More than luck

What does ‘progress’ mean to you?

0 Comments 25 July 2010

http://www.flickr.com/photos/darrenhester/3901158717/

by Tani Shaw

When it comes to the really important things in life, research shows that people from all walks of life share a lot in common1. The things that we value most seem to be spending time with those we love, a fulfilling job, a healthy life in a safe and secure environment, access to a good education and health care, time in the sunshine enjoying nature and Australia’s beautiful landscapes, the right to believe and vote2 according to our values and a sense that we are part of a community.

The other chapters in this book show different areas in which Australians want progress. 75 per cent of us support stronger human rights protections3 for example, and 72 per cent want action on climate change, even before a global agreement is reached.4 Very little has been done in either of these areas. Why? What other forces may be overriding this clear call for change? Part of the problem lies with a single statistic that governments and economists use to track how Australia is performing economically. This simple statistic is often treated as the most important measure of whether or not we are on the right track as a country.  It is “GDP” or Gross Domestic Product. Despite being aware of its limitations, many policy makers, political leaders and commentators treat GDP as the most important measure of the “progress” of our society and our “quality of life”. GDP measures the total amount of goods and services sold in Australia each year. When GDP is seen as the primary measure of success, then the most important economic goal of any “good” government is to make sure that GDP grows every year.

A large part of the debate over whether Australia should introduce an emissions trading scheme before most other countries turned on whether this would make us less economically competitive than the countries that delayed. If so, we were told, this would negatively impact on ‘economic growth’. Other countries were having the same debate, and although the facts pointed in the opposite direction5, even the fear of harming GDP growth was enough to stop many politicians in their tracks. The wish to keep GDP growing at any cost has contributed to the current international stand-off on climate change. The costs associated with climate instability are going to be enormous…but let’s not think about that now. There are short term gains to be won.

So does producing more each year actually help us to secure what we value most? Of all of the ‘universally valued’ things listed above, none of them are counted in GDP (although below a certain level of GDP per capita some of these things tend to be far less attainable). So why does this measure have so much influence over the way our country is run?  This chapter aims to unpack that question and to describe a movement that exists in Australia and worldwide to find a better way to measure “progress”.6

If we are measuring and aiming for economic growth in GDP then this is what we will achieve. If we are measuring economic strength and stability, environmental sustainability and the well-being of people then we are more likely to achieve it. This brings us to key point #1:

Key Point #1 – National primary statistics and indicators need to reflect the goals of society

Firstly, let’s unpack GDP a bit. GDP was not designed to be the main indicator of progress.  In 1944 each country had different types of systems for national accounts. This caused problems because when one country’s figures changed the other countries didn’t know how to react and this caused unnecessary fluctuations in international markets. So in 1944 at the Bretton Woods conference in the U.S. 144 nations decided to choose a single measure by which to compare economic activity between countries, GDP.  The goal was transparency and greater economic stability.

Economists then began to equate GDP growth with the economic well-being of individuals.  So what does “economic well-being” really mean? In 2009 President Sarkozy of France commissioned some of the best economic minds in the business, Nobel prize winners Professor Joseph Stiglitz and Professor Amartya Sen, together with Professor Jean-Paul Fitoussi to look at GDP, economic performance and social progress.7  They identified some pretty significant gaps in the usefulness of GDP as a way to measure economic well-being.

GDP does not include all those types of personal economic well-being that cannot be measured with a price tag, such as support at home from family and friends, volunteer work in the community and many other activities which can make a difference to the affordability of someone’s existence. As well as not measuring a lot of activity, GDP is so unrefined that if there is a major environmental accident, GDP generally goes up because of the cost of the clean up and if there is a war, it goes up because of the boost in weapons production.

GDP also does not include many of the positive and negative things that happen when purchasing something. An inexpensive item like a bus fare to visit a relative may hold much more “value” than an expensive repair to a car. Economists call these hidden values “externalities”. Negative externalities include pollution or toxic waste that a product may leave behind or under-priced access to a natural resource which is depleted or lost in order to produce something.

Sometimes goods and services can cost more than they are actually worth just because they are difficult for people to understand, such as complex financial and investment packages or mobile phone plans. They may be expensive and will be counted in GDP, but may not represent a high level of value to someone’s economic well-being.

Finally, and this is a big one, a country can have high GDP but have a huge gap between rich and poor. GDP is calculated for the whole country then divided by the number of people to get an average figure. So if Australia has a large number of poor people, we will not be able to tell this from looking at GDP.

When it comes to the natural environment, on which we depend, the biggest problem with the GDP growth model is how unsustainable it is in the long term. As GDP grows, so do negative externalities. With GDP growing at four per cent each year, total production doubles every 18 years. If you match this increase with population growth, expected to reach 35 million in Australia by 2056, then our current model of GDP growth would have each person in this larger population producing more each year. If current patterns continue, this would lead to resource shortages, accelerate species extinction and many other environmental impacts. This may come with the benefits of genetically modified food, mass produced consumer goods and hi-tech living in concrete jungles… but is this the type of life we want?

So, if GDP is so inadequate as a measure of national progress then why aren’t more people talking about it? Well there has been an active effort by the Australian Bureau of Statistics (ABS), the Australian Treasury, academics and non-government organisations (NGOs) to put forward a broader approach to measuring progress. Since 2002 the ABS has put out a report called “Measuring Australia’s Progress.”8 The Australian Treasury also has a wellbeing framework for strategic planning and decision-making.9 Policy think tanks and NGOs including the Centre for Policy Development, The Australia Institute and the Australian Conservation Foundation are actively involved in sustainable economy and well-being initiatives. The ABS also gathers a wide range of data from health and education to the environment, to help inform wider measures of progress.

Broader measures of progress exist, such as the ABS “Measuring Australia’s Progress” report. However the dominance of GDP as the main indicator of progress remains in policy decision making and announcements to the Australian public. This brings us to the second key point:

Key Point #2 – GDP growth dominates and overrides all other measures of progress

If we are to achieve economic strength, environmental sustainability and societal well-being, statistics will help inform this process but will not change it. The change comes from how policy is made by government…when taxes are being decided on such as an emissions trading scheme, or budgets are set to fund initiatives such as free dental care for all Australians, or new laws are created such as container deposit legislation which has been stymied by drink companies and bottle manufacturers for years.

Collecting statistics does not change anything. The change comes from the use of the new measures in government decision making.

This raises key point #3:

Key Point #3 – Indicators alone cannot change the way we measure progress, the real test is how policy is developed and communicated

How do we influence how policy is made? One way is for governments to design policy based on the needs of the citizens of Australia. This has been put forward recently by the head of the Department of Prime Minister and Cabinet, Terry Moran, who in March of 2010 released a paper entitled “Reform of Australian Government Administration: Building the world’s best public service”.10 Moran proposes in chapter six of the review that the needs of citizens be the starting point for all Australian Public Service Programs. But how can the needs of citizens be determined?

One approach which is gaining popularity, particularly at the local and regional level of governments, is extensive citizen input. Projects are popping up around the country, such as Community Indicators Victoria11 and the commencement of the development of the Australian National Development Index.12 Such projects seek to determine what Australians consider to be “progress” through extensive consultation. Another example worth mentioning, due to its solid reputation amongst statisticians around the world, is the Canadian Index of Wellbeing13, which involved extensive consultation with Canadian citizens.

“Consultation” is a bit of a dirty word in some circles. It smacks of tokenism and lip service and there are plenty of community groups who have been badly burned by giving up their time to contribute ideas only to have decisions made which ignore them. Never-the-less, consultation seems to be moving from tokenism to becoming a vital part of our democratic processes for governance.

There is also some promising news from the “top”. Australia is part of the club of richest nations in the world, known as the OECD (Organisation for Economic Cooperation and Development). It is an invitation only club but non-member countries also participate, sharing knowledge in many areas, including national statistics. For decades statisticians from each member country have been gathering data on all manner of things, from health to education, the economy to the environment. The United Nations also does the same thing, but is more focused on developing countries.

Something started happening about five years ago within the OECD. Statisticians started turning out in big numbers to discuss the notion of “progress” and how it is to be measured. The OECD found itself home to a social movement for change, coming from statisticians, calling for a broader measurement of “progress” that goes beyond just economic growth. This movement reminds me of the green ban marches that happened in Australia in the 1970s. Builders in Australia were protesting at the demolition of heritage buildings and the construction of inappropriate building. The builders protested to the point of stopping major construction jobs. The construction companies lost millions of dollars and the builders, whose bread and butter came from construction, lost their income. The result however was the introduction of new demolition laws to preserve buildings of special significance.14

Statisticians may not be going on strike, but in a way they are on the front line as the builders were. Statisticians are the interface between policy makers and the public, and according to the chief statistician of the OECD at the time Enrico Giovannini, they are saying that “we are measuring the wrong thing”. They are diligent, dedicated professionals and to do their job well they have to become good listeners. Good research and statistics is now based increasingly on consultation rather than observation from afar. Statisticians have been joined by academics, NGOs, philanthropic organisations, The World Bank, the United Nations Development Program and others to call for changes to the way we measure progress.15

The Australian Bureau of Statistics is an early adopter in this movement for change. However, none of this action means anything if, at the end of the day, it fails to influence the way policy is made by government. At the moment the greatest signs of influence are at the local and state level, with projects such as Community Indicators Victoria. The implementation of the Moran Review in the Australian Public Service provides an opportunity to find innovative ways of determining the “needs” of the Australian public. Perhaps this will foster a culture of consult first, plan later, in the public sector. The head of Treasury, Ken Henry, is also a vocal advocate of incorporating environmental sustainability into our national fiscal policy as a matter of urgency. ABS and Treasury are advisors, but are not the decision makers. Ultimately it is the prime minister and elected ministers who can choose whether or not to heed the advice and instruct policy makers to incorporate broader measures of progress at the outset of policy development.

In 2009 the OECD Global Project entitled “Measuring the Progress of Societies” conducted training courses for future policy makers in various countries, including the Australian Bureau of Statistics in Canberra. In the course a framework was presented by which broader measures of progress could be incorporated at the outset of policy development. During the scoping and initial design of a new policy, dimensions of progress are nominated and indicators by which the dimension could be measured. For example, when developing a policy for new release of a region for urban development broader measures of progress could be incorporated into the policy through the design of an indicator table as follows:

Example – Measures of progress for new urban development

Dimension Economic Strength Environmental Sustainability Societal

Well-Being

Indicator

Housing

Indicators for Housing Affordability &

Strong Resale Values

BASIX compliant housing x% houses have close access to open space, parks and community facilities
Infrastructure Creation of Local employment opportunities for x% of residents >x% water and power generation locally

Nature corridors in land design

X% have close access to parks, shops and community facilities.
Transport X% residents have access to affordable, rapid transport to work. X% of residents travel on public transport as main form of transport. x% residents have close access to public transport and community facilities

The use of dimensions and indicators, as above, can assist policy makers in determining measurable outcomes for the various elements of “progress”. Much will depend however on the brief for policy design, which comes from the relevant minister. This brings us to another key point.

Key Point #4 – Moving beyond the GDP growth paradigm to broader measures of progress requires a choice by elected politicians to change the way policy is developed

The extent to which a policy maker can influence the dimensions and indicators for a particular policy outcome may vary within each organisation. In the meantime individual policy makers – whether they are a policy maker in a government department, an academic, a statistician or a minister – have the opportunity to incorporate broader measures of progress into the planning. A groundswell of interest will create an environment conducive to change.

If things do start to change, the signs will be that policy announcements from politicians will focus less on economic growth as the magic cure for quality of life in Australia. GDP will no longer be regarded as the only guiding light for moving us forward. We will know things have changed when we turn on the radio in the morning and instead of hearing how our problems are solved because we’ve produced a whole lot more stuff than last year, the news will read something like this:

“Australia’s national progress improved overall last quarter, according to our National Development Index. We saw a rise in the sustainability index due to the significant improvements to water flows in the Murray-Darling; our economic strength index dipped slightly due to unexpected delays in the implementation of the much-anticipated Emissions Trading Scheme and our well-being index rose sharply on news that the Federal Government will cease the Intervention in the Northern Territory, in accordance with international human rights law.”

Some commentators have argued that implementing an index of this kind would be a mistake because it is inherently flawed owing to the subjective nature of its basic value judgments. After all, who will decide which components are included in such an index and how much weighting/emphasis should be given to one aspect of progress over another? There is some merit to these concerns. However, a better way to look at this challenge might be to ask:

Would this be more or less valuable and informative than using a single, unrepresentative measure of production as the national indicator of whether or not quality of life in Australia is getting better or worse?


Photo Credit: Darren Hester http://www.flickr.com/photos/darrenhester/3901158717/

Endnotes

  1. Hall, J. (2009) OECD, “Measuring the Progress of Societies” – Training Course for Future Policy Makers, Australian Bureau of Statistics, Canberra.
  2. Stiglitz, J., Sen, A. & Fitoussi, J. (2009) Report by the Commission on the Measurement of Economic Performance and Social Progress
  3. See http://morethanluck.cpd.org.au/sharing-the-luck/human-rights-at-the-cross-roads/
  4. Hanson, F. (2010) The Lowy Institute Poll 2010, http://www.lowyinstitute.org/Publication.asp?pid=1305
  5. See http://morethanluck.cpd.org.au/making-it-last/shifting-from-fear-to-hope/
  6. Australian Bureau of Statistics (2008) Population Projections Australia 2006-2101. Available online: http://www.abs.gov.au/Ausstats/abs@.nsf/mf/3222.0
  7. Stiglitz, J., Sen, A. & Fitoussi, J., op cit
  8. Australian Bureau of Statistics (2009) Measures of Australia’s Progress: Summary Indicators 2009 http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/1383.0.55.001Main+Features32009
  9. Australian Government Treasury (2004) Economic Roundup Winter 2004. Available online: http://www.treasury.gov.au/documents/876/HTML/docshell.asp?URL=Policy_advice_Treasury_wellbeing_framework.htm
  10. Department of Prime Minister and Cabinet (2009) Reform of Australian Government Administration: Building the world’s best public service, 1 October 2009. Available online: http://www.dpmc.gov.au/publications/aga_reform/aga_discussion/index.cfm
  11. Community Indicators Victoria (2010). Available online: http://www.communityindicators.net.au/
  12. Salvaris, M. (2009) An Australian National Development Index, General Background Paper. Available online: http://www.pc.gov.au/__data/assets/pdf_file/0006/92859/subdr268.pdf
  13. Canadian Index of Wellbeing (2010) http://www.ciw.ca/en/Home.aspx
  14. Burgmann, V. (1993) Power and Protest
  15. Organisation for Economic Cooperation and Development (2010) The Global Project on “Measuring the Progress of Societies”, available online: www.wikiprogress.org

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Tani Shaw

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