Measuring more than 'just' economic development
From Statistics Explained
- Published in Sigma - The Bulletin of European Statistics, 2010/02
Gross domestic product (GDP) is a well-known indicator which measures economic activity. ‘It is a valuable economic indicator which serves a purpose in economic policymaking. Due to the link between economic growth and aspects of quality of life such as employment and consumption, GDP is partly regarded as a proxy indicator of progress and well-being,’ said Walter Radermacher, Director-General of Eurostat.
‘However, GDP was never intended to measure, and does not measure, well-being. Neither do GDP estimates include measures of clean environment, sustainability, social cohesion or how happy people are. This means that GDP alone is not enough to properly measure the progress of our society,’ he continued. ‘And a general question for a professional statistician is whether a single figure can truly reflect a complex phenomenon such as progress’.
The European Commission Communication, GDP and Beyond, and the Stiglitz Report focus on how to better measure progress. The statistics they recommend partly overlap with the needs of the Europe 2020 strategy, which focuses on smart, sustainable and inclusive growth.
‘How to best complement GDP to provide a more nuanced and accurate understanding of the growth and progress of society has been on the agenda of statisticians for some years, but now there is political momentum and the statistical world needs to deliver,’ he said.
Mr Radermacher said actions include developments in the fields of national accounts, environmental and social statistics. ‘What is required is a systematic approach, showing the links between the economy and environmental and social sustainability aspects, in order to better inform decisionmakers,’ he added.
Complementing averages with distribution
According to the Stiglitz Report and the European Commission Communication on GDP and Beyond, it is important that statisticians further analyse social sustainability, especially the distribution of income, consumption and the wealth of households.
‘Household surveys need to provide micro-economic information on the distribution of income, consumption and wealth. The averages or medians of these statistics are meaningful, but they do not tell the whole story about living standards,’ said Jean-Louis Mercy, Head of the Living Conditions and Social Protection Unit at Eurostat.
He gave the example of a rise in average income, which is a positive phenomenon, but which may be unequally spread across income groups, leaving some households relatively worse off than others. Thus, average measures of income, consumption and wealth need to be accompanied by indicators that reflect their distribution across persons or households.
‘Ideally, all three dimensions of material living standards (income, consumption and wealth) should be published, as well as their joint distributions. It would give a better picture of how well off households are,’ said Mr Mercy. The good news is that plenty of data are available on distribution in Eurostat’s databases – primarily in the Labour force survey (LFS) and in the EU Survey on income and living conditions (EU-SILC).
‘EU-SILC includes both microdata and longitudinal information, which means we can see the evolution over time for households. We can, for example, study the chances of getting out of poverty once someone has ended up in this situation. We can also study transitions, for instance in the labour market, and its impact on welfare,’ said Mr Mercy.
Improving national accounts data
The not so good news is that EU-SILC and the LFS do not cover everything. They need to be extended and data from these two surveys need to be linked to other surveys, such as the Household budget survey and the European Central Bank’s survey on wealth. Furthermore, social data need to be reconciled with national accounts data to increase socioeconomic breakdowns in national accounts.
There are several actions in this field. In spring 2010, Eurostat published real household disposable income figures for the first time, which give a fuller picture of the economic welfare of households than the traditional GDP figure alone. ‘The data on real household disposable income clearly demonstrate how the economic turndown has taken its toll on household incomes since the fourth quarter of 2008, while showing the stabilising effect of taxes and social contributions and benefits,’ said Denis Leythienne, in charge of the Quarterly Sector Accounts Team at Eurostat.
Later this year, Eurostat will publish an analysis of the distribution (survey data) and the evolution (national accounts data) of household finances.
‘In fact, data on income, consumption and wealth of households exist in national accounts, but we need to further improve their availability with respect to non-financial assets and we need to communicate better and deliver information which supports policymaking in the best possible way,’ said Gallo Gueye, Head of Eurostat’s National Accounts Methodology, Statistics for Own Resources Unit.
A longer-term project is to compile full balance-sheet accounts of households. Such accounts would give a better picture of the financial status of the whole economy – just as a balance sheet is a vital indicator of a company’s financial situation.
‘Measures of wealth are also central to analysing distributional aspects and sustainability. What is carried over into the future necessarily has to be expressed as stocks. The correct valuation of produced and non-produced assets, as well as financial assets, plays a crucial role,’ he continued.
Measuring quality of life
Complementing GDP with social indicators related to quality of life and well-being is particularly important according to the Commission Communication and the Stiglitz Report. Key dimensions are material living standards; health; education; personal activities – including work; political voice and governance; social connections and relationships, environment, as well as physical and economic security. These dimensions should be analysed simultaneously.
‘Eurostat has carried out a feasibility study on well-being indicators. This study shows that data at European Union (EU) level are available for most of the drivers of well-being. About one third of the data are collected by Eurostat (mostly through EU-SILC) and one other third comes from the European social survey,’ said Vincent Tronet from Eurostat’s Key Indicators for European Policies Unit.
‘In some areas, there is still a need to improve data timeliness, availability and comparability. It is also necessary to invest in areas where indicators are missing – for example, when it comes to access to green spaces or suffering from harassment. Well-being indicators also have to be policy relevant – policymakers should have the possibility to influence them and they should have a high communication value,’ he continued.
Another factor is that there is a subjective and an objective side of well-being. Some statisticians are not so keen on subjective indicators. They argue that these indicators may be influenced by cultural aspects and by events of the moment, such as if a country has just won the football world cup, and therefore would not be reliable. Harmonisation of these statistics between countries is also a challenge – for instance, the sequence order of subjective questions in a survey may have an influence on the answers.
‘Recent research shows that it is possible to collect meaningful and reliable data on subjective well-being that include dimensions such as happiness, joy or pride, and negative emotions such as pain and worry. The Stiglitz Report also stresses the importance of both objective and subjective drivers of well-being. Therefore, questions on subjective well-being should be incorporated in standard surveys to capture people’s satisfaction with life and their evaluation of hedonic experiences,’ Mr Tronet said.
‘Even if data would not always seem fully comparable between countries, it could be valuable to see trends in a country and to study the links between subjective and objective well-being. The idea is not only to deliver good measures of people’s quality of life, but also to help understand its determinants,’ he continued.
Another important issue, according to the European Commission Communication on GDP and Beyond, is that the timeliness of social statistics needs to improve.
‘We need, indeed, to find a better balance between quality and timeliness, especially for data on income and living conditions. This might require a revision of the legislation which is from 2003, but not yet fully implemented in all Member States. Right now we are in the middle of a discussion with the Member States and the scientific community on which direction to choose,’ said Mr Mercy.
Growth and environment
Both the GDP and Beyond, and the Stiglitz Report underline the importance of better measuring the environmental dimensions of growth and progress. Several of the European Commission’s actions focus on the environment: an environmental index will be developed and the Commission will explore the possibility of developing a sustainable development scoreboard that would be complementary to the current set of sustainable development indicators. Furthermore, national accounts will be extended to cover environmental issues by increasing the coverage in the already existing environmental accounts.
Eurostat has been working on setting up environmental accounts since the 1990s. However, there is only partial information in the system, as countries are not obliged to provide data. Therefore, an EU law, to be adopted in 2011, has been developed, which will focus on three modules – material flow accounts, environmental taxes and air emission accounts.
‘These are the three areas, which we have identified, together with the Member States, as being the most ‘mature’. We have had common guidelines for some time and many countries have well-developed data,’ said Gilles Decand, Head of Eurostat’s Environmental Statistics and Accounts Unit.
‘At the same time, we have started discussions with the Member States on which modules we should include in the second wave of environmental accounts legislation. Areas such as environmental goods and services – due to their links with green jobs, energy accounts – to analyse energy productivity, and environmental protection expenditure accounts are the favourite candidates.’
‘Possible modules in the longer term are forest, water and waste accounts,’ he added.
Sustainable development indicators
Since 2005, Eurostat has produced a monitoring report of the European Union sustainable development strategy. The report is based on a selection of around 100 sustainable development indicators (SDI), of which eleven are called ‘headline indicators’. The headline indicators intend to give an overall picture of whether the EU has achieved progress towards the objectives and targets defined in the EU’s sustainable development strategy.
The sustainable development indicators are structured according to ten themes: socio-economic development, climate change and energy, sustainable transport, sustainable consumption and production, natural resources, public health, social inclusion, demographic changes, global partnership and good governance. They are accessible directly from the homepage of the Eurostat website.
Eurostat’s role in the area of GDP and Beyond is to coordinate all activities within the European Commission and the European Statistical System (ESS). Within the European Commission, Eurostat co-chairs the work with the Directorate General for Environment, and in the ESS, Eurostat shares the coordination with the French Statistical Office, Insee, in the so-called Sponsorship group on measuring progress, wellbeing and sustainable development.
The idea of the Sponsorship is to coordinate actions within the ESS and to propose a strategy to prioritise and implement the recommendations of the GDP and Beyond, and the Stiglitz Report. Around 18 national statistical offices have volunteered to participate.
In the Sponsorship’s first meeting in spring 2010, it was decided to create three task forces. The first one focuses on environmental sustainability and is co-chaired by Slovenia and Eurostat. The second one deals with the multi-dimensional measures of quality of life and is co-chaired by Eurostat and France (see article on p. 24). The third one focuses on household perspective and distributional aspects of income consumption and wealth and is co-chaired by Eurostat and the Netherlands.
These aspects will also be discussed by all Directors-General at their annual conference, DGINS, at the end of September in Sofia, Bulgaria.
‘Multi-dimensional measurement of sustainable development is a challenge for the ESS, and therefore an important topic for the Directors-General. We all need to work hard to better measure progress, well-being and sustainable development,’ Mr Radermacher concluded.
Further Eurostat information
- SIGMA - The Bulletin of European Statistics, 02/2010: GDP & Beyond; Focus on measuring economic development and well-being
- Sustainable development in the European Union - 2009 monitoring report of the EU sustainable development strategy
- GDP and Beyond: Measuring progress in a changing world (Commission Communication COM final 433/2009)