Rio+20 a vital opportunity for changing the metrics

As one of the organizers of the original Beyond GDP conference in the European Parliament in 2007 , and funder of its Surveys in 12 countries by Globescan, we are glad to see some progress toward using all available indicators of health, education, environment and poverty . But these indicators will continue to be ineffective if seen only as complementary or satellite accounts to an uncorrected GDP. Only when GDP incorporates these broader indicators within GDP , subtracts social and environmental costs and finally includes an asset account , will we see real progress .Hazel Henderson, Editor

Main article

Article from Janez Potonik, European Commissioner for the Environment

Rio+20 ? a vital opportunity for changing the metrics

This month I will be attending the Rio+20 Conference on sustainable development. The conference has been in the spotlight for some time already, so you are almost certainly aware that the key topic of discussion will be how to build a green and inclusive economy.

The EU set out its ideas last year, and one of the key actions we will be pushing for at the conference is a “roadmap for an inclusive green economy” that would allow national governments to agree on what is needed at international level and give them freedom to use the policy toolboxes to design their national and regional approaches. The EU and its Member States also welcome the proposal for Sustainable Development Goals as a valuable contribution to Rio+20, in the belief that they could contribute to more focused action towards sustainable development.

I am happy to say that the EU delegation has a strong mandate from the EU Council of Ministers to push for a commitment to go beyond GDP when measuring the development of economies, and explicit instructions to lobby nations to develop and use indicators that complement GDP, and contribute to a more accurate picture of the inter-linkages between the environmental, economic and social aspects of wealth, welfare and well-being.

This is what we have been doing in the EU since the Beyond GDP conference in 2007, and the 2009 road map for complementing GDP. Five key actions from that roadmap have since been put in place, including some 40 implementation actions to improve social and environmental indicators. The Commission will be reporting on these actions later this year. But in Rio, we will take those ideas to a wider stage.

Rio+20 comes at a time of deep economic crisis. A crisis that teaches us two things. Firstly, that politicians need to engage with quality of life. Sustainable development is an all-round vision grounded in reality of people?s lives. Economic growth is important, but we also need to measure the effects economic policies have on the lives of citizens at home and around the globe; and until we learn the importance of measuring such things, it is hard to see how we could develop the policies we need to take account of them.

And secondly, that we must stop underestimating the importance of natural capital. Sustainability depends on healthy ecosystems, and on economies that design their resource throughputs in a rational manner. Achieving that sustainability will also depend on our capacity to measure the health of ecosystems and the services they provide to economies and societies.

That is a challenge under the current circumstances, as statistical offices and other data providers are facing cuts. Streamlining data gathering offers potential increases in efficiency, but there is no doubt we would prefer more investment in our knowledge base.

The Council is well aware of the political realities we face, and it has suggested that new indicators should be used when they become available. We cannot afford to wait for perfection: ?fit for purpose? will suffice as a starting point.

Beyond GDP initiated a debate at the European level, and Member States have picked up the issue and launched their own debates. The first results have been delivered, but other issues need more debate. That is why the Commission is about to launch a consultation about the indicators to be used for monitoring and target setting on resource efficiency. We need to know more about the size, use and sustainability of our natural asset base, and about ways of ensuring that this base remains the foundation of our prosperity and well-being. Your views will be appreciated.

Quote

Herman E. Daly and Joshua Farley

Photo?Even if we can never quantify [satisfaction or happiness]…,as precisely as we currently quantify GNP,…perhaps it is better to be vaguely right than precisely wrong.?

– Herman E. Daly and Joshua Farley, authors of Ecological Economics: Principles and Applications. (2003), page 234

Spotlight

Looking behind statistics ? the role of values

Sanjay ReddyThe economic life of a society is typically described using quantitative or qualitative indicators, which do not highlight the role of value judgments. But Sanjay Reddy (New School for Social Research) suggests that economic indicators are always associated with values, whether we like it or not. Therefore it is essential to make the underlying normative criteria explicit, so that the choice among different indicators can become a matter for transparent and democratic debate, as they should be. The right values should guide our assessments of the direction of the economy.

For example, measuring poverty on our planet is not only a matter of counting because before you count you have to know: what are we counting and why? Apart from the question of mere numerical facts, e.g. how many people live on less than one dollar a day?, certain values should find their way into the analysis, e.g. is one dollar a day sufficient to fulfil the basic needs in a given country or region? How do we determine what is the equivalent in purchasing power of one dollar in Euros, pesos or rupees? Answer: It depends what we intend to purchase which in turn depends on what we value!

Furthermore, income poverty is only one aspect of deprivation. Other factors such as malnutrition or access to health services should be accounted for. Reddy therefore stressed the need for an alternative approach, which relates to the possession of local resources sufficient to achieve basic human needs (Read more on Reddy’s ideas on measuring poverty: http://www.columbia.edu/~sr793/count.pdf 294 kB).

Another example involves the conventional definition of GDP. It does not account for the losses that result e.g. from the destruction of nature, even though an environmental cleanup or reconstruction effort creates monetary transactions and thus contributes to the measured GDP. What one values, whether it is the integrity of nature or reproductive and caring labour, must enter our assessment of economic output. Moreover, we may choose to go beyond using market prices in aggregating outputs of different kinds in order to determine the contribution of different activities to the social good. This is why Adam Smith defined the wealth of nations as relating to the enjoyments, necessities and conveniences of the people.

Normative elements are also part of the definition of the employment rate. It contains, among others, value judgments about the extent of the hours you must work in order to be considered employed. The EU labour force survey, for instance, defines persons in employment as those who performed some work, as little as one hour per week, for pay, profit or family gain. This definition is the basis for one of the five EU 2020 headline targets, namely to raise the employment rate for women and men aged 20 to 64 years old to 75 % by 2020. Since many people are not aware of the fact that only one hour per week is enough to be considered as employed, the results of the indicator may lead to inappropriate interpretations of the actual situation.

Thus, Reddy argues that defining indicators and economic variables should go hand in hand with making underlying values transparent, both in the interests of technical clarity and democratic legitimacy. Facts and values are entangled. This is not an embarrassment for social science and policy but it is rather a challenge for specialists and for the general public. In the end, issues of measurement are too important to be left to experts (although they have a vital role in clarifying the choices to be made)!

Sanjay Reddy?s perspective is summarised in the video “Facts and Values Are Entangled: Deal with It” of the Institute of New Economic Thinking (INET), which can be found on the INET-Webpage http://ineteconomics.org/video/30-ways-be-economist/sanjay-reddy-facts-and-values-are-entangled-deal-it

Acknowledgment: We are very grateful to Sanjay Reddy whose input and thoughtful comments improved the quality of this spotlight article.

In brief

Survey carried out in Italy confirms strong support for going “beyond GDP? among citizens

Within the initiative ?Benessere Equo e Sostenibile (BES)? (fair and sustainable well-being) for measuring progress, the CNEL and ISTAT had launched, in 2011, a consultation on factors which influence quality of life. The results highlight that the factors considered most important are health, environment, education and training, and quality of public services – and confirm a broad consensus for moving beyond GDP.

Read more Read more (in Italian, pdf, 451kB)

EU Council of Ministers stresses the need to use, develop and agree on indicators that complement GDP

The Council Conclusions adopted on March 9, 2012 under the heading “RIO+20: Pathways to a Sustainable Future”, recall “that gross domestic product (GDP) is mostly a measure of production and does not reflect issues such as environmental sustainability, the use of natural and human capital, resource efficiency and social inclusion”. The conclusions also stress the need to “use, and where necessary develop and agree on, indicators that complement GDP and contribute to a more accurate picture of the inter-linkages between the environmental, economic and social aspects of wealth, welfare and well-being”.