Intangible Value: The Economics of Wellbeing
Economic theory is about due for a shakeup. It has been over forty years since the election of Margaret Thatcher and the tidal wave of neoliberalism that it unleashed. Although this era brought many much needed material gains, it also successfully undermined much of society’s social fabric.[i] After all, there is “no such thing as society,” according to Mrs. Thatcher.[ii] This narrow fixation on GDP growth rates — which measure only the monetary value of final goods and services produced within a country’s borders — does not account for societal, community, or individual wellbeing. ‘Wellbeing’ encompasses mental health, equality, access to services, education, sustainability, and much more. As such, wellbeing economics offers us a much-needed way out of the neoliberal rut through a more wholistic approach to value.
In New Zealand, where levels of inequality rapidly spiked following neoliberal reforms of the 1980s, the time has come to shed the hard shell of GDP and embrace the softer qualities within. The New Zealand Treasury recently introduced a new approach to decision-making and measures of success in the form of a Living Standards Framework. The framework measures economic success in 12 domains, from civic engagement to time use, in order to paint a more accurate picture of the country’s prosperity beyond GDP. The first budget based on this framework was released in May. For this ‘Wellbeing Budget,’ bids were made according to their contribution to these more wholistic measures of success.
Wellbeing economics is taking off, and it’s time the rest of the world followed suit.
In March 1968, Robert F. Kennedy delivered a speech ahead of its time. GDP, he said, “measures everything in short, except that which makes life worthwhile.” GDP counts “the television programs which glorify violence in order to sell toys to our children” yet it “does not allow for the health of our children, the quality of their education or the joy of their play.”[iii]
Fulfilling RFK’s aspirations, New Zealand’s wellbeing approach is rethinking what constitutes value on a national scale. Against the economic backdrop of growing inequalities and declining civic engagement, the time for such a rethink is ripe. Between 1980 and 2015, for example, New Zealand’s Gini coefficient (measuring income inequality) rose sharply from approximately 0.39 to 0.47, constituting a 20% increase — that’s even before accounting for the cost of living.[iv] In New Zealand, such (still) increasing inequality is almost impossible to ignore.
Public discourse is shifting too. In the last few years alone, there has been a boom in academics, journalists, and politicians discussing new meanings of value beyond narrow monetary gain. Economist Kate Raworth’s book Doughnut Economics states the need to rid ourselves of the “cuckoo” goal of GDP and focus instead on the “doughnut” of success: the satisfaction of our social needs within our ecological boundaries.[v] More recently, in 2019, Gus O’Donnell, a former UK Cabinet Secretary, suggested that wellbeing should become the goal of all UK government policy.[vi] Similarly, the UK All-Party Parliamentary Group (APPG) on Wellbeing Economics argued that the “main determinant of whether or not a government gets re-elected is the level of wellbeing — and not the level of employment or economic growth,” suggesting that wellbeing should be a primary focus for policymakers and governments.[vii]
The Growth Delusion
Not only does GDP turn a deaf ear to much of what matters, but it is an illusory goal based on a false assumption that growth can be perpetual — and perpetually high. By abandoning the ever-distant growth target as its primary goal, wellbeing economics indirectly acknowledges that perpetually high economic growth is a dangerous — and likely false — assumption.
Many economists have argued that it is inevitable that growth will eventually flatline. This idea was first expressed in the 1972 report The Limits to Growth[viii] and remains relevant in Thomas Piketty’s 2013 bestseller Capital in the Twenty-First Century.[ix] In the context of our ever-worsening climate crisis, the stark warnings in the Club of Rome’s 1972 report are especially pertinent. Independent from one’s opinion on whether technological advancements will ultimately lead to a world of abundance or one of resource scarcity, it is impossible to ignore the pressures that consumerism places on our fragile planet’s finite resources. As a target, GDP only encourages the greater exploitation of these resources, rather than their preservation for future generations.
Neoliberalism, with its narrow profit-driven focus, both legitimizes and justifies this destructive quest. Wellbeing economics, conversely, values the planet as well as profit; sustainability as well as short-term growth maximization. Our material wellbeing today should not come at the cost of the material wellbeing of the next generation. Unfortunately, within the self-centered paradigm of neoliberalism and ever-more ambitious growth targets, this is precisely what has occurred.
Here lies the challenge. Against a backdrop of resource scarcity, climate change, rising inequalities, declining civic engagement, and increased political and ideological polarization, it is time for the principles of wellbeing economics to be adopted not just by New Zealand, but by all states and policymakers. One country might make a ripple in a pond, but alone that is far from enough to solve the crises ahead.
Wellbeing must become embedded in every policymaking process and considerations must be made beyond the scope of solely monetary cost-benefit analyses. We must ask: How will policies affect mental health? Are policies environmentally sustainable? How will policies affect discrimination, inequality, and polarization? Indeed, steps are being taken toward this goal. Acknowledging wellbeing’s multidimensional nature, New Zealand’s new Living Standards Framework, measures around 40 indicators of wellbeing across 12 domains, from voter turnout to the workplace accident rate to disposable income, loneliness, and everything in between. This itself is modeled on the OECD’s Better Life Index.
This new framework is now used to inform the policy-making process — from micro to macro — through the evaluation of priorities, trade-offs, and budget bids. Previously, “Ministers and agencies focused almost exclusively on their own areas of responsibility when designing budget initiatives … [which had] not worked for addressing New Zealand’s long-term challenges.” Meanwhile, for the Wellbeing Budget, “Ministers had to show how their bids would achieve the wellbeing priorities.”[x]
Thankfully, New Zealand is not the only country embracing wellbeing economics. Others, notably Scotland and Iceland (often in collaboration), are similarly eschewing narrow metrics in favor of a broader measure of value. It is time that more countries follow suit. The economic tide is turning. It is time to abandon narrow neoliberalism, despite the admittedly important growth that it has brought. In turn we, as citizens, must truly put at the forefront of our minds everything “which makes life worthwhile.”[xi]
Picture by Michael75
[i] David Harvey, A Brief History of Neoliberalism (Oxford: Oxford University Press, 2005).
[ii] Margaret Thatcher, “Interview for Woman’s Own,” Margaret Thatcher Foundation, accessed 01 July, 2019, https://www.margaretthatcher.org/document/106689.
[iii] Robert F. Kennedy, “Remarks at the University of Kansas, March 18, 1968,” John F. Kennedy Presidential Library and Museum, accessed 01 July, 2019, https://www.jfklibrary.org/learn/about-jfk/the-kennedy-family/robert-f-kennedy/robert-f-kennedy-speeches/remarks-at-the-university-of-kansas-march-18-1968.
[iv] John Creedy, Norman Gemmell, and Loc Nguyen, “Income Inequality in New Zealand 1935–2014,” Victoria University Chair in Public Finance (Public Finance Working Paper 07/2017), March 2017, https://www.victoria.ac.nz/sacl/centres-and-institutes/cpf/publications/pdfs/WP_07_2017_Income_Inequality_in_New_Zealand.pdf.
[v] Kate Raworth, Doughnut Economics (White River Junction: Chelsea Green Publishing, 2017).
[vi] Richard Partington, “Wellbeing should replace growth as ‘main aim of UK spending’,” The Guardian, 24 May, 2019, https://www.theguardian.com/politics/2019/may/24/wellbeing-should-replace-growth-as-main-aim-of-uk-spending.
[vii] The All-Party Parliamentary Group on Wellbeing Economics, “A Spending Review to Increase Wellbeing: An open letter to the Chancellor,” APPG Wellbeing Economics, May 2019, https://wellbeingeconomics.co.uk/reports/.
[viii] Donella H. Meadows, Dennis L. Meadows, Jørgen Randers, William W. Behrens III, The Limits to Growth (New York: Universe Books, 1972).
[ix] Thomas Piketty, Capital in the Twenty-First Century (Cambridge: Harvard University Press, 2017).
[x] The Treasury, “The Wellbeing Budget,” accessed 27 August, 2019: 7, https://treasury.govt.nz/sites/default/files/2019-05/b19-wellbeing-budget.pdf.
[xi] Kennedy, “Remarks at the University of Kansas.”
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