The multiple problems the world now faces require a new policy approach. The priorities are to achieve better environmental outcomes, and better outcomes for people—especially those facing deprivation and/or precariousness. This book focuses on the human component, and specifically on the contribution that the economy can make. It proposes a criterion of success for the economy, and a monitoring system that corresponds to it. This would act as an objective, an incentive and a criterion of success for policymakers in government at all levels and in wider society. It would also provide specific information to inform public debate and to guide policy decisions.
The proposed criterion of success is that the economy should, as far as possible, meet the basic needs of all residents. There is wide agreement on what items qualify as basic needs. Meeting them would minimise distress and promote aspiration and social participation. This aim is widely supported across the political spectrum. It underlies the UN Sustainable Development Goals and other international agreements, and its wide support is backed by survey evidence. This value system is grounded in respect for the dignity of all, which in turn promotes inclusion and social justice, and facilitates agency and aspiration.
The monitoring system would comprise the outcomes of the economy that are relevant to people’s basic needs. It would aim to steer the economy towards satisfying them, thereby promoting good health and positive psychological/social functioning. This would represent a shift to pursuing ends, the meeting of human needs, rather than means, the quantity of economic output (GDP). Monitoring these economic outcomes is straightforward, most measures are already available in some form, and they are acceptable and affordable.
This book proposes that a list should be agreed of the most important economic outcomes that meet people’s basic needs, and a corresponding monitoring system should be introduced. This would be presented as a dashboard in a standardised format, providing informative material for public debate and a practical agenda for remedial action. In addition, the items would be aggregated to create an Index of Economic Outcomes (the IEO), as an overall score. This would replace GDP as a measure of economic success; GDP would be retained for the purpose of informing economic policy, for which it is well suited. The aggregation principle would be based on the quantitative contribution of each item to health and subjective wellbeing.
The overall monitoring system would promote environmental as well as human wellbeing. It would enable the environmental cost of meeting human needs to be calculated—the sustainability ratio, a measure of sustainable development. More generally, I propose a clear structure for monitoring the economic system as a whole, comprising assets of various kinds, output (GDP), outcomes, and impact (health and subjective wellbeing).
By necessaries I understand, not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without. A linen shirt, for example, is, strictly speaking, not a necessary of life. ... But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt ... Custom, in the same manner, has rendered leather shoes a necessary of life in England. The poorest creditable person of either sex would be ashamed to appear in public without them. ... Under necessaries, therefore, I comprehend, not only those things which nature, but those things which the established rules of decency have rendered necessary to the lowest rank of people. (Adam Smith 1776)
Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. … Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages …. It measures everything in short, except that which makes life worthwhile. (Robert Kennedy 1968)
What we measure affects what we do; and if our measurements are flawed, decisions may be distorted. (Joseph Stiglitz et al. 2009)
We must urgently find measures of progress that complement GDP, as we were tasked to do by 2030 in target 17.19 of the Sustainable Development Goals. (António Guterres 2021)
1.1 Evaluating Economic Success
The world is facing multiple interconnected crises. Climate change is already causing numerous disasters across the world, a trend that is set to accelerate, and biodiversity is rapidly decreasing. Approximately a billion people continue to live in abject poverty. Even in rich societies, pockets of deprivation have remained or even increased, and inequality has been widening in many countries. The Covid-19 pandemic and other crises of the early 2020s have exacerbated many of these problems.
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Existing policymaking has proven unable to meet these challenges. One aspect is that GDP is currently used as the criterion of economic success. Although it is an indispensable measure for economic management, it is generally considered to be unsuitable for evaluating the success of an economy and does not provide the appropriate incentives. An alternative is needed, focusing on the economy, that takes seriously the question, what does success mean in this context?
This is not just a question of monitoring, although that has its own practical importance in setting the policy agenda. It is also that the use of a particular measure is a signal of what is valued by society, and of what should be rewarded. This book is concerned mainly with the type of monitoring system that is required for addressing these policy challenges. But it also has the wider intention, to signal a particular set of values that is widely supported and embodied in international agreements, and that could form the basis of a more appropriate policy direction.
The idea of evaluating the success of an economy requires an answer to the question, what does the economy do that is valuable? I take my cue here from the value system underlying the Sustainable Development Goals, that everyone’s basic needs should (as far as possible) be met—a commitment to leave no one behind. This is grounded in respect for the dignity of everyone. It also promotes inclusion and social justice, and facilitates agency and aspiration. On this basis, I explore how to judge not only how well an economy is doing, but also to indicate what needs to be altered in order to improve its performance.
The example of the Sustainable Development Goals is followed in another way too: all countries should contribute to the sustainability of development. Yet there is excess consumption (such as fast fashion), especially in rich countries, that adds to environmental degradation while having little or no positive long-term impact on people’s quality of life.
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This is one reason why the book focuses mainly on rich countries. Another is practicality: a new monitoring system requires capacity to undertake the development work and to put the new system into practice. In addition, there are substantial pockets of deprivation in rich countries, which the GDP focus obscures—the Sustainable Development Goals have little traction there, possibly because they are regarded as relating to low- and middle-income countries.
Although the starting point for this book, dissatisfaction with GDP as a criterion of economic success, is similar to a great deal of work on “beyond GDP”, its proposed solution is quite different. Many ideas have been put forward for broadening out the monitoring system to incorporate other important issues such as trust and good governance, and environmental sustainability. This agenda has progressed a great deal in recent years, as is summarised in Chapter 3. It tends to be based on the argument that because economic success is only one among many aspects of a good society, the influence of the economy in the overall monitoring system should be diluted by other criteria. In general, no systematic effort is made to develop a measure of the success of the economy as an alternative to GDP.
The argument put forward in this book is far more limited and specific. It recognises that the economy is a very important sub-system of society, and that a good measure of its degree of success is vital. Given that GDP is agreed to be a poor measure of economic success, the implication is that a different measure is needed that could replace GDP for this purpose. Like GDP, it would necessarily be specific to the economy.
Acceptance of the great importance of the economy does not imply that other criteria are less crucial than economic success. The focus of this book is on the economy, not because other aspects of society and the environment are less worthwhile, but because evaluation of economic success is a specific problem that needs a solution. Thus, my aim is just to propose a criterion of success, and a monitoring system that corresponds to it.
The new measure and GDP would together be used for evaluating the economy, respectively its degree of success and its level of activity. Together they would inform public debate, as well as policy development by government at all levels. Introducing this new measure would not need to cause a great deal of disruption.
A corollary of this focus on just the economy is that a great many other topics would need separate and complementary indicators, as part of the overall monitoring system. This is an advantage: it is beneficial to have distinct categories of indicators, rather than a single overarching composite indicator, for reasons that will be discussed later.
The purpose of having a criterion for judging economic success, and a corresponding monitoring system, is to facilitate policy being steered towards better outcomes for people while protecting the environment. This would assist policymakers—all levels of government, and other participants in society including the private and voluntary sectors and the media. It would provide them with an objective, an incentive and a criterion of success, plus more specific information on what policy priorities need to be addressed. It would allow change to be monitored over time, and comparisons between different countries, cities or other entities and groups. The proposal is non-ideological, designed to appeal to all people of goodwill across the political spectrum.
The Covid-19 pandemic has fostered the widespread view that business as usual is no longer tenable, with widespread calls for the Great Reset (World Economic Forum 2020), to “build back better” (e.g. HM Treasury 2021) and other such phrases. There is evidence that these views have wide public support (Kenward and Brick 2021; Lewandowski et al. 2021). It is an opportunity to innovate with the aim of promoting a more responsible economy and society, in relation to the environment as well as to the human population.
1.2 Basic Human Needs
The central question is: how can human wellbeing—health and happiness1—be maximised in the long term, while protecting the living world that sustains all of us? This implies the need for a just transition to an environmentally sustainable economy. My concern in this book is with the “just” component and with wellbeing: what priorities for humankind should be pursued in the transition to a greener world?
It is generally accepted that an economy should satisfy fundamental human needs. The degree of success of an economy could therefore be judged by how well it meets the basic needs of all residents—it should provide the economic conditions for human wellbeing. This would be restricted to needs that can be satisfied by the outputs of the economy, without attempting to encompass all the determinants of human needs.
Examples of basic needs include livelihoods and homes of decent quality and security, a nurturing and educative environment for children, and access to appropriate types of care. A suggested list is presented in Chapter 2.
The idea of taking the satisfaction of basic needs as a priority objective is not new. In the context of absolute poverty in the Global South, it became a dominant idea during the 1970s. Sometimes the specific information on the different needs has been converted into a single monetary figure—for example, it is the basis for the World Bank’s extreme poverty line of 2.15 US dollars a day (upgraded from 1.90 in September 2022), but that is not the approach taken here, and would be unsuitable for a monitoring system.
The basic needs perspective is implicit in the motivation underlying international agreements. In particular, the United Nations Sustainable Development Goals have the satisfaction of basic needs at their core. Many of them specify economic outcomes which have that objective, and most of the remainder deal with the means to that end (see Chapter 2). More generally, a large number of international initiatives and agreements are intended to raise the conditions of life for the vast number of people who lack basic necessities, and/or to prevent harm (as with the Montreal Protocol on the hole in the ozone layer). This value system is shared by a highly diverse range of countries, despite their immense cultural, economic and other differences—it is something shared by all persons of goodwill. If such values were embodied also in national and subnational targets, progress towards these widely agreed goals would be greatly facilitated.
Similarly, surveys of people’s priorities tend to provide support for an economy that satisfies basic needs. For example, evidence from Britain suggests that a high value is placed on spending on pensions and healthcare. A higher priority is given to environmental protection than to economic growth, and more people believe that politicians focus too much on economic growth than the converse (The Economist2022). And in a sample representative of a relatively disadvantaged area of England, the region to the north of the River Tyne, the economic priority was “we all have enough money to meet our basic needslike heating, eating and housing”, with support also for “we all have accessto quality jobs and fair work” (Carnegie UK Trust 2022). Thus, there is widespread support for the view that everyone’s basic needs should be met, apparently as an expression of responsibility and respect for the dignity of all.
The emphasis on needs is in the tradition of Smith’s “necessaries”, and how well they are met, for all residents of a country, region, city, etc. “Needs” is also the concept central to Our Common Future, which defined sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland et al. 1987). And it is close to the philosophical/political economy analysis of human need (Doyal and Gough 1991; Gough 2019, 2020), except that here we are concerned specifically with the outcomes of the economy. In the economic context, meeting basic human needs refers to expenditure on the items that customers continue buying when their income declines, and which form a lower proportion of their spending when their income rises (Spacey 2017). For example, food forms a higher proportion of the spending of low-income households and declines as income rises. Although the distinction between needs and other wants is not prominent in modern economics, it was analysed by such pioneers as Jevons, Menger and Marshall. They specified that preferences are hierarchically structured, in the sense that agents must reach a threshold of satisfaction of the more basic wants before proceeding to the next most important level (Earl 1986; Drakopoulos 1996).
Similar lists of life’s essentials are widespread across different disciplines, encompassing a variety of ideological viewpoints. For example, Shafik (2021) provides a list of needs which she sees as one principle forming a “new social contract”, with an expectation that everyone should contribute as much as they can while they can, and that certain major risks should be shared by society. Other examples include social policy—the Social Guarantee (n.d.; 2021; see also Coote and Percy 2000); a health perspective on the inclusive economy (Shipton et al. 2021, including online appendices); and economics (The Foundational Economy Collective 2018). The Systems of Provision approach is a related but wider analysis of the production system from an interdisciplinary viewpoint (Bayliss and Fine 2020). There is a longer tradition too: Roosevelt proposed a “Second Bill of Rights” in 1944 that had a similar list to these examples, albeit phrased in the language of rights (The Franklin Delano Roosevelt Foundation 2016; Paul 2023). It included the observation, “necessitous men are not, truly speaking, free men”, a phrase apparently taken from an English property law case in 1762 (Wikipedia n.d). The similarity of the lists is not surprising, because they correspond closely with what matters in people’s lives, especially for those whose economic position is disadvantaged and/or precarious—in this sense, they describe the minimum conditions for a decent life. They are among the most important factors that impact on how healthy people are and how happy they feel. I am proposing that these near-universal values should be adopted as criteria of economic success.
An economy that provides the basic requirements for a decent life for all residents would minimise distress and promote aspiration and social participation for less fortunate people—an ethical aim that finds support across a wide variety of ideological positions. Having an agreed metric that assesses the satisfaction of basic needs would provide a foundation for public debate and policy development; the focus would then be on the means of achieving that aim, which could take account of evidence on the effectiveness and cost-effectiveness of competing policies to achieve it. This would boost the prospect of an increasingly evidence-informed public debate about economic policy. And as well as providing an explicit and measurable aim, a monitoring system concerned with basic needs would allow progress to be monitored, and the degree of success to be quantified.
1.3 The Economic Conditions for Human Wellbeing: Outputs and Outcomes
Let us consider the three elements in “the economic conditions for human wellbeing” in reverse order. First, I take human wellbeing to encompass physical and mental health and subjective wellbeing—a long and fulfilling life. Second, I am concerned with the conditions for wellbeing: its causes, which in principle are subject to influence by human action including—but not limited to—government policy. Third, I am focusing solely on the economic conditions; the scope of the discussion is GDP and its possible replacement for the particular purpose of economic evaluation, not the whole of social life.
The first question is, what is “the economy”? It includes both the private and public sectors, as well as unpaid labour. More formally, it corresponds to the production boundary specified in the System of National Accounts, namely “all production actually destined for the market, whether for sale or barter … [plus] all goods or services provided free to individual households or collectively to the community by government units or non-profit institutions serving households” (World Bank 2010). In addition, I take it to include household labour, which is excluded in this definition, and therefore from GDP. The exclusion of household labour has long been regarded as one of the fundamental flaws of GDP as a measure of economic success. The proposed new monitoring system would therefore occupy the same “space” as GDP augmented by unpaid labour.
The limitation to the economy excludes many things that make life worthwhile: good interpersonal relationships are a principal influence on wellbeing, but are separate from this discussion. In any case, few people would want governments or corporations to intrude on such matters. In addition, governance issues such as absence of corruption and of discrimination and the ability to participate in civic affairs are excluded, as they do not result directly from economic outcomes and therefore do not occupy the same “space” as GDP. This important topic would require a separate, complementary indicator (cf. World Bank n.d.).
Compared with GDP, the emphasis here on the satisfaction of basic needs is a fundamental shift of perspective. For this purpose, it is appropriate to assess outcomes of economic activity, rather than the outputs of the economy as is the case with GDP. It is an attempt to answer the question, “what is the economy for?”, or better, “what should the economy be for?”. It is concerned with ends—how well the economy meets the basic needs of the population—rather than with means, i.e. merely the level of activity. The distinction is that, for example, the number of hours of teaching is a measure of output, whereas the outcomes include literacy and numeracy. As stated in the landmark report on GDP commissioned by French President Sarkozy, Mismeasuring our lives, “Too often, we confuse ends with means” (Stiglitz et al. 2009, p. vii).
Economic outcomes have a major impact on health and wellbeing. Other (“lifestyle”) determinants of health such as cigarette smoking are not economic outcomes. However, it is well established that economic outcomes often strongly influence these proximal health determinants: smoking is far more prevalent among people experiencing deprivation and/or insecurity. It therefore mediates the health impact of such economic outcomes as insecurity of livelihood and of housing tenure. Similar remarks also apply to the relationship between economic hardship and poor diet, drug abuse, etc.
In addition to the impact on health and wellbeing, economic outcomes often have a secondary benefit. They may provide a foundation that enables people to enhance their capabilities and hence their life chances, thereby promoting aspiration. The resulting increase in human capital would thus add to economic prosperity—what may be called consequential gain—forming an amplifying (reinforcing or positive feedback) loop. However, here we are concerned with the achievement of basic needs for its own sake, as an end in itself, rather than as a means to an economic end.
It is straightforward to monitor these economic outcomes. Indicators have been developed for most of them, and are widely used to inform policy by governments, advocacy groups and many others. Collection of this information is acceptable to the population, as well as practical and affordable. However, the different components are currently not brought together—for example, housing policy is generally considered in isolation from care needs, and both are separate from education policy. The result is that each policy area is a distinct silo, and is perceived as important only if it happens to become a prominent political issue that features in the news. And governments continue to use GDP as the criterion of success, thus shaping policymakers’ aims and incentives, rather than satisfaction of basic needs.
1.4 The Proposal
I propose that a list of indicators should be developed that represents the most important needs that an economy can be expected to satisfy (for a suggested list see Chapter 2). They should be presented in dashboard form for public discussion and practical policy development, in a standardised format that facilitates interpretation. In addition, they should be aggregated as a summary indicator, the Index of Economic Outcomes (IEO). This requires a method of aggregation; one possibility is that the magnitude of each item’s contribution to health and happiness could be used both as an inclusion criterion and as a weight in the aggregate index. This would in principle be based on the evidence base relating to the impact on health and subjective wellbeing of each economic output using a standard statistic, the population attributable fraction (PAF)—see Chapter 5 for the technical details. It would provide an objective, evidence-based method for considering the contribution of an economy to the satisfaction of basic needs taken as a whole. Both the dashboard and the aggregate index would be updated regularly, e.g. quarterly.
The IEO would replace the use of Gross Domestic Product (GDP) for the purpose of judging the degree of success of an economy, although not for other purposes. GDP or a closely related measure has been the standard metric for many decades, quantifying the size of an economy in money terms. However, although GDP is well suited for use in economic management, it has long been recognised that its use as a measure of economic success is misplaced. This issue is discussed in Chapter 3.
The focus on basic needs is not intended to be a complete economic measure, because by prioritising basic needs it ignores economic activity that goes beyond those priorities. This includes a large proportion of the expenditure of relatively prosperous people, and although some of this may be destructive, not all of it is. The value of this “bonus consumption” is set at zero in the IEO.
The proposed system (a) is appropriate—it takes as its major focus the benefit to people that a good economy provides; (b) is specific to the economy, which makes it suitable for replacing GDP as a measure of success; (c) has desirable measurement properties; (d) consists of component indicators that are already widely used for informing public debate and policymaking; (e) is affordable; (f) is widely supported, both in terms of the acceptability of data collection to individuals, and in the sense of conforming to (or at least not contradicting) the main prevalent value systems in the population.
1.5 The Types of Indicator and Their Complementary Roles
For humankind to thrive is important, but it is not the only criterion—and its cost in environmental terms could well be excessive. It must be done without laying waste to the living world that sustains all of us. The monitoring system as a whole needs to encompass these two major criteria, in such a way that they can be brought together, with the aim of achieving a responsible economy.
This proposal therefore includes a means of relating the satisfaction of people’s basic needs to the cost in environmental terms, in the form of a sustainability ratio (see Chapter 4). This would require the monitoring of stocks of assets central to environmental quality, as a complementary set of indicators. A great deal of progress has been made on this agenda in recent years.
This raises the question of the monitoring system as a whole, and in particular, how everything fits together. It is vital to have a clear structure that stipulates the relationship between the different components, and for this to facilitate comparisons between them so that something like the sustainability ratio is possible. It may be tempting to create a composite indicator that contains all the items that are considered important, but there is no clear path from this type of monitoring system to better policy development.
I propose that there should be an overall suite of indicators, each having a complementary role—there is a “division of labour” between them: (i) the various types of asset, (ii) the economic output (as measured by GDP), (iii) the economic outcome, and (iv) the impact. These follow a logical sequence, shaped by their relationship to production, as shown in Fig. 1.1. They all already exist or are in an advanced stage of development. This rigorous framework encompasses everything needed for a comprehensive monitoring system for the economy and the environment. In addition, non-economic factors that contribute to the quality of life, such as good governance and personal security (e.g. feeling safe when walking alone at night), need to be monitored by a separate indicator (not shown in the figure).
An illustration of the sequence demonstrates the flow from assets, including natural, human, social, and physical plus intangible, to processes such as production and scale. This leads to outputs like consumption and usefulness, followed by outcomes including wider consequences and other determinants. Finally, it culminates in impact, such as health and happiness.
Fig. 1.1
Sequence of assets, process, output, outcomes and impact. (Dashed arrows represent processes that are not part of the System of National Accounts)
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A division of this kind has long been used elsewhere, e.g. in studies of the quality of medical care. A classic example is the division of the healthcare system into structure, process and outcome, for the purpose of analysis; there the outcome is health status, but it is also considered “a means to a further objective” beyond that (Donabedian 1966). Further developments were later included, notably output inserted between process and outcome, e.g. the number of operations performed by a hospital in a given month. These would improve outcomes only if the operations were clinically indicated, and if they were well carried out.
In the schema of Fig. 1.1, “assets” refers to the various types of input into the economy (these definitions are conventional but not precise):
a.
natural capital—the resources provided by the non-human world, sometimes enhanced by human intervention, often called ecosystem services; this refers to non-human resources as inputs to the human economy, but they also have a prior existence in the natural world, with their own intrinsic value independent of humanity;
b.
human capital—the knowledge, skills, experience and social qualities that contribute to a person’s ability to perform economically valuable work, which includes education and health status;
c.
social capital—trust, cooperation, social network support and civic engagement;
d.
physical capital—equipment that is used, but not used up, in production, including machinery, computers and buildings, plus intangible capital which is similar but has no physical existence, such as software, design, R&D and brands. Such assets are the result of investment, which originates from financial capital. Physical capital also includes the housing stock, which could be seen as the “capital” that facilitates “domestic production”—but housing is more than that, because it functions as home.
“Process” includes all the human activity that transforms these inputs into economic output, which includes production and distribution. “Output” refers to goods and services, the aggregate value of which is measured by GDP unless it results from unpaid labour. “Outcomes” are the ways these goods and services meet people’s basic needs, and are the main topic of this book. “Impact” refers to the consequences of these economic outcomes for people’s health and wellbeing.
In Chapter 2, I elaborate the concept of an economic outcome measure, with a suggested list of indicators, and a discussion of the issues involved. Outlines of some technical issues and a set of principles for inclusion as an economic outcome measure are also provided, along with development work that will be necessary. Chapter 3 discusses GDP, including its limitations and the suggestions that have been made to overcome them, as well as the many attempts that have been made to go “beyond GDP”. It also examines the other indicators that would form part of a comprehensive monitoring system, i.e. assets including those of environmental importance, and impact (subjective wellbeing and health); and it reports on recent overviews of the whole monitoring system. Chapter 4 analyses the relationship of economic outcomes with other measures, focusing especially on efficiency and on environmental sustainability, briefly discusses the policy implications, and presents some conclusions. Chapter 5 is more technical, and explains how the impact of each economic outcome can in principle be quantified, thus generating a criterion for inclusion and a means of aggregating the different items into a single index.
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