4. Advantages of the Proposed New Monitoring System

One purpose of monitoring the economy is to gauge how well it promotes a good quality of life for all its residents. Another is to measure its size and the degree to which this changes over time, and to assess how these vary across different parts of the economy. GDP is well suited to the second task, but not to the first. There could be many ways of evaluating “a good quality of life”, and the choice of an indicator necessarily depends on a value system. I suggest that the most widespread relevant value system, and one that is embodied in the Sustainable Development Goals, is the extent to which the basic needs of the whole population are met. This is the foundation of the proposed IEO and its component indicators.

The relationship between the two purposes is the distinction between ends and means: “a good quality of life” is an aim; economic activity is a possible method of achieving it. The two potential measuring systems, GDP and the IEO, are both methods for evaluating the economy, which means that they form a complementary pair that share the same domain. One implication is that we are not talking about displacing GDP altogether (which is probably unrealistic in the modern world), but of adding to it—replacing it for the particular purpose of assessing the success of the economy. In practical terms, it would be a comparatively minor adjustment.

I have assumed here that it is desirable, even necessary, to monitor the economy, including its ability to promote a good quality of life. A case is often made that this is too narrow, that it leads to a poor assessment of how well a society is performing. This is true, but it neglects the requirement that one needs to be able to judge the different components of a society, and the extent to which they have been changed and/or could potentially be changed by policy. The economy is one of these components, arguably the most powerful (not the same as being the most important). What is needed is not to dilute its influence in overall societal assessment by adding other components, but rather to find a way to make “the success of an economy” relate to the quality of life that it makes possible. Composite indicators, which dominate much of the “beyond GDP” discussion, for the most part do not attempt this. In principle they could succeed in generating a broad interpretation of the state of a whole society including its environmental impact—but this is distinct from evaluating economic success. One consequence of pursuing the composite route is that economic evaluation will continue to be dominated by GDP, despite its widely acknowledged unsuitability for this purpose.

Similarly, the environmental impact could be seen as a distinct component of society. It requires its specific monitoring system that is designed to correspond to the technical as well as the social aspects of its subject matter, and also to embody an agreed value system. A key advantage of having distinct monitoring systems for economic activity (GDP), economic outcomes (the IEO) and the environment is that they can be compared, in the form of an efficiency ratio and a sustainability ratio (described below).

An indicator needs to be responsive to relevant variations and changes in society. The IEO would directly reflect differences between countries, regions or cities in their ability to provide secure and good-quality jobs, good childcare and all the other items listed in table 1. It would also respond to changes. In addition, it could be used to compare subgroups of a population, e.g. by locality such as urban/rural or towns/cities, by different income levels or ethnic groups, as well as by gender and by categories of disability. Another type of usage could be in research, e.g. to function as an outcome in research on social mobility, or to evaluate the contribution of civil society organisations.

The practical usefulness of an indicator depends largely on its ability to inform possible interventions. This is built into the basic design of the IEO, which takes economic outcomes as determinants of the ultimate aim, good health and subjective wellbeing. These determinants can be modified by deliberate policy and also by cultural change. It does not prejudge which interventions should be favoured—this is deliberately left to a combination of values-based discussion and the evidence on effectiveness and cost-effectiveness.

The metric of an indicator is important. It should correspond to the use that will be made of it, and in particular to the purpose of the monitoring system and its underlying values. The favoured format of the IEO and its component items is the proportion unfulfilled, because it corresponds to the ethical commitment to leave no one behind. At present, a great deal of information is available on the topics listed in table 1, but not necessarily in the appropriate format. For example, data may be available on the average number of rooms per person in a particular geographic area, but not on the proportion of households who do not meet a specified threshold and whose living conditions would therefore be considered overcrowded. To produce an indicator in the appropriate format would require some development work.

Another measurement issue is the relative merits of having specific indicators that are meaningful for public discussion and for policy development, versus a single index that provides an overall assessment which many policymakers prefer. In the case of the IEO, it is not necessary to make a choice because the proposal is to provide both. This is only possible if a method of weighting is provided, and in principle this is available by calculating each item’s contribution to health and subjective wellbeing, as set out in Chapter 5.

Finally, the meaning of an indicator should be clear to everyone who may be interested in the topic. The IEO topics listed in table 1 are inherently meaningful, to ordinary people as well as to journalists, politicians, etc. The aggregate IEO may be more abstract and difficult to relate to intuitively, but still vastly superior in this respect to GDP and to many other commonly used measures. The economic outcomes perspective therefore has the potential to provide a clear narrative to guide public policy discussions.

Thus, the IEO perspective based on economic outcomes and the universal meeting of basic needs has a clear purpose, and a concept that corresponds to it, a formulation appropriate to fulfilling this purpose, a well-specified domain of application and a clear relationship with other related items that are being monitored. It is responsive to relevant societal heterogeneity and to changes over time, and is practically useful in relation to possible interventions. Its metric is clearly related to its purpose, and based on an explicit value system. It combines the advantages of specific individual indicators and an aggregate index, with weighting based on a clear criterion. The real-life significance of its components is intuitively meaningful. In addition, most of the required measures are already available (although needing a little development work), they are acceptable, and they could be produced at relatively low cost in timely fashion.

The positive focus on the meeting of basic needs provides a criterion for judging the success of an economy. This would replace the alternative focus on GDP growth—not only the conventional view that it should be increased, but also its converse. The “degrowth” movement proposes that it should be reduced, at least in high-income countries (World Economic Forum 2022; Hickel et al. 2022; Buch-Hansen and Nesterova 2023). Like the perspective put forward here, it is concerned with basic human needs and with the environment, but it goes further and proposes the curbing of growth as a solution, which is not part of the IEO perspective. For example, a typical recommendation is to “reduce less-necessary production … such as … fast fashion, advertising, cars and aviation, including private jets … end the planned obsolescence of products” (Hickel et al. 2022). In the IEO context, the strongest action would merely be to rate at zero the goods and services that do not contribute to the meeting of basic needs. Degrowth would be one possible course of action, e.g. motivated on environmental grounds. A contrasting viewpoint is that growth should be promoted in order to augment tax revenue, thus facilitating public service provision to enhance the meeting of basic needs. I suggest that different policy options should be evaluated in terms of their potential impact on basic needs and on other core values such as environmental protection. This course of action would give policies aimed at GDP—growth or degrowth—their appropriate role, as possible means of achieving desired ends.

The method of evaluation proposed here departs from traditional welfare economics. Recognition is growing that a rethink in this area is needed, as indicated by a recent special edition of Fiscal Studies. It is argued there that the accumulation of evidence on subjective wellbeing and its assessment, together with the threat of climate change and the experience of the Covid-19 pandemic, is leading some economists and other social scientists to reconsider the traditional approach of welfare economics. It involves incorporating this new source of evidence, as well as explicit consideration of normative criteria, in order to answer the question, what exactly does “better” mean? (Coyle et al. 2023; Cooper et al. 2023).

It could be argued that instead of the language of basic needs, it would be more natural to use the language of rights, which has often been used to express values that are considered fundamental to human life. However, the concept of rights has a very broad scope, from Locke’s “natural right to life, liberty, and property” to the present-day situation in which the suggested list of rights is extremely long, and includes civil and political rights as well as economic, social and cultural rights. There is considerable disagreement about which to include in the general framework of human rights. An additional complication is that rights tend to be embedded in cultural values, which differ between societies, and the concept has sometimes been disparaged as a “Western” imposition on other cultures—the relativist critique. In addition, it is generally held “that for every right holder, there is also a duty bearer who must fulfil the right, while there is no such legally recognised “needs provider” in BNA [the Basic Needs Approach]. Thus, declaring something, a human right adds a greater sense of obligation to governments as the entity most likely to be declared the duty bearer” (Watson 2014). A corresponding advantage of the IEO is that it does not implicate a particular person/organisation as being responsible for satisfying the specified basic needs. This is appropriate for a monitoring system.

There is, however, considerable overlap between basic needs, as advocated here, and economic and social rights which include the right to work, education, housing and access to healthcare. Arguably, “needs” has a firmer conceptual justification than “rights”, in that it relates to the human organism’s ability to thrive in physical, mental and social terms.

In measuring the success of the economy, the traditional approach has been to refer to its size, using GDP or a closely related measure. A large economy provides ample means for purchases of every kind, including destructive ones, corresponding to utility in the standard economic sense. This has been a major reason for criticising GDP as a measure of economic success since its inception. It lacks the IEO’s concern with ends, the impact of the economy on health and wellbeing—destructive purchases are expressly excluded from the IEO by its basic design. They include self-destructive purchases like cigarette smoking and problem gambling, and activities that are destructive to wider society, or that cause environmental damage. In addition, purchases that provide a transient “buzz” but do not contribute to a better life in terms of subjective wellbeing or health are part of GDP, but not of the IEO which is designed to indicate to what extent the economy enables people to thrive, i.e. to live long and fulfilling lives. The same applies to purchases that are aimed at increasing one’s own (perceived) relative economic position compared to that of others, as well as luxury consumption, e.g. expensive watches. For these reasons, the IEO is a far more accurate measure than GDP of the success of an economy.

The two types of measure can usefully be combined. By analogy with productivity measurement, the IEO score can be divided by real per capita GDP to produce an efficiency ratio. High efficiency implies that people’s lives are more fulfilled at lower cost.¹ The use of GDP as a proxy for economic success has rested on the implicit assumption that this ratio is constant: under these conditions, a high GDP would indeed indicate a good outcome. But there are good reasons to believe that the ratio is not in fact constant; for example, the Nordic countries (and certain others) consistently rate highly on the various measures of quality of life that are available, but do not have unusually high per capita GDP in the context of western Europe. Similarly, some parts of the developing world, such as Kerala in India, rate relatively highly on such measures as life expectancy and literacy, despite not being especially prosperous economically. The degree of variability of the efficiency ratio will become systematically testable when both types of measure are available.

Finally, environmental sustainability is a separate criterion—arguably the most important, because in the longer term the continuation of prosperous and rewarding human life depends on a tolerable climate, and on biodiversity. As outlined above, monitoring of assets includes environmental assets, and can be used to assess their current state and their rate of change (Stiglitz et al. 2009; Coyle et al. 2019; Dasgupta 2021; World Bank 2021). A particularly important sub-type is critical assets—non-substitutable aspects of the natural world.

The IEO can be combined with environmental assessments, in a similar way to that proposed for per capita GDP. Dividing the IEO by the ecological footprint and/or specifically by the carbon footprint generates a sustainability ratio. It corresponds with the idea of “sustainable development” (Brundtland et al. 1987), using the IEO as a measure of “development”, and a footprint measure to indicate (lack of) environmental “sustainability”. High sustainability means that people’s lives are fulfilled at lower ecological cost.

Another way in which the IEO is relevant to the environment is that it could be used to monitor the human consequences of policies, such as a carbon tax, that are introduced in order to address the ecological crisis. In practice, many of the measures required to address climate change also have a beneficial impact on health (Munro et al. 2020), for example policies to reduce air pollution, which could save many lives and improve energy access, while reducing greenhouse gases (Haines 2017).

More generally, the IEO could be used in policy development. For example, a finance ministry could assess the ratio of the likely gain in IEO to cost as one criterion in selecting and developing policies. In broader perspective, the challenges now facing humanity will require a measure of the economic conditions in which people live to try and minimise decline and maximise gain, and to prevent a race to the bottom on social standards.

The IEO and its component items constitute a monitoring system, not a policy. The difference between them can be illustrated by contrasting this approach with the widely discussed proposal for a universal basic income (UBI) (Haagh 2019), which is a policy. They both have a rather similar aim, which can be summarised as a desire for a universal basic standard of living. The advocates of UBI propose it as a way of achieving this aim. The IEO spells out the aim itself, in sufficient detail that it specifies which aspects of a particular economy are falling short and need to be remedied. Thus, it specifies the ends, not the means, in a way that identifies the particular problems that exist for that population. Incorporating this information into a routinely reported monitoring system would allow the key issues to be identified early, even if they do not happen to become the focus of political debate, and this could prevent them from developing into major crises.

There would generally be multiple possible policy options for achieving remedial action for each of the identified issues. I am not advocating that governments should provide all the items in the IEO. Many outputs of the economy result from private sector activity, and a properly functioning economy ensures that everyone is well fed and has a decent job or other livelihood, which are not necessarily supplied by the state. The specific roles of government, of the private sector and of individuals are discussed in the section Policy implications below.

In achieving desired economic outcomes, the effectiveness and cost-effectiveness of the different policy options are empirical questions, implying that high-quality evidence should guide the choice of policy direction. Although this is a truism in the context of engineering projects and corporate investment decisions, it is not routinely applied in the policy arena. The proposal here is to use the IEO and its component items as agreed measures of the desired objectives, and then to evaluate the relative merits of the different policies as means of achieving a high score, based on the evidence.

This implies a more systematic and rigorous reliance on the evidence base on effectiveness and cost-effectiveness than is currently routine. Where the necessary evidence is inadequate, research is required. This would need to take account of multiple interacting factors and time lags, as well as indirect effects represented by causal chains, involving mediation and moderation.

The intended effect is to shift the policy debate towards the best means for achieving the desired ends. Meeting the basic needs of the whole population is so important that public discussion should be focused on how to attain that aim, to the greatest possible extent. For example, evaluation of the relative merits of different ways of organising healthcare services would be based on information from comparative studies (e.g. Schneider et al. 2021), taking special account of issues affecting the less fortunate, such as cost-related access problems. Both quantitative and qualitative evidence would be relevant.

The result would be an evidence-informed method of constructing a responsible economy that serves the common good (Reich 2019), as assessed by the ability to meet the majority of basic needs for the majority of people. It could involve public–private and cross-sectoral collaboration, focused on the public purpose, not on particular sectors (Mazzucato 2020).

There would of course still be room for values-based policy debate: although the view that everyone’s basic needs should be met is widely shared, as already outlined, people differ widely in their opinions on the means of achieving that aim. And political preferences would obviously still apply in the many other policy areas that do not involve basic needs.

The value system embodied in the IEO as a criterion is based on the idea of responsibility: mutual responsibility for each other, and responsibility for the natural environment. And, it is widely agreed that the more fortunate must bear more of this responsibility.

It is intentionally a minimal value system that is intended as a foundation for a responsible economy, but which does not go beyond that. It will frustrate many people who desire something stronger and more specific, such as greater equality, or more economic dynamism. But by providing a foundation that all people of goodwill can support, that is compatible with these and other value systems, it could help shift public discourse from a preoccupation with divisive topics to a focus on practical bread-and-butter issues—and within that, to a more reality-based and fair-minded discussion of the most effective means to attain the desired ends.

The IEO, by embodying this minimal value system, would play a major role in agenda setting. This is the “most critical” stage of the policy process: “the manner and form in which problems are recognized, if they are recognized at all, are important determinants of whether, and how, they will ultimately be addressed by policy-makers” (Howlett et al. 2009, p. 92). Agenda setting consists of two elements: characterising the problem, which involves setting priorities in terms of aims, and the effectiveness of the solution (Cairney 2016, p. 32).

The focus on necessities that underpins the IEO has implications for economic security at the national level. It is now commonplace for countries to be dependent on imports of basic goods. This is a particularly serious problem in low-income countries, which may find themselves unable to afford essentials. The implication is that where foreign currency is scarce, policies should prioritise basic goods for all over luxuries for relatively prosperous people. Even in rich countries, attention needs to be paid to national security in such items as food and fuel, which are necessary for meeting everyone’s basic needs.

Finally, a practical advantage of the IEO could be that it helps to foster intersectoral policymaking—“joined-up government”. Having a universal criterion across domains would have the advantage, especially in the context of government (including at local level), that policies and initiatives could more readily be coordinated. For example, in addressing climate change, transport infrastructure or obesity, policymakers with different responsibilities, capabilities and powers would be working towards a unified goal. This could be an important practical benefit given the difficulty of coordinated working across government departments.

The motive for introducing a system for monitoring the success of an economy, parallel to the use of GDP, is to promote progress in assessing the human consequences of (a) current economic conditions, and (b) the likely benefits and drawbacks of possible policy options; as well as (c) to facilitate evidence-informed public discussion and possible cultural change. The hope is that advances can be made in this area that are similar to those that have been made in monitoring assets since the report commissioned by President Sarkozy (Stiglitz et al. 2009).

More specifically, the aim is to assist policymakers and others to move towards a better way of evaluating and monitoring the economy—to show that there is a feasible path. This would involve a shift towards “bread-and-butter” issues, which are the major practical concerns of the less fortunate groups in society, but also are important to those citizens in general who wish to live in a responsible economy and society. This is underpinned by a spirit of mutual responsibility, based on respect for the dignity of all, to promote inclusion and social justice, and facilitate agency and aspiration.

The role of government can be direct provision where appropriate, but there are other possible roles. These include transfer payments to improve affordability and therefore access, e.g. unemployment benefits, pensions and other “welfare” payments that have greatly increased in rich countries since World War II. Governments, including at regional, city or local level, can make investments, e.g. in housing and infrastructure. They can use taxation to reduce certain activities, such as charging for road use by private cars, and subsidise others such as bus travel. They can monitor standards such as the quality of schools or healthcare. And they can leave provision and funding to the private sector while providing regulation to ensure minimum standards, e.g. to increase security for tenants and workers, to set a minimum wage, to reduce air pollution and to prevent a race to the bottom in areas such as food safety.

The private sector has contributed historically to the meeting of basic needs, mainly by lowering unit costs and therefore real prices, and by introducing new and better-quality products. These have been extremely effective because they correspond with firms’ central imperative to make a profit by increasing their ability to compete with rivals as far as their capacities allow. Pulling in the opposite direction is the incentive to reduce unit costs by downward pressure on wage levels and employment, e.g. by offshoring, and more generally to try and reduce costs at the expense of workers, e.g. by cutting corners on health and safety.

The scope in the private sector for additional criteria—environmental, social and governance (ESG) issues—is debatable, and can easily amount merely to greenwashing and other types of reputation management. However, examples of good practice do exist (although probably mainly in firms that cater to richer members of society who are less price sensitive). This has sometimes followed pressure by consumers, NGOs, the media and/or governments, on issues such as labour standards and occupational safety, as well as environmental sustainability, in the supply chain. The model of “stakeholder capitalism” has been proposed by (among others) the founder and executive chairman of the World Economic Forum, as seeking “long-term value creation by taking into account the needs of all their stakeholders, and society at large”, on the grounds that “the well-being of people—wherever they live—and the planet matter to all of us” (World Economic Forum 2021; Schwab and Vanham 2021). It is an open question to what extent the private sector would be willing and able to improve their performance in relation to the types of economic outcomes discussed in this book.

Pressure on firms to improve their supply chains is one way that cultural change can help make the economy more responsible. There is further scope for the public discourse to encourage and support actions by citizens that pull in this direction. Some of this is negative: to reduce consumption that is frivolous and that has harmful consequences, such as fast fashion—not only for individuals to refrain from such purchases, but also for this to become embedded as a near-universal norm in the way that drink-driving became regarded as shameful some decades ago.

In addition, some of it is positive. The tenor of public debate influences the degree to which individual behaviour (including political) is solely self-regarding, or is influenced also by concern for others including those who are less fortunate—for example, the idea that “if they have less then they must be lazy” is a notion that works against positive remedial action.

It would also require a shift away from divisive issues that figure so prominently in public discussions, and especially from “wedge” issues deliberately introduced by some politicians, media outlets, etc. The idea is to foster a cultural shift towards discussion on how best to achieve a responsible economy—and to take pride in that, in the same spirit as a large section of the population who are spending their own money investing in lower-emission technologies such as electric vehicles and heat pumps. This will never include the whole of any national population, but it could apply to the large number of people of goodwill who live in every country. It would not be a new phenomenon: it is the same spirit that lay behind the huge improvement in human living standards and opportunities documented in Hans Rosling’s Factfulness (Rosling 2018).

This book makes the case that the success of an economy should be judged by how well it provides the economic conditions of life that are central to human health and wellbeing. This is based on a value system that commands wide support across cultures as well as across political positions—it underlies the United Nations Sustainable Development Goals and is reflected in the multiple citations here of United Nations organisations that represent international agreements involving a hugely diverse range of countries. And although the ultimate criterion of success is impact on human health and subjective wellbeing, the fundamental value system is not selfishly based on one’s own pleasure; rather, it is concerned with responsibility for the good of others. In addition, the stress here is not on human welfare with no thought of the consequences for other species and the environment more broadly—the ability to calculate a sustainability ratio is an integral part of this proposal.

I make seven contributions:

This approach is complementary to current work on assets, especially in relation to the natural world. The aim of the twin initiatives, setting the criteria of policy success to be the outcomes of the economy and the protection of natural assets, would thus be to create an incentive for governments and others to maximise human health and happiness while causing minimal environmental damage. GDP would continue to be used for the purposes for which it is appropriate.

This book provides a clear conceptual basis and a coherent framework for monitoring how well an economy succeeds in meeting the basic needs of all residents. It proposes a robust standard methodology that could form the basis for international agreement on the specific details. It has a rigorous underpinning, and in principle an objective criterion for the inclusion of specific items and for weighting their contribution to the aggregate-level Index of Economic Outcomes.

The specific items are economic outcomes that are close to people’s actual experiences. The data on these topics that are currently available are widely used by government at all levels, by the media and by advocacy organisations. They are easily intelligible, facilitating communication and public debate. They thus provide a narrative on the successes as well as the shortcomings of policy, and equally important, indicate clearly where improvements are needed.

The majority of the component items of the index are already available, and require only a little development work for them to be produced in the appropriate format. Collection of this information is acceptable to people, and relatively inexpensive. It can be regularly updated. The proposed system combines the positive features of a dashboard of indicators, each one of which is practically important, with a single measure that would provide an overall objective, incentive and criterion of success for policymakers across society. The Index of Economic Outcomes is also ideally suited to the calculation of the efficiency and sustainability ratios, assessing respectively the economic and the environmental costs of the current level of meeting basic needs.

The proposed focus on needs is based on the values of universal respect, dignity and social justice that command wide support. It is compatible with a wide range of attitudes to the relative roles of government, the market and wider society including the family, and with different views on the desirability of inequality higher up the income scale—it is deliberately framed in such a way that all people of goodwill can support it, whatever their ideological orientation.

In Our Common Agenda, the UN Secretary-General called for a renewed social contract between governments and their people and within society, that includes “universal social protection, health coverage, education, skills, decent work and housing, as well as universal access to the Internet by 2030” (Guterres 2021, p. 4). The report also called for correction of “a glaring blind spot in how we measure economic prosperity and progress” (Guterres 2021, p. 4), and more specifically, “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” (Guterres 2021, pp. 33–34).

The proposal presented here builds on the concept of 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 suggests a way of measuring it. It seeks to be the foundation for a “new Beveridge”—but whereas the Beveridge Report referred to the “five giants” of want, disease, ignorance, squalor and idleness that needed to be slain (Beveridge 1942), this proposal specifies positively where we want to get to.