Measuring to make progress towards sustainable development

July 26, 2020. Having written an entire manuscript and having received a miserly offer to publish same, I offer here some of my thoughts from "Managing sustainable development," acknowledging that it runs counter to much of the hand-wringing, world-end-ending, climate-changing nonsense that fills the media today.

What indicators should be used to evaluate progress towards SD? Who will select those indicators? To whom those indicators are of interest? How would they be measured? What can be done within the possibility of the existing accounts?

1. The physical quality of life index (PQLI) is considered the first composite measure of progress that is not built upon utilizing income or economic wellbeing. The PQLI employs an index ranging from 0 to 100 based on equal weights, which measures infant mortality, life expectancy and basic literacy (Morris, 1996). The PQLI is based on the assumptions that there are several patterns of development, which the indicator must measure results and not inputs and that it should be able to reflect the distribution of social needs. More importantly, it is easy to construct and easy to understand (Morris, 1979). The index shows that some countries have much poorer life-quality results at relatively high per capita incomes, suggesting that the growth of disposable personal income over time not necessarily improve progress.

2. Another non-monetary approach to measuring progress is the Gross National Happiness (GNH). This concept, which is often mentioned as an alternative measure of progress, was developed in an attempt to establish an indicator that measures quality of life or social development in more holistic and psychological terms than GDP. GNH was originally suggested by the King of Bhutan in the early 1980s in commitment to building an economy that would serve Bhutanese specific culture. The developed GNH is a conceptual, philosophical and political framework designed to measure the population's general level of well-being. It is being used to guide Bhutanese political decisions based upon Buddhist spiritual values rather than on increasing economic activity (Ura and Galay, 2004). The four pillars of GNH are establishment of proper governance, the promotion of SD, the conservation of the natural environment and the preservation and promotion of cultural values.

3. Part of the approach to achieving sustainability requires us to look at alternative ways to measure wealth. For the most part, economists and political leaders tend to focus on limited measures of wealth. We have seen the problem that results from measuring wealth or the economy in terms of the perceived value of our homes or the market value of a stock or a portfolio of mortgage loans. Some of these measures are unstable, subject to huge changes in a short period of time, undermining the very idea of sustainability. Gross domestic product (GDP), the empirical, widely used surrogate measure of wealth, is an incomplete measure of wealth and is not a measure of environmental or entrepreneurial sustainability. GDP measures economic activity, not wealth creation, and does not include measures of human, financial or environmental resources. Some critics of the short-term, singular focus on the limits of GDP[1] have suggested alternative or more expansive measures of wealth.

4. Nordhaus and Tobin[2] developed the Measure of Economic Welfare (MEW), which used net national product (NNP, a minor variation of GDP) and made some imputations for the value of leisure and the depreciation of natural capital, among others. NNP closely tracked the MEW. They answered their question, “Is growth obsolete?” by saying, “We think not. Daly, Cobb and Cobb,[3] with the Index of Sustainable Economic Welfare, made further adjustments and concluded "empirical evidence that GDP growth has increased welfare is very weak." Redefining Progress developed the Genuine Progress Indicator(GPI),[4]making far-reaching adjustments to GDP. They concluded that the growth of well-being has not kept pace with that of economic output. "GPI started declining around 1975, while GDP keeps increasing." Several countries, including the United States, have attempted to make such calculations at various points in time. The United Nations Statistical Office, which publishes guidelines on how to calculate GDP, also produces a set of rules for environmental or green accounting.[5]

5. In 2008, French president Nicolas Sarkozy created the Commission on the Measurement of Economic and Social Progress. Sarkozy believes that economic growth, as measured by the gross domestic product (GDP), is not a sufficient measurement of our well-being. He has a point. While GDP encompasses myriad economic variables—broadly representing a nation’s income and, hence, economic progress over time—it fails to capture important ingredients of prosperity, such as health, personal freedom, and security. The Sarkozy commission has issued its first report, but it fails in some crucial respects. The London-based Legatum Institute’s Prosperity Index goes a long way toward addressing the concerns Sarkozy has about broader measures of well-being. The Index, now in its third year, assesses a wide variety of eco- nomic and social indicators for most of the world’s population and ranks countries according to their performance.[6]

The most useful place to start when considering the nonmonetary aspects of prosperity is with measures that already exist but which have not previously been brought together. The Prosperity Index, generated by the Legatum Institute, has for the past three years attempted to provide a comprehensive measurement of prosperity using a combination of variables based on economic wealth and quality of life. While it is not as ambitious in its long-term measure- ment objectives as the Sarkozy commission, the Prosperity Index more usefully encapsulates what can be measured from within the business and social realms. The Legatum Institute defines prosperity as both wealth and well-being and finds that the most prosper- ous nations in the world are not necessarily those with a high GDP, but those with happy, healthy, and free citi- zens. The Prosperity Index identifies the building blocks of prosperity and assesses how 104 nations around the world are performing in each area (see table 1). A lack of comprehensive data on dozens of countries means they cannot be assessed. Still, the Index does account for countries that contain 90 percent of the world’s pop- ulation. Its database consists of seventy-nine different variables, each of which fits into one of nine dif- ferent subindices, identified as the foundations of prosper- ity. A country’s performance on each subindex is assigned a score, and the overall Prosperity Index rankings are produced by averaging the scores of the nine subindices for each country. Those countries that perform well across each subindex score highest in the overall ranking. The first four subindices are made up of variables that contribute to economic growth, measured in per-capita GDP. The last five subindices are calculated by how well their indicators contribute to quality of life, measured in terms of life satisfaction.

Economic Fundamentals—a growing, sound economy that provides oppor- tunities for wealth creation
Entrepreneurship and Innovation—an environment friendly to new enterprises and the commercialization of new ideas
Education—an accessible, high-quality educational system that fosters human development
Democratic Institutions—transparent and accountable governing institutions that
promote economic growth
Governance—an honest and effective government that preserves order and encourages productive citizenship
Health—the physical well-being of the populace
Personal Freedom—the degree to which individuals can choose the course of their lives
Security—a safe environment in which people can pursue opportunity
Social Capital—trustworthiness in relationships and strong communities”

References [1] http://www.env-econ.net/2005/07/from_the_answer_1.html [2] http://cowles.econ.yale.edu/P/cp/p03b/p0398a.pdf [3] http://en.wikipedia.org/wiki/Index_of_Sustainable_Economic_Welfare [4] http://www.redefiningprogress.org/projects/gpi/ [5] http://gwagner.net/ga [6] Roger Bate. What is prosperity and how do we measure it? American Enterprise Institute, No. 3, October 2009.