What’s wellbeing worth? The risks of replacing GDP with dodgy metrics

The idea that societies should constantly pursue economic growth has, lately, become rather controversial. Economic growth means economic consumption, and the more we’re consuming, the more we use the assets of the world, goes the concern. Eventually we’ll run out.

More than that, economic growth is not an end in itself. Presumably we want to grow our economies so that we can improve citizens’ lives. In that case, why not measure the happiness and wellbeing of citizens directly, and work towards that, rather than the proxy of GDP?

That’s exactly what New Zealand is trying to do. The UK and other countries measure wellbeing through various metrics, but New Zealand is the first country to use it as a basis for its national budget. There are five parts to it: improving mental health, improving “child wellbeing” (reducing poverty and abuse), improving national productivity, supporting indigenous peoples, and moving to a zero-carbon economy.

Those are, of course, all good things to pursue. But I’m still a little concerned about it. Obviously GDP is a crude tool: it doesn’t distinguish between a local coffee shop making nice Americanos for passersby, and a factory that builds cluster bombs and pumps poisonous waste into rivers. But it does have the advantage of being relatively easy to measure. Wellbeing, on the other hand, is not.

New Zealand appears to be basing its budget on the Organisation for Economic Co-operation and Development (OECD)’s Better Life Index (BLI). This takes into account housing, income, jobs, community, education, environment, civic engagement, health, life satisfaction, safety, and work-life balance.

But it’s only one available measure. The UK’s Office for National Statistics uses a different set of metrics. A 2016 study in the BMJ did a literature review, searching for ways of assessing the adult population, and found 99 different measures of wellbeing looking at 196 different dimensions (the BLI looks at 11). Some took as their basis Maslow’s hierarchy of needs; some a model of psychological well-being; others self-determination; others the WHO’s definition of health as “a complete state of physical, mental and social well-being”. It found that 27 new measures were invented in the decade 1990 to 1999 alone.

They may all find the same results, of course, but I am instinctively wary. I asked a couple of psychologists about it and they were too.

One said that self-reported data like this has lots of problems with “construct validity and operationalisation” – that is, whether what you’re measuring really relates to the underlying thing you want to improve, happiness or whatever, and what weights you give all the factors. “How you rigidly define ‘wellbeing’ in a robust and benchmarkable way is non-trivial,” he said.

The other was starker: “Given how much dodgy research there is in the world of ‘happiness psychology’,” he said, “I’d be pretty worried about them choosing a measure that’s actually worthwhile.”

And economists know that GDP isn’t a perfect measure. But it does seem to correlate with most of these measures of national wellbeing – on balance, the richer a country gets, the happier it becomes. That’s hardly surprising. If there’s more money in the economy, people have more money to spend on their families; if there’s more money in the exchequer, public services – schools, transport, policing – can improve.

Of course it’s not as simple as that, and if all the money concentrates in a few rich people then the GDP–happiness link can break. (As tends to happen in states that get suddenly rich from discovering natural resources, such as oil.) But in general, reported subjective wellbeing goes up fairly linearly with GDP.

That’s not to say that national budgets should blindly chase GDP. It is absolutely true that, in general, increased GDP leads to increased environmental impact. The relationship has become more complex in the modern information economy – for instance, an author could sell hundreds of thousands of books for only a negligibly greater impact of selling the first one, if they’re all sold as ebooks.

Once a video game has been made, you can sell an essentially infinite number of copies via Steam, without having to expend significant physical resources. In the UK, the link between growth and environmental degradation has apparently been largely severed, but in many other developed countries – and even more so in developing ones – it has not. As economies decarbonise and technology becomes more energy-efficient, perhaps it will, but whether it happens fast enough to avoid some really devastating consequences is an open question.

And it’s also true that GDP is only a proxy for what we actually care about, which is presumably some ineffable and complex but nonetheless real combination of human flourishing and happiness and a sustainable future. And if we could measure that thing, whatever it is – if we could even define it – then we should absolutely direct all our efforts to increasing it.

But all our wellbeing measures are just proxies for that thing too. They’re intended to be more direct proxies, but whether they actually are is very hard to tell.

I will watch the New Zealand experiment with great interest. But one thing I have learnt from writing a lot about psychological experiments in recent years, is that it is possible to find almost anything you want in the data if you’re not profoundly careful in how you go about collecting it.

There’s something else, as well. An old GK Chesterton parable, about a fence across a road or a field. Someone walks up to it and says “I can’t work out why this is here, so let’s get rid of it.” He does so and is then promptly gored by a bull that was being kept in the next field by that fence.

A more intelligent reformer, says Chesterton, would have told the first: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.”

For close to a century, since the development of the modern GDP concept in a 1934 report for the US Congress – and especially since the Bretton Woods conference of 1944 – GDP has been used to measure national economies. In that time, almost all metrics of human progress – life expectancy, childhood survival, levels of violence and war, disease burdens, gender equality, education, nutrition, life satisfaction – have consistently moved in the right direction, around the world.

I’m not saying that if we stop measuring GDP and start measuring the Better Life Index instead, all that will collapse or go into reverse. I’m just saying: using GDP is, broadly, working. Of course we need to work hard to make sure that GPD isn’t seen as the be-all and end-all: if we strip away all our natural resources and ruin our climate, it’ll slow human progress.

But it turns out GDP is a pretty good proxy for human wellbeing. Tearing it down because you think you can do better might not be such a smart thing to do.

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