Indices of well-being: measuring what really matters

Wednesday, March 7th, 2012
Urban well-being

People have grown accustomed to believing that the gross domestic product (GDP) is what really matters; that it could be used to demonstrate a society’s well-being. It was, however, never created with this intent.

Simply, GDP measures the amount of money that changes hands, but how much we have in our pockets does not adequately tell us how well we are doing, in all the dimensions of our lives.

To do that, we need to find out what is important in people’s lives, and what aspects are more important than others. This is exactly what numerous organizations have done in compiling indices that focuses on quality of life, social development, the transparency of governments, and innovativeness, amongst copious others.

They're being created by universities, the UN and other international institutions, consultancies, NGOs and other interest groups. There's also a wide variety of objectives, whether to measure the green initiatives and performance of cities (the Green Cities indices) or, in the case of the comprehensive World Values Survey, to track changes in people’s wants and beliefs.

Civic Exchange recently initiated an effort to compile a collection of indices from across the globe. With 159 indices gathered, this compendium provides insight into the dimensions that commonly account for people’s well-being. They also provide novel methodologies for determining progress.

A GDP alternative

One exemplar index that takes a well-being approach in tackling the inadequacies of the GDP is the Genuine Progress Indicator (GPI), which attempts to subtract the cost of activity that diminishes social capital or depletes the environment from GDP. So, for example, urban sprawl in many cities may have contributed greatly to GDP growth, but the sprawl also produces traffic congestion and longer commuting time, land use conversion and other harmful effects. Questions about whether such expansion of the city limits is sustainable and prosperous are factored into in the GPI.

The GPI has two other defining features. At the same time as it deducts harmful activities, it rewards the good by including non-market benefits that are normally disregarded by GDP. This included important contributions to the economy such as volunteer work or non-paid household work. Hence, it is not the initial spending on public infrastructure that matters, but the services they later provide. Just as one should not count the purchase of a brand new car towards the GPI until the family derives benefit from using the car, government spending on roads, libraries and hospitals should only be included as they deliver the associated services on an annual basis.

Income inequality is also taken into account in the GPI. The index assumes that a dollar of income is worth more to a poor person than to a rich person, and that inequality is actually a cost to society. Therefore it is subtracted from the GPI.

Perhaps due to the large number of items normally found in a country’s national accounts, the GPI has not been measured and compared worldwide. Several attempts have been made on individual countries, cities and provinces, but none exist in Asia. Yet, with the rapid pace of economic development in the region, a more inclusive form of accounting, that takes into account the sustainability of diverse forms of consumption and growth, is much needed.

What about Hong Kong?

Measures like the GPI have not been applied in Hong Kong, but efforts to collect alternative determinants of economic progress have been initiated by the Hong Kong Council for Social Services in their Social Development Index. Collectively, they are valuable statistics on Hong Kong’s social and ecological expenditure, but does not benefit from the pricing and the amalgamation of indicators that is achieved with the GPI.


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