<p> The 4th International Seville Conference on Future-Oriented Technology Analysis (FTA): 12 & 13 May 2011</p><p>FTA and Grand Societal Challenges: Shaping and Driving Structural and Systemic Transformations</p><p>Analysing the Long-run Trends of GDP, Population, GPI, ISEW, HDI and GS in an Advanced Knowledge Society: The Case of Finland and European De-growth Debate</p><p>Authors: Jukka Hoffrén, Jari Kaivo-oja & Samuli Aho Corresponding address: Head of Research, Dr Jukka Hoffrén, Statistics Finland, Statistical Methodology and Research Unit, Adjunct professor, University of Helsinki. Email: [email protected]</p><p>Sponsors: Finland Futures Research Centre, University of Turku, Statistics Finland, Finland</p><p>Type: National FTA exercise, Finland Geographic Finland, with special focus on sustainability evaluation in Europe Coverage: Scope: Welfare indicators, economic growth, GDP, Population, GPI, ISEW, HDI and GS Applied Methods: Statistical methods, multivariate correlation analysis Evaluation: Fully Impacts: The need for critical reconsideration of Europe 2020 strategy concerning growth process and associated welfare targets in European Union and it Member States Organiser: Finland Futures Research Centre, University of Turku, Electrocity, Tykistökatu 4 D, 7th Floor, 20520 Turku, Finland </p><p>Duration: 1.1.2011- Budget: N/E Time Horizon: Year Date of Brief: May 2011 1.5.2011 2020</p><p>Keywords: GDP, population, GPI, ISEW, GS, HDI, welfare indicators, welfare evaluations, sustainability policy evaluations, European Union</p><p>Purpose</p><p>The paper contributes to 1 key themes of the conference: Building FTA capacities for systemic and structural transformations. Increasing scientific and societal concerns have been raised since a long time about the adequacy of current measures of economic performance, in particular those based on GDP figures. Moreover, there are broader concerns about the relevance of these figures as measures of societal well-being, as well as measures of economic, environmental, and social sustainability. Also so called de-growth discussion is focused on this issue. In fact de-growth is not a concrete project but a keyword of futures discussion and European</p><p>Page 1 of 7 Analysing the Long-run Trends of GDP, Population, GPI, ISEW, HDI and GS in an Advanced Knowledge Society: The Case of Finland and European De-growth Debate development strategy. According to the empirical case study of Finland there are vital needs to start critical statistical evaluations of European welfare and economic growth processes. </p><p> the GPI, and other related indexes. Lately, Philip Lawn noted Background & Context that by adopting a concept of income and capital outlined by Fisher (Fisher 1906), these alternative new indexes are theoretically sound but, in order to be broadly accepted, The Commission on the Measurement of Economic require the continuous development of more robust valuation Performance and Social Progress have been discussing about methods (Lawn 2003). new social welfare evaluation tools. European societies have been locked into thought dominated by progressivism of There is also on-going scientific debate about the statistical growth economics. The tyranny of this kind one-sided correlations of Gross Domestic Product (GDP), population, thinking has made imaginative thinking outside the box almost Genuine Progress Indicator (GPI), Index of Sustainable impossible. The de-growth topic that has become a major Economic Welfare (ISEW), Genuine Saving (GS) and Human international subject of debate, not just within the counter- Development Index (HDI) indicators. All these welfare globalization movement but in the wider world. indicators are needed in the sustainability analysis of the European Member States. An interesting debate on the policy The big question is: How should ’de-growth’ apply to the relevance of both a set of indicators and a single index has European Union and its policies? Is there need to develop new been going on for quite some time now. Both options have more sustainable macroeconomic policies, which go beyond their own advantages and disadvantages (Bleys 2008): the Lisbon strategy and Europe 2020 strategy? • A set of indicators is more appropriate for policy-making, Despite all theoretically and empirically motivated criticism of yet harder to communicate and more difficult to interpret GDP as a social welfare and progress indicator, GDP´s role in (different signals). economics, public policy, politics and society continues to be • A single index cannot be used directly for policy-making, influential. Thus, the European Union´s macroeconomic but has a higher value for communication. planning and strategic decision-making needs new sustainability planning and evaluation tools and indexes. We Thus, the European Union´s macroeconomic planning and cannot rely on just one index, on GDP measurements, in our strategic decision-making needs new sustainability planning European welfare policy analyses. and evaluation tools and indexes. We cannot rely on just one index, GDP, in our welfare policy analyses. Relying on GDP can lead European policymakers to wrong policy conclusions of welfare development in their countries. If the European Union wants to evaluate long-run sustainability of its macroeconomic development, these kind In traditional neoclassical economics, GDP (Gross Domestic of new statistical analyses are needed. The study is based on Product) and GDP/capita are often used as measures of long-run statistics (years 1960-2009) of these 3 key social national welfare. Although they were originally not designed welfare indicators, for other variables (GS, HDI, and to measure welfare, these indicators have become normative population) statistical analyses cover the years 1960-2009. In benchmarks of economic and social performance (Easterlein the paper the long-run trends of key indicators are analyzed 1974, Hamilton 1999, Offer 2000, Rättö 2008). and a statistical correlation analysis is presented.</p><p>For some time now, economists have been putting forward a Figure 1. GDP-GPI –trade off in Finland in the ‘threshold hypothesis’, the notion that when macroeconomic years 1960-2009 systems expand beyond a certain size, the additional cost of economic growth exceeds the flow of additional welfare benefits (Daly & Cobb 1989, Max-Neef 1995, Daly 1996). In order to support their belief, economists and scientists have developed a number of similar indexes to measure and compare the benefits and costs of growth (e.g. the Index of Sustainable Economic Welfare, ISEW, and the Genuine Progress Indicator, GPI etc.). In virtually every instance where an index of this type has been calculated for a particular country, the movement of the index appears to reinforce the existence of the threshold hypothesis. Of late, a number of observers have cast doubt over the validity of these alternative indexes. One of the concerns commonly expressed is the supposed lack of a theoretical foundation to support the ISEW,</p><p>Page 2 of 7 Analysing the Long-run Trends of GDP, Population, GPI, ISEW, HDI and GS in an Advanced Knowledge Society: The Case of Finland and European De-growth Debate</p><p>GDP -GPI -trade off in Finland in the years 1960-2009 In general level, also this study connected to the 10000 movement of the alternative index approach, appears 9000 to reinforce the existence of the threshold 8000 hypothesis, especially during the years after oil 7000 crisis. Figure 1 demonstrates also the existence of 6000 threshold hypothesis in the case of Finland. I</p><p>P 5000 G</p><p>4000</p><p>3000</p><p>2000</p><p>1000</p><p>0 0 5000 10000 15000 20000 25000 30000 35000</p><p>GDP</p><p>Thus, statistical analysis was easy to make but provided very interesting results concerning correlations of macroeconomic</p><p>FTA Process welfare and growth indexes. Thus in this study we made empirically based trend analysis of key sustainability The correlation between two indicators/variables is a statistical indicators. measure of the relationship between two variables. This relationship, which is expressed by what is known as the The idea of the article is to propose this kind of novel correlation coefficient, is represented by a value within the sustainability evaluation methodology for the European range of -1.00 to +1.00. A correlation coefficient of +1.00 Commission and European Member States. This statistical indicates that two variables move in the same direction at all approach is evidence-based and gives new evaluation and times. If indicator X increases, we would expect indicator Y to planning information about critical sustainability trends in gain as well. A correlation coefficient of 0 indicates that the European Union. indicator changes are totally random. A change by indicator X provides no insight into the expected movement of welfare In this case study focus is the EU members state Finland and indicator Y. A correlation coefficient of -1.00 indicates that its sustainability trends. Similar kind of indicator based two variables move in the opposite direction at all times. If sustainability evaluation should be done for all EU27 variable X gains increases, we would expect variable Y to countries to improve smartness of long-run sustainability decrease (see Figure 2). policy and especially social welfare policy of the European Union. Correlation simply measures the relationship of movement between variables. (Rodgers & Nicewander 1988, Aldrich 1995). De-growth strategy for the European Union?</p><p>Figure 2. Basic correlation alternatives For some authors, the very idea of sustainable development seemed to be a contradiction in terms (Georgescu-Roegen Positive Correlation (+1.00) 1993). It is not a big surprise that practice has shown unequivocally that it is not possible to reconcile economic growth with environmental sustainability (see a review of Krausmann et al, 2009). However, global scientific community, like the UNEP (see IPSRM-UNEP 2010), think No Correlation (0) that the Western lifestyle is damaging, not only its own environment, but also that of poorer countries and, in general, the planet as a whole. In this context, the proposal of ‘sustainable de-growth’ has emerged as a strategy that aims to generate new social values and new policies capable of Negative Correlation (-1.00) satisfying human requirements whilst reducing the consumption of resources. De-growth is a political, economic, and social movement based on environmentalist, anti- consumerist and anti-capitalist ideas. ‘Sustainable de-growth’ or ‘de-growth’ is not yet a formalized theory, but rather a meeting point for social movements, academia or politics (Latouche 2006). </p><p>Page 3 of 7 Analysing the Long-run Trends of GDP, Population, GPI, ISEW, HDI and GS in an Advanced Knowledge Society: The Case of Finland and European De-growth Debate GDP does not be associated with better GPI development. In De-growth thinkers and activists advocate for the downscaling the case of Finland, GDP is still correlating positively with GS of production and consumption — the contraction of and HDI. However, these correlation rates are now much economies — as overconsumption lies at the root of long term lower than before the oil crisis. Various aspects of welfare are environmental issues and social inequalities. Key to the good to keep in mind, when we discuss about de-growth concept of de-growth is that reducing consumption does not policy and its potential content. require individual martyring and a decrease in well-being. Rather, 'de-growthists' aim to maximize happiness and well- On the basis of the Finnish case, we can note that the linkage being through non-consumptive means — sharing work, between GDP growth and welfare indicators is not so strong consuming less, while devoting more time to art, music, that it was before oil-crisis period. We must also remember family, culture and community. De growth -in contrast to the that GDP indicator includes also immaterial and qualitative idea of dematerialisation, which aims at a reduction of aspects of welfare. If we think de-growth thinking from this resource use while the economy continues to grow-, in our perspective, it is not rational aim to minimise GDP growth. opinion goes further and means that significant reductions of Probably we should try to find a “golden middle of the road resource use require fundamental changes in the production solution”, which is something unadventurous or inoffensive, and consumption system (Schneider et al. 2010; Spangenberg opting to go neither one way nor the other (no de-growth but 2010). no growth mania either). De-growth opposes sustainable development because, while sustainable development aims to address environmental Another policy conclusion concerning our empirical analysis concerns, it does so with the goal of promoting economic is that GPI is a critical indicator for the de-growth movement, growth which has failed to improve the lives of people and because GPI indicator really gives some empirical justification inevitably leads to environmental degradation. From this for the anti-growth movement and its critical welfare thinking. perspective, de-growth strategy is against the Europe 2020 In Figure 1 trade-off curve of GDP and GPI is plotted in the policy. In any case, de-growth movement´s future success will case of Finland (years 1960-2009). The turning point of GDP depend on the capacity it has to generate coherent political and GNI trends was in year 1988 in Finland. De-growth responses and empirical results that shore up its proposals. movement in Finland can use this year are a critical This study contributes to this kind of challenging process of benchmarking year, because in 1988 Finland reached top level de-growth movement. of welfare measured by the GPI. Although GDP has grown in Finland; GPI has not increased in Finland. Politically this In the case of Finland we have observed, after oil crisis years, situation is, of course, problematic. a negative correlation problem with GDP and GPI. Growth of</p><p>• Before the oil crisis, positive correlations were strong with the GDP index and other analyzed indices,</p><p>Output & Impacts • However, after oil crisis threshold hypothesis (in the Finnish case) is getting considerable empirical support from In the study long time series (years 1960-2009) were analyzed statistical analysis of this study. Especially correlation by Pearson correlation analysis. The time period before oil between GDP and GPI has changed dramatically after peak crisis (years 1960-1972) were analyzed by Pearson correlation year 1988 in the case of Finland. analysis and finally time period after oil crisis (1973-2009) were analyzed. All these historical analyses of 6 welfare • For policy purposes, we recommend that a set of indicators were analyzed by correlation analyses. indicators is more appropriate for policy-making, although it is yet harder to communicate and more difficult to interpret One key observation of this indicator study is that the (different signals). A single index (GDP) cannot be used dynamics of economic and social development in Finland has directly for policy-making, but has a good value for changed dramatically. We can expect that similar structural communication. As the Finnish case study shows there can be changes have happened everywhere in the European Union. very problematic policy making situation in all the European Member States. The GDP indicator was correlated in a different way before oil crisis than it is correlated after oil crisis. Changes in the • There is need to develop sustainable de-growth correlation tables are considerable and indicate that many strategy, which goes beyond Lisbon and Europe 2020 structural changes have happened. We can find support for the strategies. Many European governments may meet a new following analytical conclusions: situation, where welfare indicators are developing to unsuccessful direction, but GDP indicator shows increase of • In the long run, the GDP correlates positively with 5 welfare. This kind of situation is observed in this Finnish case other indexes of the Finnish case study, study.</p><p>Page 4 of 7 Analysing the Long-run Trends of GDP, Population, GPI, ISEW, HDI and GS in an Advanced Knowledge Society: The Case of Finland and European De-growth Debate</p><p>• Despite all theoretically and empirically motivated leading linearly to welfare. From this perspective our study is criticism of GDP as a social welfare and progress indicator, important because shows that in Finland this has been GDP´s role in economics, public policy, politics and society happening, if we evaluate welfare by the GPI index. continues to be influential. We cannot evaluate the impacts of this study, because new Thus, the European Union´s macroeconomic planning and results are presented in FTA 2011. So dissemination is in a on- strategic decision-making needs new sustainability planning going process. We can, however present policy and evaluation tools and indexes. We cannot rely on just one recommendations for the European policy planners and index, on GDP measurements, in our European welfare policy makers. analyses. Relying on GDP can lead European policymakers to wrong policy conclusions of welfare development in their Especially under Europe 2020 strategy process we shall need countries. broader evidence that the political decisions are leading Europe to better welfare. The existence of threshold This study is a case study of Finland. In evidence-based policy hypothesis in European Union countries should be taken more making European Union should pay more attention to the seriously in various policy fields. motivation of growth policy, because economic growth is not</p><p> insights, much of the contemporary economic disaster owes to Outcome & Evaluation the misbegotten assumption that policy makers simply had to focus on nurturing growth, trusting that this would maximize It is too early say much about outcome and evaluation. prosperity for all. This kind of process cannot be taken granted However, in new study, a pair of Nobel prize-winning as the case study of Finland shows. economists and professors, Joseph E. Stiglitz, Amartya Sen and Jean-Paul Fitoussi (2009), urge the adoption of new From this perspective, policy recommendations of Stiglitz- assessment tools that incorporate a broader concern for human Sen-Fitoussi Report (2009) are policy relevant for the welfare than just economic growth. By their reckoning and European Commission (see Web links below).</p><p>Bleys, B., 2006. The Index of Sustainable Economic Sources and References Welfare for Belgium: first attempt and preliminary results. MOSI Working Paper, vol. 27. Vrije Aldrich, J. (1995) Correlations genuine and spurious Universiteit Brussel, Brussel, Belgium. in Pearson and Yule. Statistical Science 10 (4), 364– 376. Web: http://www.jstor.org/stable/2246135. Daly, H. (1996) Beyond Growth: The Economics of Sustainable Development. Beacon Press, Boston. Anielski, M., Rowe, J., 1999. The Genuine Progress Indicator—1998 Update: Data and Methodology. Daly, H. & Cobb, J. (1989) For the Common Good. Redifining Progress, San Francisco, CA. Beacon Press, Boston.</p><p>Asheim, G., (1994) Net national product as an Easterlin, R. (1974) Does economic growth improve indicator of sustainability. Scandinavian Journal of the human lot? In: David, P., Weber, R. (Eds.), Economics 96, 257-265. Nations and Households in Economic Growth. Academic Press, New York. Atkinson, G. (1995) Measuring sustainable economic welfare: A critique of the UK ISEW. Fisher, I., (1906) Nature of Capital and Income. Working Paper GEC 95-08. Centre for Social and A.M. Kelly. New York. Economic Research on the Global Environment, Norwich and London. Georgescu-Roegen, N. (1993) Thermodynamics and we, the humans, in: Dragan, J.C., et al. (Ed.), Entropy and Bioeconomics, First International</p><p>Page 5 of 7 Analysing the Long-run Trends of GDP, Population, GPI, ISEW, HDI and GS in an Advanced Knowledge Society: The Case of Finland and European De-growth Debate Conference of the EABS, Rome, 28–30 November Neumayer, E., 2000. On the methodology of the 1991. Milano, Nagard, 184–201. ISEW, GPI, and related measures: Some constructive suggestions and some doubt on the International Panel for Sustainable Resource threshold hypothesis. Ecological Economics 34, Management (IPSRM-UNEP), (2010) Assessing 347-361. Environmental Impacts of Consumption and Production. Priority Products and Materials. United Offer, A., (2000) Economic Welfare Measures and Nation Environment Programme. Human Well-being. Discussion Papers in Economic and Social History, vol. 34. University of Oxford, Hamilton, K., (1994) Green adjustments to GDP. Oxford, UK. Resources Policy 20, 158-168. Rodgers, J.L. & Nicewander, W.A. (1988) Thirteen Hamilton, C. (1999) The genuine progress indicator: ways to look at the correlation coefficient. The methodological developments and results from American Statistician, 42(1), 59–66. Australia. Ecological Economics 30, 13-28. Rättö, H (2008) Hyvinvointi ja hyvinvoinnin Hoffrén, J. (2001) Measuring the Eco-efficiency of mittaamisen kehittäminen. Statistics Finland. Welfare Generation in a National Economy. The Research Reports 250. And update version by Case of Finland. Statistics Finland Research Reports Hoffrén (2011). Helsinki. 233. Helsinki. http://acta.uta.fi/pdf/951-44-5252- 6.pdf And update by Hoffrén (2011). Schneider, F., Kallis, G. & Martínez-Alier, J. (2010) Crisis or opportunity? Economic degrowth for social Kekkonen, E. (2010), Hyvinvoinnin ja edistymisen equity and ecological sustainability. Introduction to kuvaaminen yhdistelmäindikaattorilla: Suomen this special issue. Journal of Cleaner Production 18, kestävän yhteiskunnan indeksin laskenta. Master 511-518. Thesis. University of Helsinki. Department of Economics. Web: Spangenberg, J. (2010) The growth discourse, https://helda.helsinki.fi/bitstream/handle/10138/1758 growth policy and sustainable development: two 6/Pro%20gradu_Kekkonen%20Elina.pdf? thought experiments. Journal of Cleaner Production sequence=1 18, 561-566 </p><p>Latouche, S. (2006) Le Pari de la Décroissance. Statistics Finland (2011a) National Accounts. Fayard. Paris. Statistics Finland. Helsinki.</p><p>Lawn, P.A. (2003) A theoretical foundation to Statistics Finland (2011b) Population Database. support the Index of Sustainable Economic Welfare Statistics Finland. Helsinki. (ISEW), Genuine Progress Indicator (GPI), and other related indexes. Ecological Economics 44 Stiglitz, J.E., Sen, A. & Fitoussi, J.-P. (2009) Report (2003), 105-118. by the Commission on the Measurement of Economic Performance and Social Progress. Lawn, P., (2006) An assessment of alternative Commission on the Measurement of Economic measures of sustainable economic welfare. In: Lawn, Performance and Social Progress. France. P. (Ed.), Sustainable Development Indicators in Ecological Economics. MPG Books, Bodmin, UK, United Nations (2011) Human Development reports: pp. 139–165. Web: http://hdr.undp.org/en/Text.</p><p>Lawn, P. & Clarke, M. (2006) Measuring Genuine van den Bergh, J.C.J.M. (2009) The GDP paradox. Progress: An Application of the Genuine Progress Journal of Economic Psychology 30, 117-130. Indicator. Nova Science Publishers, New York (NY). Web-links: </p><p>Lemmetyinen, I (2011) Genuine Savings http://www.stiglitz-sen-fitoussi.fr/en/index.htm -indikaattori Suomelle. Master Thesis. Aalto University. Helsinki School of Economics. Helsinki. www.un.org/en/ga/president/65/initiatives/.../Stiglitz -Sen-report-ENG.pdf Max-Neef, M. (1995) Economic growth and quality of life. A threshold hypothesis. Ecological Economics 15, 115-118.</p><p>Page 6 of 7 Analysing the Long-run Trends of GDP, Population, GPI, ISEW, HDI and GS in an Advanced Knowledge Society: The Case of Finland and European De-growth Debate</p><p>Page 7 of 7</p>