activity as satellites to the core national accounts.
Round Table Conclusion 6: The Scottish Government needs to measure the contribution of the household to the Scottish economy. A practical way to begin this would be the production of comprehensive and periodic accounts of household activity that sit as satellite accounts to the core national accounts.
Of similar importance are the services provided by the third sector. Over the last twenty years there has been a marked shift towards government and the general public looking to the third sector to provide an increasing number of national and local services; a trend that is likely to continue. Much of this activity is captured in GDP figures.
However, while the third sector overlaps government and private activity, it is not motivated by delivering economic growth, but provision of services that meet charitable or community aims. While the third sector will be motivated to provide services efficiently, it often does not have the same motivation to act productively as the rest of the economy. Scotland measures productivity (i.e. GDP per hour worked), yet the third sector depends on a substantial level of voluntary labour, tends to provide services that are labour intensive (e.g. care) and may even have an objective to maximise use of labour (e.g. employment creation, or providing employment to those with particular physical or mental health issues). In other words, this sector is unproductive by conventional standards (economists refer to this as Baumol’s “disease”). As such a focus on productivity might discriminate against Scotland’s third sector if it undermines what is the real goal: providing meaningful work – i.e. helping people’s capabilities for flourishing ‐ and the positive contribution to community that these sectors provide.
The NPF does seek to measure the turnover of the social economy, but seeking to represent success of the social economy by distilling this down to an economic indicator of the level of activity, risks repeating the mistake of measuring economic progress simply through GDP. A more comprehensive approach is required. Round Table Conclusion 7: The Scottish Government needs to better measure the contribution of the third sector to the Scottish economy. A practical way to begin this would be the production of comprehensive and periodic accounts of the third sector that sit as satellite accounts to the core national accounts.
2.5 Capturing objective and subjective dimensions of quality‐of‐life As part of its inquiry into Measuring Progress, the Round Table met with the Office of National Statistics (ONS), which is currently developing new measures of national well‐being for the UK Government. Its first task is consulting on what factors people judge make their lives worthwhile.
The Scottish Government is following the work of the ONS closely and will clearly need to decide how it might use any resulting national statistics in its own work. Certainly we would expect the work of the ONS to help meet the Scottish Government fulfil Recommendation 6, 7 and 8 of the Stiglitz Report.
However, the Round Table agree strongly with the Stiglitz Report’s view that the gathering information to help measure quality‐of‐life must go beyond people’s self‐reporting and capturing their perceptions. Instead, it must include measurement of their “functionings” and freedoms.2
The language of “functionings” and freedoms is difficult for many; something which the Round Table has itself grappled with. However, in the end Round Table members were clear that if we are to make well‐ being the primary goal for Scotland this will necessitate adopting different measures, and with this different terms and descriptions. The Scottish Government itself has already taken a small step towards this by including in its Purpose “opportunities for all in Scotland to flourish.”
More work will be needed if Scotland is to face up to this challenge. In particular Scottish civil society needs to lead a robust and honest conversation about what really matters in Scotland. For its part the Round Table agrees with the Stiglitz Report that “what really matters are the capabilities of people, that is, the extent of their opportunity set and of their freedom to choose among this set, the life they value.” [p15] The Scottish Government was heavily influenced by the Virginia Model in the design of the NPF. However, a critical difference is that in Virginia, a wide range of organisations were involved in a debate about what was important for the state, and what measures of performance should be chosen as its long term goals. Given the constraints of time, the Scottish Government could not conduct a similar exercise in 2007. The next Government however, should look at how it updates the current NPF, and in particular look carefully at how it works with Civil Society to ensure a proper debate takes place on what matters for Scottish people, communities and businesses.
Round Table Conclusion 8: Civil Society organisations should lead a national debate about what really matters for Scotland. This debate should feed into decisions of future Scottish governments about the long term goal or goals for Scotland and how to measure our progress.
What measures we choose to help us track these functionings and capabilities will always be a value judgement (deciding this is the role of politicians and civil society). But as the Stiglitz Report (again) notes: “while the precise list of the features affecting quality of life inevitably rests on value judgements, there is a consensus that quality of life depends on people’s health and education, their everyday activities
2 This part of the Stiglitz Report is based heavily on Amartya Sen’s Capabilities approach. More information on this is contained in an Annexe Paper submitted to the Round Table’s 2nd meeting. (which include the right to a decent job and housing), their participation in the political process, the social and natural environment in which they live and the factors shaping their personal and economic security”. [p15]
The Stiglitz Report also makes clear that to effectively track the functionings and capabilities of Scotland and its people, the Scottish Government will need to use a range of subjective and objective measures. The NPF already does this to some extent. While Scotland’s dashboard (its Purpose Targets) only contains objective measures, its National Indicators complete the picture with numerous subjective measures (e.g. people’s perception of quality of public services delivered, percentage of adults who rate their neighbourhood as a good place to live, perception of the crime rate, perception of Scotland’s reputation).
Most welcome by our Round Table was the inclusion of an Indicator of Mental Well‐Being, as defined by the Warwick‐Edinburgh Scale. Mental well being can be a key factor in overall well being, and because it is influenced by a range of social factors is a reasonable indicator of broad government performance.
However, further work on the dashboard would improve how it measures and reports on quality of life and capabilities.
Round Table Conclusion 9: The NPF would be improved through including a subjective measure in its high level dashboard. We recommend including both the measure of the Warwick‐Edinburgh Mental Well Being and an index of people’s overall life satisfaction.
2.6 Improving our Understanding of Cross Cutting Issues Analysis of the NPF shows that it very large and eclectic, and a concern is over whether its effectiveness is diminished because of its heterogeneity. Clearly the NPF was constructed at a pace, meaning that there was little time to test all indicators with stakeholders. The Round Tables sees that a consequence of this is that there has been little exploration of linkages between different indicators, save for the expectation that increased economic growth will help progress other critical areas of Scottish well‐being.
The Stiglitz Report is clear that given the wide variety of issues that could be tracked to demonstrate increasing well‐being, there is merit in using aggregate indicators that help track performance for a longer list of necessary indicators. The NPF currently includes two aggregate indicators: GDP and ecological footprint (the latter is discussed in more detail below). It would benefit by also including an aggregate indicator to track quality of life in Scotland.
Our Round Table also agreed that there is confusion in the NPF on the relationship between indicators. The concern is that there is a lack of information or interpretation highlighting causal links between the indicators, their relationship to Purpose, and/or hierarchies amongst the indicators used. Without this, all indicators must be viewed in isolation, as set out on the Scotland Performs website. This limits the opportunities to scrutinise delivery against indicators, and the use of indicators in helping Government formulate policy. This is explored in more detail in Section 5.3 below.
2.7 Better measurement of current and future sustainability The Stiglitz Report is clear that if we are to better track economic performance we need to better measure and report on Wealth in Scotland. As the financial crisis has reminded us, the levels of debt and savings are critical to the sustainability of our economy and therefore our well‐being. The Stiglitz Report is clear that having the opportunity to consume (to meet our needs and wants) over time is an important component of well‐being, and requires both income and wealth. Without the two the danger is that consumption becomes fuelled by debt spending, which is of course unsustainable. The NPF clearly does not contain such an indicator as the solidarity purpose only aims at increasing overall income without any reference to wealth. Neither the National Outcomes nor the National Indicators refer to a household wealth indicator.
The Stiglitz Report is also clear that alongside tracking of financial stocks like wealth, we need to track stocks which tell us about future stocks relating to our environment and quality of life. Put another way, do we have any surplus or any stockpile that can be called upon in the future? If not and we are living in debt then we can expect a future rebalancing, and a deterioration of our quality of life.
The notion of stock is especially useful for economic and environment assets. For measuring social assets, we would better talk about social resilience or the handing on of cultural values to the future generations (for example maintaining mutually supportive communities, something that the New Economics Foundation measures through its National Accounts of Well‐Being). Measuring human capital is a complex issue, as it could be considered both a social or economic asset.
The relevant test for whether the dashboard of Purpose Targets accords with the Stiglitz Report recommendations and effectively measures sustainability could be summarised as follows:
assuming we have been able to assess what is the current level of well‐being, the question is whether the continuation of present trends does or does not allow it to be maintained.
This question draws attention to what resources we have at our disposal today, and onto how we manage these in ways that make it possible to maintain and further develop this resource over time.
For the Round Table it is clear that the Scottish Government needs to take a more integrated approach, as required by sustainable development principles. Under the five principles of sustainable development, our well‐being and the maintenance of an environment capable of meeting our needs as seen as the end goals, while economic development, sound science and good governance are seen as supporting principles that can deliver this end goal.
However, in the NPF, and in particular its dashboard of Purpose Targets, economic progress seems to gain upper hand over the other objectives. For example, the NPF states that Scotland's environment and natural heritage is a key asset and source of competitive advantage (sustainability purpose) and that a supply of education and skills that is both responsive to, and aligned with, actions to boost demand for skills is an action to be taken to influence productivity (productivity purpose). Although the environment and social systems do rightly contribute significantly to well‐being through the economy, they also contribute to well‐being directly; something which is not reflected in the NPF.
Our Round‐Table has met with Defra to learn of its current work on sustainable development indicators, as part of UK Government work responding to the Stiglitz Report findings. We also reviewed previous Scottish Government sustainable development indicators which were in use between 2006 and 2009.
The Stiglitz Report is clear that the issue of sustainability is a complex one, taking into account stocks available for future generations. The recommendation is that a separate dashboard of indicators is needed if we are to properly measure and be able to better track how current performance strengthens or weakens our future sustainability.
Given this, it is disappointing that the Scottish Government ceased tracking and publishing progress on its own sustainable development indicators in 2009. It is now behind where the UK Government is on this issue. We strongly recommend that the Scottish Government looks to learn from current UK work to distil the larger sustainable development set of 65 indicators down to a more manageable set of 29. Round Table Conclusion 10: The decision to cease monitoring and reporting against a Scottish sustainable development indicator set was a step backwards. Use of a sustainable development indicator set would greatly complement Scotland’s National Performance Framework. Without this set, the NPF is weak at being able to track future levels of economic, social and environmental stocks.
The NPF contains two Purpose Targets that are referred to as Sustainability Targets. These track short term (to 2011) and long term (to 2050) delivery against Scotland’s climate change targets. Alongside these the National Indicators contain 7‐9 measures that could be seen as tracking environmental issues. While inclusion of such environmental indicators is positive, more work is needed to ensure that these indicators accord with the findings of the Stiglitz Report.
In particular, the Stiglitz Report is clear that what we should be tracking is the proximity to causing environmental damage through breaching environmental limits. The NPF adopted its climate change targets two years before the Scottish Parliament passed its Climate Change Act. With the passing of the Climate Change Act, and the publishing of Scotland’s greenhouse gas budgets, the Scottish Government could now adopt a better indicator of progress showing how we are contributing to the avoidance of climate change. What matters is not simply the overall progress to a long (or even short) term target, but the cumulative amount of greenhouse gas emissions avoided.
Round Table Conclusion 11: The presence of a climate change indicator in the NPF is welcome. This needs to be amended to better report on cumulative emissions reduction and Scotland’s role in avoiding a breach of this important environmental limit.
While the inclusion of climate change in the Purpose Targets is welcome, there are other key environmental assets such as biodiversity not included, and also not satisfactorily measured in the wide indicator set. The wider Indicator set includes measures of biodiversity, waste, fish stocks, protected nature sites and ecological footprint. However, there is an obvious lack of comprehensiveness in the choice of these measures, and they do not embed the notion of environmental limits, except for the ecological footprint.
While the use of ecological footprint as an indicator is a positive step, the Stiglitz report is also clear that the use of composite indicators such as this, must not be done in isolation, but instead be used as a shorthand to track wider performance. Unless such an indicator is helping paint a general picture of how near or far we are from environmental targets, and inviting us to look more closely at the detail of the various components then it is failing in its role as a useful indicator.
Our recommendation is that the Scottish Government should take a hybrid approach to deal with the complexity of measuring environmental aspects of sustainability; namely a limited number of indicators – a “micro‐dashboard” if you will – that can sit within the NPF but refer across to the wider set of sustainable development indicators.
Round Table Conclusion 12: Any dashboard such as the Purpose Targets of the NPF need to contain a small number of indicators drawn from a wider set of sustainable development indicators. As a minimum these should include separate indicators on climate change and biodiversity, but could also include an aggregate indicator such as ecological footprint.
1 Scottish Government, 2007, Comprehensive Spending Review, Chapter 8 2 Scottish Government, 2007, Comprehensive Spending Review, Chapter 8 3 Sen, Armatya (1998) ‘The living standard’. Chapter 16 in Crocker, D. And T. Linden (eds) (1998) The Ethics of Consumption. New York: Rowman and Littlefield, 287‐311. iv Stymne and Jackson 2000, Goodman and Oldfield 2004, FT, 2006. China’s poorest worse off after boom. Financial Times online: http://www.ft.com/cms/s/e28495ce‐7988‐11db‐b257‐0000779e2340,dwp_uuid¼9c33700c‐4c86‐11da‐ 89df‐0000779e2340.html [Accessed 20 April 2007]. v See Annexe 3 provided by the EHRC for the Round Table’s 2nd meeting.
Measuring What Matters: Report of the Round Table on Measuring Economic Performance and Social Progress in Scotland Annex 3: Other Relevant Indicators or Work on Measures of Progress
1. Scottish Government work on Additional Measures of Progress There have been a number of initiatives that have taken part with the Scottish Government since devolution. Here we highlight Scotland’s Sustainable Development Indicator Set, the Government’s Additional Measures of Progress Group and its Council of Economic Advisers.1
Scottish Sustainable Development Indicators
From 2005 to 2009 the Scotland maintained and published a Sustainable Development Indicator set similar to that coordinated by Defra (see below). This set of 21 indicators was maintained up until June 2009.i In Chapter 5 we set out recommendations for how a future Scottish Government should track sustainability, but we see the mothballing of this indicator set as a backwards step.
The Additional Measures of Progress Steering Group
In 2006 the then Scottish Executive established an Additional Measures of Progress Steering Group, which reported in July 2008. To a large extent the Group’s role was overtaken by the Government’s publication of the NPF, which went some way to introducing a wider measurement framework. The Group concluded that “there are as yet no internationally recognised measures of progress in this broad sense, capturing economic, environmental, social and wellbeing perspectives” but did make three recommendations:
• With the inclusion of Ecological Footprint in the National Performance Framework, the Scottish Government should set up a group to develop Economic ‐ Environmental Input‐Output Accounts to provide a sound basis for footprint calculations and wider applications, subject to an initial assessment of costs and potential benefits; • The Scottish Government should continue to monitor developments in wider measures of progress that incorporate wellbeing, like ISEW; • The Scottish Government should host a seminar for analysts, policy makers and interested stakeholders on the work of the Steering Group and developments in additional measures of progress.
1 For further analysis of these three areas of work see our on‐line Annexes. To some extent the work of this Group was overtaken by the Government’s NPF, which did go some way to setting out a wider set of measures to track Government progress. In particular it did include indicators on Ecological Footprint and mental well‐being, which the Group welcomed.
However, as we set out further below, our Round Table is clear that since publication of the Stiglitz Report there is further work for the Scottish Government. While the NPF was a clear step forwards, analysis by our Round Table has found that it does not sufficiently fulfil the 12 Recommendations of the Stiglitz Report and that more work on better measures of progress is now required.
The Scottish Government’s Council of Economic Advisers
Established in 2007, the Council of Economic Advisers was set up to advise the First Minister on the best way to improve Scotland’s sustainable economic growth rate. The Council has met quarterly and published annual reports with recommendations. In late 2010, Professor Joseph Stiglitz became a member of this Council.
In its first Annual Report the Council looked at the role and measures of GDP. It noted that
“It should be clearly understood that GDP is not a fact in the way in which physical measures such as temperature or weight, or some economic measures such as tax receipts, are a fact....
“We are not drawing attention here to the point which is often, and justifiably, made that there are many important aspects of human welfare that GDP measurement leaves out. GDP does not take account of unpaid work, and does not calculate environmental degradation. GDP does include expenditure on locksmiths, on policing and prisons... There is more to life than economics, but our brief is to deal with those aspects of Scottish life that are to do with economics. Our concerns are, therefore, narrower: with the extent to which GDP does correctly reflect Scottish economic performance in terms of the evolution of the material output of Scotland and the material standard of living of people in Scotland.
“GDP is measured gross. No account is taken of depreciation of assets, whether these are the capital equipment and buildings of private businesses or the public infrastructure. No allowance is made for oil and gas depletion or for environmental effects, positive or negative, on stocks of natural resources.ii
The Council felt that a measure of Gross National Income (GNI) may be more important as an indicator of living standards in Scotland. They illustrated this by comparing GDP and GNI through looking at Scotland’s (then) two largest financial institutions which in 2007 were responsible for 15% of Scotland’s GDP, though they also foresaw that the 2008 figure was likely to be very different. The Council noted that most of these companies’ activities took place outside of Scotland, but they noted that the question of which part of the profit should be attributed to Scotland had no easy answer.
The Council also looked at issues relating to the oil and gas industry, depreciation, the environment, exports and the role of the public sector in Scotland’s economy. They concluded by making two recommendations to the Scottish Government that are relevant to our Round Table:
• Recommendation 21: the quality of economic statistics in Scotland does not yet meet the needs of a government. We welcome the many steps which are being taken to improve the situation and have drawn special attention in this chapter to some of the areas which we believe should receive priority in these developments: o the financial services sector; o the oil and gas sector; o depreciation and environmental statistics; o output prices, particularly in the export sector; o τhe public sector.
• Recommendation 22: we have listed many reasons why it would be inappropriate to focus solely on reported Scottish GDP data – or any other single indicator – in evaluating Scottish economic performance. GDP is so widely accepted internationally as a measure that it would be wrong not to use it, or to seek to alter the estimates of it that are available using the conventions which have been defined by the United Nations and which have achieved international recognition. But we will wish to use many other measures of performance in the course of our work and urge Ministers to do the same.
In its response to this First Annual Report, the Scottish Government accepted Recommendation 21 in part and Recommendation 22 in full. iii In response to Recommendation 21 the Office of the Council of Economic Advisers launched the Scottish National Accounts Project (SNAP) which is attempting to estimate a wider range of economic indicators for Scotland. Particular focus has been given to the use of experimental income‐based GDP statistics and a quarterly household consumption expenditure series.
In its response to Recommendation 22, the Scottish Government has emphasised that it:
“Currently makes full use of a range of indicators to monitor the performance of the economy, e.g. manufacturing exports, labour market statistics, business formation/survival statistics and business surveys.
“We agree that other measures of performance such as earnings would provide helpful input into understanding the Scottish economy. However, there are a number of limitations which constrain the potential use of earnings data as a key indicator of performance at the current time. For instance, the survey of personal income uses a sampling process conducted at the UK level so that the sample size of sub‐UK estimates fluctuates year‐on‐year.”
Government also highlighted the new high level Carbon Assessment of the 2009 Scottish Budget, and the links this made between economic growth, public sector expenditure in Scotland and its consequential impact on the environment.
Our Round Table sees that use of these indicators, particularly on household consumption, would go some way to meeting the recommendations of the Stiglitz Report on measuring economic progress. It is clear that both the Council and the Scottish Government understand the need for developing better measures of economic performance, and we understand how they are constrained by available data, much of which is only available at a UK level. However, we do not feel that the response of the Scottish Government fully meets the intention of Council. In light of the Stiglitz Report, and particularly because of the addition of Professor Stiglitz to the Council, we would like to see our Report presented to the Council. The Council should be asked to give an updated comment on its previous Recommendations and Scottish Government progress.
Round Table Conclusion 1: The Scottish Government’s Council of Economic Advisers should review its recommendations on measuring the Scottish economy, taking into account our Report and the expertise now available through Professor Stiglitz’ membership
2. The UK Government’s response to the Stiglitz Report The UK Government’s Budget Report (2010) states: “There is widespread acknowledgment that GDP is not the ideal measure of well‐being. The Government is committed to developing broader indicators of well‐being and sustainability, with work currently under way to review how the Stiglitz, Sen, and Fitoussi report should affect the sustainability and well‐being indicators collected by Defra, and with the ONS and the Cabinet Office leading work on taking forward the report’s agenda across the UK.”
As part of our Review we met with representatives of Defra and the Office of National Statistics (ONS) to learn more about existing and current work.
As Scotland did until 2009, The UK Government publishes a set of 68 Sustainable Development Indicators (SDI’s) to track an extensive range of economic, social and environmental measures. Example of SDI’s are: resource use, greenhouse gas emissions, river quality, mobility, social justice, employment, housing, active community participation, etc. iv
Policy makers see them as being directly relevant to the policies they have established. The pocket‐sized Sustainable Development Indicators in your Pocket, available since 2004, has been taken up by a wide range of stakeholders, including local authorities, non‐governmental organisations and members of the public. Beyond being a useful and accessible reference for experts, these pocket guides are also an effective communication tool. They help illustrate the breadth and challenges of sustainable development to those less familiar with the concept, and to encourage readers to find out more. Their simple presentation has been extremely successful, with a printed circulation of 40,000 to 60,000 copies per year and a downloadable version (with the 2009 edition downloaded over 300,000 times).
The method used to get an overview of the country’s progress towards the stated strategy is a ‘traffic lights’ assessment. The traffic lights are determined by comparing the measure with the previous year and with its position in an earlier base year. However, under current use or reporting these indicators do not tell the story about how far we are from environmental limits, nor do they set up some outcomes to reach, or how we improve towards these outcomes. As such, while they better fit the Stiglitz Report criteria for a separate set of sustainability indicators, they are less useful than the Scottish Government’s NPF which does relate issues to set outcomes.
Since 2007, the SDI’s include measures of wellbeing, how people rate their lives and how satisfied they are with aspects that may affect them. Well‐being is understood by Defra to be a positive physical, social and mental state; it is not just the absence of pain, discomfort and incapacity. It requires that basic needs are met, that individuals have a sense of purpose, and that they feel able to achieve important personal goals and participate in society. It is enhanced by conditions that include supportive personal relationships, strong and inclusive communities, good health, financial and personal security, rewarding employment, and a healthy and attractive environment. Measures of well‐being also include indicators of overall life satisfaction and satisfaction with different aspects of life. In some way, they are an overall ‘outcome’ measure reflecting economic well‐being, health, education, access to services, etc.
A review of the Stiglitz Report has led the UK Government to distil the larger sustainable development set of 68 down to a more manageable set of 28 as shown below. A further step will be to determine which ones could form a dashboard of headlines indicators.
Figure 1: Defra’s list 28 SD indicators
The SDC has recently recommended that to be effective this set of indicators should not simply be a contextual tool but form part of a performance management programme to understand the impacts of public policy and inform future policy development. This includes assigning the policy area covered by each indicator to a specific part of government.v
Another strand of recent UK Government work is the launch by ONS of a consultation into measuring societal well being. In this ONS has emphasised the need for the UK’s National Statistics to widen their focus from measuring market production towards more complete measures of societal well‐being, including quality of life and sustainability. vi
This concern of elaborating wider measures of economic performance and social progress is not new for the ONS. There is a host of useful information that already exist to help measure societal well‐being in the UK. ONS’ current focus is on Looking at how to better measure subjective well‐being, and looking at what matters most in people lives and what is important for measuring the nation’s well‐being. The current consultation aims to inform work bringing well‐being indicators alongside indicators of economic performance to better inform policymaking.vii
However, while this work is at an early stage, our Round Table is concerned that missing is a sense of coherence or clarity about how various constituent parts might add up to a more complete measure of well being. This concern may stem from the fact that different parts of the UK Government are leading on different parts of its response to the Stiglitz Report.
3. The Equality Measurement Framework The Equality and Human Rights Commission (EHRC), in partnership with the UK Government’s Equalities Office has developed an ‘Equality Measurement Framework’ (EMF). This is a comprehensive framework that provides a new way to measure and monitor equality across a range of central and valuable freedoms appropriate and relevant to twenty‐first century Britain. It is strongly grounded in the the human capabilities for flourishing emphasised by Amartya Sen and therefore cover multiple domains in which inequality ‘matters’, e.g. capability to be alive, to be healthy, to live in physical security, to live within a rule of law, to enjoy a comfortable standard of leaving, to engage in productive and valued activities, etc.
Figure 2: The Equality Measurement Framework Matrix
The approach taken in the EMF aims to embrace three aspects of equality: equality of process, equality of opportunity and equality of outcome. These aspects are assumed to be interconnected. It means having more real opportunities to achieve the things we want to achieve in life, having more independence and genuine choices available, being treated with dignity and respect and having more of a say about important decisions in our own lives.
Through the NPF the Scottish Government agreed to ‘tackle the significant inequalities in Scottish society’. To achieve this 7th stated National Outcome, the Scottish Government intends to use the EMF to tell a more comprehensive story of inequality in Scotland, and not to restrict to socio‐economic inequality. Our Round Table has welcomed this work, as we see that use of the EMF will help the Scottish Government better measure inequality, as recommended by the Stiglitz Report. 4. Other Organisations’ Work The New Economics Foundation’s National Accounts of well‐being
To build its National Accounts of Well‐being, viii the New Economics Foundation (NEF) uses the 2006‐2007 European Social Survey (ESS)ix gathering data about changing values, attitudes, attributes and behaviour patterns within European polities. This is the most comprehensive survey within 22 European Nations which examines both personal and social well‐being.
Figure 3: National Accounts of well‐being framework
Personal well‐being describes people’s experiences of their positive and negative emotions, satisfaction, vitality, resilience, self‐esteem and sense of purpose and meaning. Social well‐being is made up of two main components: supportive relationships, and a feeling of trust and belonging. Together they form a picture of what we all really want: a fulfilling and happy life.
The challenge in devising a framework for National Accounts of Well‐being is to match the multiplicity and dynamism of what constitutes and contributes to people’s well‐being with what gets measured. The NEF’s recommended framework for National Accounts of Well‐being is therefore based on capturing:
More than life satisfaction. Understanding subjective well‐being as a multifaceted, dynamic combination of different factors requires indicators which capture more than simply life satisfaction. Indeed, biases stem from the use of a single question to measure a psychological state, as it leads people to focus on some aspects of their lives but leave out others. Moreover, overall life satisfaction, through its general nature, is not very sensitive to policy changes. This makes it a very blunt tool on which to base government decisions, and suggests advantages to using a broader set of well‐being indicators, of which the constituent parts have clear links to defined policy areas.
Personal and social dimensions. Research shows that a crucial factor in affecting the quality of people’s experience of life is the strength of their relationships with others. The NEF approach, therefore, advocates a national accounting system which measures the social dimension of well‐being (in terms of individuals’ subjective reports about how they feel they relate to others) as well as the personal dimension (how they are feeling within themselves and experiencing life from their personal standpoint).
Feelings, functioning and psychological resources (Stiglitz Report). The traditional focus on happiness and life satisfaction measures in well‐being research has often led to an identification of well‐being with experiencing good feelings and making positive judgements about how life is going. The NEF framework moves beyond that to also measure how well people are doing, in terms of their functioning and the realisation of their potential. Psychological resources, such as resilience, should also be included in any national accounts framework and reflect growing recognition of ‘mental capital’ as a key component of well‐being.
As a final step of the NEF approach, the personal and social well‐being indicators can be brought together in different ways to form versions of a combined well‐being indicator. As an example of a well‐being indicator within a specific life domain, a satellite indicator of well‐being at work has also been created. The National Accounts of Well‐being report also analyses indicators of the dispersion of personal well‐ being and of social well‐being, which reveal how equally levels of well‐being are distributed within group.
Oxfam Scotland’s new prosperity index for Scotland
The Oxfam Scotland Manifesto for 2011 electionsx recommends the creation of an index that will examine the true indicators that matter to people when measuring their prosperity. Oxfam is in the early stages of developing its new index, but has established a Steering Group, of which the SDC has been a member, and is currently rolling out the first phase of its programme: to question and report on what people throughout Scotland say prosperity means to them. From this, an expert group is to be convened to develop a new aggregate prosperity index.
i See www.scotland.gov.uk/Resource/Doc/77025/0083087.pdf ii Scottish Council of Economic Advisers (2008) First Annual Report, Chapter 9 iii Scottish Government (2010) Council of Economic Advisers First Annual Report – Progress Report iv SDYIP 2009, downloadable at http://www.defra.gov.uk/sustainable/government/progress/data‐resources/sdiyp.htm v SDIR, Issues and suggestions, SDC, London, 15 October 2010. vi ONS, ‘There is more to life than GDP but how can we measure it?’, Economic & Labour Market Review, vol.4, no 9, September 2010. vii Available at http://www.ons.gov.uk/about/consultations/measuring‐national‐well‐being/index.html viii New Economics Foundation National Accounts of well‐being report ix Available at http://www.europeansocialsurvey.org/index.php?option=com_content&view=article&id=61&Itemid=351 x Oxfam Manifesto for 2011 elections