Column : Measuring prosperity

Written by Michael Walton | Michael Walton | Updated: Dec 20 2008, 07:47am hrs
There is widespread dissatisfaction with Growth National Product as a countrys overarching goal. It has major conceptual flaws. It is restricted to goods and services traded in the market. Valuations are determined by the underlying distribution of income and wealth. It doesnt directly measure well-being, nor the freedom of people to pursue a life of their choosingin Amartya Sens formulation of the ends of development.

There has been a recent resurgence in interest in broader measures of well-being. President Sarkozy of France appointed a Commission on the Quality of Life involving both Sen and Joseph Stiglitz. In economics and psychology, happiness literature has itself become growth industry. The most famous, and hotly debated, result is the so-called Easterlin Paradox: that measures of subjective well-being show little or no improvement with rising incomes after basic needs have been satisfied. Even in the United States, a society seemingly obsessed with material rewards and consumption, there has been little improvement in subjective reports on happiness since the 1970s.

Bhutan, Indias small neighbour, has been officially pursuing an alternative concept for decades. The previous King Jigme Singye Wangchuck announced that Gross National Happiness (GNH) was the countrys national goal soon after he came to power in 1972. It has four pillars: promotion of equitable and sustainable socio-economic development, preservation and promotion of cultural values, conservation of the natural environment, and establishment of good governance. Bhutan just became a democracy and remains fully committed to GNH. Earlier this month it hosted an international meeting on how to get better of the concept.

I used to think the Bhutanese concept of GNH quirky, perhaps only appropriate for a small Buddhist country run by a benevolent King. After a recent visit, I think it raises genuinely important issues, as relevant to India as any country. Here are three.

First, the influence of material changes on well-being depends on a persons initial position. As already noted, material conditions matter more the poorer a person is. And shocks to material welfare are especially costly when there are adverse shocks. This can lead to heightened insecurity, the loss in dignity associated with the loss of work, and heightened mental stress. This is a strong policy case to take more action for poorer groups and to reduce economic insecurity.

Second, there is explicit emphasis on the environment. Here there are classic problems of the failure of markets to value the costs of environmental damage, and of collective action to manage common resources. This is even worse when those hurt are politically weaker groups, including future generations. The decline of Indias water table is a dramatic instance of such a failure. Measurement can make a difference. For example, in the particularly difficult area of climate change the most important contribution of the Stern Report was to shift the terms of the debate to discussions around the costs and benefits of action, and around who should pay.

Third, a striking feature of the GNH is its emphasis on culture, and more broadly societal values. This is fundamentally driven by a concern that there are powerful asymmetries in a countrys interaction with the economic and cultural forces of globalisation, and there is a case for public action to manage this. In contrast to the individualist base of economics, it is also based on the view that people are fundamentally relational, and care about societal values. Now this can be controversial, if it is structured in terms of the preservation of one, tradition, or second, culture. But this is not the core of what is sought, that is more fundamentally about managing the asymmetric relation, and includes tolerance for cultural diversityeven if there are practical tensions with Nepalese minority. And the issue cannot be avoided. Economic change and globalisation does interact, for good and ill, with cultural values and the structure of difference. This can lead to long-term losses of valued societal resources, and, especially where there are culturally shaped outlooks, in ways that are profound, unavoidable and can lead to alienation, the formation of what sociologists call reactive identities. This can lead to violence or other anti-social behaviour.

So what can we learn from the GNH Yes, everyone recognises that there are many dimensions to wellbeing, but the policy debate can get sidelined by the obsession with GDP. Of course growth mattersindeed expansion of the material well-being and economic security of poorer groups is given even more weight in happiness research. But to get better debate on how societies value broader conceptions of the good life, we need better, and more explicit measures. Market valuations are highly imperfect, and explicit measures, whether in an index or not, can help shift the debate to where it belongsto the domain of political discourse.

The most important issue is how to make a broader measure of well-being politically salient, and do so in a way that supports, rather than obscures, tradeoffs across alternatives. The Human Development Index (HDI) created in 1990 by the United Nations Development Programme, was an attempt to get a measure more closely correlated with Sens concepts. It is highly imperfect, but did help to shift the debate. In Brazil the HDI is measured for every municipality, and it has become a well-known and politically relevant measure of performance.

The author is at the Harvard Kennedy School, the Institute of Economic & Social Change and the Centre for Policy Research