How do we effectively measure our own wealth?

Prosperity and a good life - alternatives to GDP

The pursuit of happiness and wellbeing is a fundamental goal of humanity. The United Nations recognized this in a resolution in 2012 and declared March 20 an international day of happiness. It is intended to remind the member states to perceive “happiness” as a holistic concept for human development and an aspect of sustainable development.

The United Nations explicitly uses the term "happiness"; other apt terms for the concept are quality of life or wellbeing. The United Nations regards healthy life expectancy, individual freedom and economic performance as the most important parameters for the degree of "happiness" in a country.

In the resolution, the United Nations criticized that progress is often too one-sidedly measured against economic development. For this, the gross domestic product (GDP or GNP: gross national product) is usually considered, the world's most important indicator for the economic performance of an economy.

But on the one hand, gross domestic product ignores the costs of economic growth for society and the environment, according to the United Nations, and on the other hand, people's well-being is not adequately recorded. Therefore, a benchmark for progress in accordance with the UN's Sustainable Development Goals (SDGs) should take into account economic, social and ecological aspects.

Which indicators are used to measure prosperity and satisfaction of the population is important because they form the basis for many political decisions. Indicators such as GDP are intended to help assess how certain measures affect society. The choice of indicators thus has an impact on overall social development.

What is the gross domestic product?

A country's gross domestic product is usually one of the most important measures for assessing a country's prosperity. It quantifies the value of all goods and services that are generated within a year. For this purpose, an average per capita value is usually calculated from the GDP value for the entire country (GNP per capita).

The World Bank cites GDP per capita as a good first guide to assessing the general standard of living the average population enjoys. This is related to the assumption that the more products and services are offered on the market, the better people can meet their needs. GDP has the advantage that many different factors flow into it and can be expressed in a single number that is internationally comparable.

Experience has shown that GDP is closely linked to other measures of the well-being of a country and its population: in countries with higher GDP per capita, for example, life expectancy and literacy rates are usually higher, and there is better access to drinking water.

Economic performance as a benchmark: what is the criticism?

But GDP can only be used to a limited extent as a measure of "happiness" - in the sense of well-being or quality of life - in a society. On the one hand, the value says nothing about how equal or unequal wealth is distributed in the country, because GDP per capita is only an average.

On the other hand, only goods and services that have a clearly quantifiable market value are included in the calculation. In addition, GDP leaves out how satisfied people are in a country and what exactly is crucial for their well-being.

Critics also point out that GDP does not account for environmental damage and its long-term consequences. It could even favor the destruction of nature. For example, the deforestation of forests would bring economic benefits as well as the repair measures if mountain slopes subsequently start to slide and these have to be fortified, argues the German biologist and philosopher Andreas Weber.

The effects of climate change also play a role in the critique of GDP as an index of prosperity. For example, if droughts increase or shallow coastal areas are flooded, it will endanger the existence of many millions of people around the world. GDP does not adequately reflect the impact of such developments on people's well-being.

There is broad consensus that unlimited continued growth in the economy and prosperity according to today's standards will endanger the foundations of human existence in the foreseeable future. The specialist discussion on measuring prosperity therefore also addresses the question of whether and how sustainable growth is possible. That means: How can prosperity continue to grow - on a global scale - without overstretching the earth's resources and carrying capacity? Or: do we need a different definition of wealth?

Not everything that counts can be counted

In alternative approaches to measuring prosperity, the focus is on the situation of people and their subjective perception. When it comes to GDP, people's feelings are left out.

If, however, subjective perception is included as a measure of good life and well-being, there are sometimes clear differences when compared with economic indicators such as GDP. In terms of GDP per capita, Germany ranks 18th in an international comparison with just under 48,520 US dollars, according to the World Bank's calculations for 2019. Costa Rica, on the other hand, only ranks 66th with around 11,700 US dollars.

In the World Happiness Report of 2020 it looks completely different: Here Costa Rica occupies a top position with 15th place, two positions ahead of Germany, which despite its high GDP "only" ranks 17th.

The report was produced by the University of British Columbia and the Canadian Institute for Advanced Research, among others. Results from surveys played an important role in this. Among other things, the respondents were asked to rate how freely they can shape their lives and how they perceive the support from society, generosity and corruption in their country.

In the 2020 edition, the Weltglücksreport also examines for the first time whether the environment can have an impact on people's wellbeing. The studies clearly showed that the emission of climate-damaging gases and air pollutants in particular has an impact on well-being.

In addition to a high income and long life expectancy, it was above all the very good results in these areas that made Finland, Denmark, Switzerland, Ireland and Norway the countries with the best results.

Alternative indicators of prosperity

There are a number of alternative approaches to measuring the good life and wellbeing. The aim is usually to expand economic indicators: on the one hand, conditions for the subjective perception of people should be incorporated, on the other hand, the limits of the planet's carrying capacity must be taken into account.

The best-known index for quality of life is the Human Development Index (HDI), which has been compiled by the United Nations Development Program (UNDP) since 1990. It not only takes into account the gross domestic product per capita, but also life expectancy and the level of education of the population. At the top of the HDI rankings in 2019 were Norway, Switzerland and Ireland. Germany takes 4th place. However, this index does not take into account factors such as political freedom or ecology. In addition, social inequalities and income differentials within a country are hardly included in the assessment of a country.

In Germany, too, there have been political initiatives for a number of years to take into account factors such as quality of life and social cohesion in addition to GDP when assessing prosperity. In 2013, the study commission on "Growth, Prosperity, Quality of Life" proposed redefining "Prosperity" and taking new measurements that take into account not only the material but also the ecological and social.

An alternative approach has already been developed by scientists on behalf of the German Federal Environment Agency: the National Welfare Index (NWI). Both welfare-increasing and welfare-reducing activities are taken into account in this indicator of prosperity. The NWI is also able to record environmental costs and the consumption of non-renewable energies. Social factors such as volunteering, household work and economic costs that arise from crime are also taken into account.

The comparison with GDP shows clear differences. Between 1991 and 1999 there was an increase in both GDP and NWI. After that, GDP continued to rise and the NWI fell. The main cause was the growing inequality in income distribution. From 2005 to 2013 there were hardly any fluctuations in the NWI, since 2013 it has been developing positively.

While income inequality had a negative impact on the index, there was a slight improvement in other negative impacts - notably through a reduction in environmental pressures.

The NWI is explicitly understood as an extension of GDP and includes more factors that are relevant to human wellbeing. However, as with GDP, the result is a single key figure that summarizes a large number of factors, so that its informative value is limited.

"Happiness" as a constitutional goal

The small country of Bhutan has been discussing "Gross National Happiness" (GNH for short) since the 1970s. Since 2008 it has been anchored in the constitution that the state should ensure the greatest possible gross domestic happiness. Two years later, the state began to systematically measure happiness in representative surveys.

These surveys help improve conditions for people who are not yet happy, says the dedicated website www.grossnationalhappiness.com (in English). Planned laws are being reviewed to see how they are likely to affect gross domestic happiness.

A "politics of happiness" can have very concrete effects. For example, if the decision is made as to whether a state will invest in business development or education with a tight budget, a measure such as gross domestic happiness can provide information on how the funds should be effectively distributed.

The example of Bhutan makes it clear that there are different interpretations of "happiness". For example, it emphasizes that the pursuit of happiness is a collective undertaking and goes beyond the personal happiness of the individual. It is clear that real happiness cannot exist while other people are suffering, said the Prime Minister of Bhutan. According to this understanding, the "happiness" of the community means something other than the sum of the "happiness" of the individual citizens. He also argues that "happiness" only arises when people served one another, lived in harmony with nature, and recognized "the true nature of their own consciousness". It becomes clear that such an idea of ​​"happiness" is based on specific cultural and religious ideas.

Germans are happier than ever

Although problems are often the focus in the media and public debates, the satisfaction of Germans seems to be growing steadily, surveys show. For example, the "Glücksatlas" has been recording the mood in the individual federal states every year since 2010 through surveys and the evaluation of socio-economic data. The categories of living, family, leisure, work, health and income play a role here. The happiness atlas is published by Deutsche Post DHL.

According to the study, the most important factor for the growing satisfaction is that people in East Germany are getting better and better. The persistently low unemployment rate, the good wage settlements and the overall good health situation of the population have led to the fact that people in the new federal states are becoming more and more satisfied. According to the study, the happiest people in Germany live in Schleswig-Holstein.

With a view to the corona pandemic, the satisfaction of the citizens has so far only been slightly affected. Many of the respondents assume that they will quickly be just as satisfied as they were before the pandemic.

Related Links

World Happiness Report

https://worldhappiness.report

Federal Environment Agency: National Welfare Index
https://www.umweltbundesamt.de/indikator-nationaler-wohlfahrtsindex#die-wichtsten-fotos

United Nations Development Program (UNDP): Human Development Report
http://hdr.undp.org/sites/default/files/hdr_2019_overview_-_german.pdf

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