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  It is often easier to measure outcomes than the factors that contributed to producing those outcomes. The Group devoted considerable effort to circumstances outside the control of individuals, such as ethnicity or gender, that can have a significant impact on inequality and access to opportunities. The HLEG also looked at factors that can be both a cause and consequence of particular outcomes such as trust: subjective well-being is influenced by trust, while countries with higher levels of trust tend to have higher income. Interactions between the objective conditions and subjective assessments are also important in domains such as economic insecurity, and this book discusses the need to consider both observed and perceived security. The book also suggests that one way to integrate these multiple strands into a holistic approach to the measurement of economic performance and social progress is to adopt a systems viewpoint to complement the capital approach and deal with the many interactions at play.

  We hope that the present publication and its companion volume (Measuring What Counts: A New Dashboard for Well-Being) will provide useful elements to further the Beyond GDP agenda. In our companion volume, we highlight why we believe this agenda is even more important today than it was when the Stiglitz-Sen-Fitoussi Commission began its work a decade ago.

  We recognize that we could not have got this far without the hard work and devotion of HLEG members and our partners. Over the course of this work, HLEG members periodically convened to discuss many of the issues that are reflected in this book. The HLEG also organized a number of thematic workshops, which were hosted and supported by various foundations and attended by dozens of researchers. We are grateful to them all for their help and support.

  These workshops focused on:

  • “Intra-generational and Inter-generational Sustainability” (September 22–23, 2014), Rome, hosted by the Einaudi Institute for Economics and Finance and the Bank of Italy and sponsored by SAS;

  • “Multi-dimensional Subjective Well-Being” (October 30–31, 2014), Turin, Italy, organized in collaboration with the International Herbert A. Simon Society and the Collegio Carlo Alberto, and with the support of Compagnia di San Paolo;

  • “Inequality of Opportunity” (January 14, 2015), Paris, hosted by the Gulbenkian Foundation in collaboration with Sciences-Po Paris and the CEPREMAP;

  • “Measuring Inequalities of Income and Wealth” (September 15–16, 2015), Berlin, organized in collaboration with Bertelsmann Stiftung;

  • “Measurement of Well-Being and Development in Africa” (November 12–14, 2015), Durban, South Africa, organized in collaboration with the Government of South Africa, the Japanese International Cooperation Agency, Columbia University, and Cornell University;

  • “Measuring Economic, Social and Environmental Resilience” (November 25–26, 2015), Rome, hosted by the Einaudi Institute for Economics and Finance, supported by the Bank of Italy and the Italian statistical office (ISTAT), and sponsored by SAS;

  • “Economic Insecurity: Forging an Agenda for Measurement and Analysis” (March 4, 2016), New York, organized in collaboration with the Washington Center for Equitable Growth, the Yale Institution for Social and Policy Studies, and the Ford Foundation; and

  • “Measuring Trust and Social Capital” (June 10, 2016), Paris, organized in collaboration with Science-Po Paris and the European Research Council.

  Finally, we would like to thank a number of colleagues who have supported our work throughout this period: Marco Mira d’Ercole, for his many valuable inputs to the substance and organization of this book; Elizabeth Beasley, for acting as rapporteur of the present volume; Martine Zaïda, for coordinating the HLEG and organizing all the thematic workshops and plenary meetings; Patrick Love, for editing support; Christine Le, Thi for statistical assistance; Robert Akam, for communications support; and Anne-Lise Faron, for preparing this book for publication.

  Joseph E. Stiglitz

  Jean-Paul Fitoussi

  Martine Durand

  Chairs of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress

  PREFACE

  Assessing the progress of society presents a range of challenges: conceptual challenges (e.g., the inevitable trade-off between trying to be comprehensive and the limits in people’s capacity to deal with too much information); technical challenges (e.g., how to combine information across micro-data sets dealing with different issues, how to integrate micro-data informing on inequalities with macro-economic accounts dealing with averages); and organizational (e.g., how to improve coordination among different data-collectors, how to balance international harmonization and local accountability, how to improve timeliness of existing data). The High-Level Expert Group on the Measurement of Economic Performance and Social Progress (HLEG), hosted by the OECD from 2013 to 2018, addressed some of these challenges, building on the report of the Stiglitz-Sen-Fitoussi Commission published in 2009. The aim remains the same—help to develop the means to describe progress and, in this way, contribute to better policies. This book consists of a collection of authored chapters dealing with those issues that the HLEG felt deserved further attention and have thus been at the core of the Group’s deliberations over the past few years. A complementary volume by the HLEG Chairs (J.E. Stiglitz, J.-P. Fitoussi, and M. Durand, Measuring What Counts: A New Dashboard for Well-Being) provides a broader overview of the issues discussed by the Group.

  The Sustainable Development Goals and the Measurement of Human Progress

  The adoption of the Sustainable Development Goals (SDGs) by the UN General Assembly in 2015 is the most visible manifestation of how the Beyond GDP agenda has influenced policy discussions. But the SDGs also highlight the inevitable tension between the pull to broaden the set of measures used for monitoring progress and the imperative to focus on a small number of top-level indicators—a tension that can only be solved through prioritization of the UN goals and targets at the national level. National Statistical Offices should be given the governance independence and financial resources they need to fulfill their obligations on monitoring the SDGs, while the international community should support statistical offices in less developed countries starting from those global phenomena requiring good metrics for all countries.

  Measuring the Distribution of Household Income, Consumption, and Wealth

  The way household income, consumption, and wealth are distributed is important in relation to fairness, but an unequal distribution of economic resources also lessens the impact of economic growth on reducing extreme poverty. Unfortunately, analyses in this field often use databases that not only show different levels of inequality from one database to another but also, for some countries, diverging trends. Data in this field suffer from under-coverage and under-reporting at both ends of the distribution, from limited information on wealth distribution, and from the difficulty in linking information among data sets to know what is happening to the joint distribution of economic resources. More work is also needed to reflect the value of in-kind benefits such as education and health care services in a broader income concept, and to assess the distributive impact of consumption taxes and subsidies.

  Horizontal Inequality, Intra-household Inequality, and the Gender Wealth Gap

  Inequality in income, consumption, and wealth among individuals (“vertical inequality”) ignores systematic inequities among population groups, omits important nonincome dimensions, and assumes that each individual in a household receives the household’s mean income. Horizontal inequalities (inequalities among groups with shared characteristics, both in income and nonincome dimensions), intra-household inequality, and the gender wealth gap are important in their own right, but they also link with each other in important ways (for example, a key aspect of intra-household inequality is inequality between the genders). Progress in all these fields should be a priority for future research.

  Inequality of Opportunity

  Inequalities in income and wealth are more acceptable to individuals and more sustain
able for society when people feel they have a fair chance to improve their situation. Inequality of opportunity—that is, in the circumstances involuntarily inherited or faced by individuals (such as gender or ethnicity) that affect their economic achievements—also matters: beyond contributing to outcomes inequality, it reduces the efficiency of an economy by weakening incentives for those who think they can never succeed. While it will never be possible to observe differences among individuals across all the circumstances that shape their economic success independently of their will and effort, data on some aspects are available, and should be monitored regularly. But more is needed—for example, developing long-term panels linking parents and offspring, and including retrospective questions in surveys.

  Distributional National Accounts and the World Inequality Database

  The World Inequality Database (WID.world), which was originally called the World Wealth and Income Database, project provides annual estimates of the distribution of income and wealth using concepts that are consistent with national accounts, which allows for policy questions to be addressed that could not be answered through other data sets. These data highlight substantial variations in the magnitude of rising inequality across countries, suggesting that country-specific policies and institutions matter considerably. High growth rates in emerging countries reduce between-country inequality but do not guarantee low within-country inequality levels nor ensure the social sustainability of globalization. Access to more and better data (administrative records, surveys, more detailed national accounts, etc.) is critical to monitor global inequality and to get a better picture of how the benefits of growth are distributed.

  Understanding Subjective Well-Being

  Subjective well-being has great potential as an indicator of the “health” of a community and of individuals. Measures of societal progress should take into account how people feel about and experience their own lives, alongside information about their objective conditions. At a societal level, subjective well-being measures can signal wider problems in people’s lives, capture prevailing sentiment, and predict behavior in ways that complement more traditional measures. Deepening the measurement initiatives undertaken in this field as a response to the recommendation of the 2009 Stiglitz-Sen-Fitoussi Commission is a necessary step toward providing responses to the many research questions that are still open.

  Economic (In)security

  People’s confidence in the economic and political system is destroyed quickly when there is a sentiment that economic security is declining. Economic insecurity captures individuals’ (or households’) degree of vulnerability to an economic loss. Three elements are inherent in this definition: some probability of an adverse event; some negative economic consequence if this event occurs; and some protection (from formal insurance to informal risk-sharing, self-insurance through savings, and the like) that could potentially offset or prevent these losses. Measures are needed for each of these elements and for their combined effects. It is also important to distinguish between observed security, which can be measured using economic data, and perceived security, where people themselves reveal their subjective appreciation of their economic situation.

  Capital and Systems Approaches to Measuring Sustainability

  The SDG framework recognizes that progress has to be considered holistically and in a long-term perspective, taking account of trade-offs, spill-overs, and unintended consequences of policy and investment decisions. Capturing the inter-temporal consequences of today’s decisions requires measures of the various types of resources that will sustain future well-being, i.e., natural, human, social, and economic capital. Complex systems theory provides a complementary approach for integrating the analysis of the different types of capital by dealing with the many interactions that shape sustainability. A systems approach could also more adequately capture the extent to which a production and consumption path is sustainable, safe, and resilient.

  Trust, Social Progress, and Well-Being

  People’s trust in others and in institutions is a key determinant of economic growth, social cohesion, and subjective well-being. While most of the research on the role of trust and cooperation draws on survey data, this type of information requires caution in use and interpretation. One way forward is to combine surveys with experiments asking participants to make decisions under circumstances where their degree of trust influences their behavior. Evidence of this type, based on representative samples of the population for several countries, is now starting to become available. It has the potential to deepen our understanding of trust, its causes as well as its consequences.

  1.

  Overview

  Elizabeth Beasley

  This chapter provides a high-level overview of the themes discussed in more detail in the subsequent chapters. It walks through each issue, spelling out the reasons for its importance, the measurement challenges it raises, and the steps that should be taken to improve statistics in the related fields.

  Elizabeth Beasley is currently a Researcher at CEPREMAP, Paris. The author wishes to thank Marco Mira d’Ercole and Patrick Love for their inputs, as well as all HLEG members for their comments on the previous draft of this chapter. The opinions expressed and arguments employed in the contributions below are those of the author and do not necessarily reflect the official views of the OECD or of the governments of its member countries.

  Introduction

  The Commission on the Measurement of Economic Performance and Social Progress—also known as the Stiglitz-Sen-Fitoussi Commission—concluded its work in 2009 with the hope that the report it produced would start a debate over the adequacy of current ways of measuring economic performance and social progress, and motivate further research on developing better metrics.

  The Commission’s 12 recommendations (see sidebar below) have been met with a high level of enthusiasm from the statistical community, civil society, international organizations, governments, and researchers. Their efforts are transforming the landscape of measurement.

  The present volume does not replace the 2009 report. It focuses on a selection of topics that the report covered, rather than carrying out a complete review. In addition, several new topics are discussed in this volume that did not feature in the report, in part because of the way the world has changed since 2009. For example, the financial crisis highlighted the importance of economic (in)security, and thus the need to develop metrics of it. In evaluating economic performance, such metrics need to be considered alongside more conventional indicators.

  The overall message of these chapters is one of tempered optimism: there has been rapid progress in several areas, bolstered by input from multiple stakeholders, while other areas continue to face conceptual or practical hurdles. Our understanding of subjective well-being, for example, has greatly evolved, as has our ability to measure some types of inequality.

  The environment and sustainability were central to the Stiglitz, Sen, and Fitoussi report, and despite the fallout from the financial crisis and the Great Recession that followed, the international community negotiated major agreements in both of these domains. In 2015, it signed the COP21 (Paris Agreement) on climate and the UN 2030 Agenda (United Nations, 2015), consisting of the 17 Sustainable Development Goals (SDGs) and their 169 targets. The latter agreement in particular demonstrates the extent to which the “Beyond GDP” message of Stiglitz, Sen, and Fitoussi has been incorporated into the international policy agenda. The SDGs, which are applicable to all countries, try to capture multiple dimensions of social and economic progress.

  Key messages from each of the chapters included in this volume are summarized below.

  RECOMMENDATIONS OF THE COMMISSION ON THE MEASUREMENT OF ECONOMIC PERFORMANCE AND SOCIAL PROGRESS (2009)

  • Recommendation 1: When evaluating material well-being, look at income and consumption rather than production, as conflating GDP and economic well-being can lead to misleading indications about how well off people are and entail the wrong policy dec
isions.

  • Recommendation 2: Emphasize the household perspective, as citizens’ material living standards are followed better through measures of household income and consumption.

  • Recommendation 3: Consider income and consumption jointly with wealth, which requires information on balance sheets and proper valuation of these stocks.

  • Recommendation 4: Give more prominence to the distribution of income, consumption, and wealth, which requires that measures of average income, consumption, and wealth should be accompanied by indicators of their distribution.

  • Recommendation 5: Broaden income measures to nonmarket activities, such as the services people received from other family members as well as leisure time.

  • Recommendation 6: Quality of life depends on people’s objective conditions and capabilities, such as people’s health, education, personal activities, and environmental conditions but also their social connections, political voice, and insecurity.

  • Recommendation 7: Quality-of-life indicators in all the dimensions covered should assess inequalities in a comprehensive way, taking into account linkages and correlations.

  • Recommendation 8: Surveys should be designed to assess the links between various quality-of-life domains for each person, and this information should be used when designing policies.