DevelopmentWelfare or well-being?

Leif BrattSept 19th 2012

Definition & synonyms

Definition• act of improving by

expanding or enlarging, refining a process in which something passes by degrees to a more advanced mature stage, a recent event that has some relevance for the present situation, a state in which things are improving, the result of developing

Synonyms• advance, change,

expansion, enlargement, growth, increase, improvement, progress

Development as• evolution (homo habilis, erectus,

sapiens) or individual human bio-mental development (baby – child – teenager – adult – old) and the question of influential factors (nature vs nurture)

• Different socio-cultural stages in society; paleolithicum (hunter/gatherer), neolithicum (farming), metal ages (hierarchies), ancient (slavery), medieval (church & feudalism), early modern (kings, commerce, renaissance) & modern times (parlamentarism, capitalism) and the question of influential factors [institutions (values, norms, legislation), power (political, economic, military), knowledge, distribution, technical skills)]

• Developed – developing countries

Development as• economic changes in society as

“progress” as upgraded standard of living or “materialistic” welfare, measured as economic growth (annually higher GDP) , or expanded indices as HDI, GPI , ESI

• or on a social or individual level of improved well-being?

Today’s lecture

measuring this type of development

Welfare and power

Early indices welfare/developmant

• No of electric bulbs• No of telephones/1000• No of cars/1000• TVs/1000• Life expectancy at birth• Persons/physician• Energy

consumption/cap

• 43 to 83 years

Economic development I

I produce commodity A, I want commodity B You have commodity BProblem; I must find you,

you must think A is better than B, if yes

We exchange commodities = barter trade

C – C*

I produce commodity AI sell it on the marketplace and

get moneyI buy on the marketplace

where there is a product B and a seller who wants my money

“Money talks”

C – M – C*

Economic development II

I am a trader, I buy commodity A, I sell it for a higher price to someone who wants it

M – C – M*

M* > M = profit

I am trading in stocks and shares – no production. Pure speculation

M – M*

Traditional economic schools;• Neoclassical economics – the

free market.• Institutional economics –

governmental policies

… and welfare is measured as Gross Domestic Product (GDP)

… it all started with Adam Smith:The annual labour of every

nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.(Smith 1776:vol I,I,1)

GDP expressed 3 ways

the value of production of goods and services, at the consumer level, that is traded/registered on the market in a country in 1 year

… or GDP as GNI • the sum of profits and salaries

(interests) in that production +• Public salaries

1 2 3 4 50

5

10

15

20

25

30

35

40

But also as; The supply balance or expenditures GDP = (private) consumption + investments/savings + government spending + (exports – imports)

Compare

China; (private) consumption + investments/savings + government spending + (exports – imports)

US; (private) consumption + investments/savings* +

government spending + (exports – imports)

*they borrow to consume. Welfare is higher than own production

Sources of welfare

1. Market goods2. Market disutilities3. Public goods4. Private goods5. Nature goods6. ”Black” market goods

• GDP• GDP• partly GDP (salaries)• no• no• no

GDP for different countries 2007

Just distribution for optimal welfare ?

Diminishing Marginal UtilityUtility

quantity

GDP and Gini

CountryNorwayUSASwedenBrazilChinaIndiaLiberiaCongo

GDP53.43345,59236,712

9,5675,3832,753

362298

Gini0.260.410.250,550.420.37

0.53 0.44

Gini-coefficient = A/(A+B)If = 0 means all have same

incomeIf = 1 means one person has it all, the rest nothing

Welfare limits ?

The Gross World Production (GWP) in billion US$

Source:IMF 2008

Economic growth =change in GDP in % in one year

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20080

10000

20000

30000

40000

50000

60000

70000

1 unit, 2000 år, 4%

151

2 551128 825

6 506 324328 601 582

16 596 005 851838 180 415 568

42 332 258 457 3352 137 988 519 910 810

107 978 999 416 659 0005 453 473 770 527 630 000

275 427 410 204 771 000 00013 910 447 080 919 500 000 000

702 546 409 041 865 000 000 00035 482 069 985 704 100 000 000 000

1 792 020 106 098 610 000 000 000 00090 505 882 603 679 500 000 000 000 000

4 570 994 911 270 420 000 000 000 000 000230 857 861 144 273 000 000 000 000 000 000

11 659 464 315 022 800 000 000 000 000 000 000

GDP and depreciation/depletion

GDP – Depreciation of Human made capital =NDPNDP – Depletion of Nature capital = eaNDPeaNDP – defensive & rehab expenditures = SNDP

Environmental curves

Footprint vs GDP

0 5000 10000 15000 20000 25000 30000 35000 40000 450000.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

GDP i US$/person 2005

Foot

prin

t 200

5 in

hek

tar

HDI vs. Biocapacity

Critics of GDP as a welfare measurement

Spatial fallacyproduction there – consumption here

Time fallacyconsumption now – consequences later

Holistic fallacyRepair (if paid for) is included and only a part of the economy

Human Development Index (HDI)

HDI an index of "human development“

HDI combines three dimensions: • Life expectancy• Knowledge and education, (adult literacy &

gross enrollment ratio)• Standard of living as measured by the logarithm

of GDP/capita at purchasing power parity (PPP).

Genuine Progress Index (GPI)

GDP has functioned as an "income sheet"

GPI will function as a "balance sheet"

Starts with the GDP number and,

+/- Income Distribution (gini-coefficient)+ Housework, Volunteering, and Higher Education- Crime - Resource Depletion - Pollution- Long-Term Environmental Damage+/- Changes in Leisure Time- Defensive Expenditures+/- Lifespan of Consumer Durables & Public Infrastructure+/- Dependence on Foreign Assets

EPI (Yale univ. & WEF)

EPI vs ESI

Dodds model of human well-being

1. Well-beings as a State of mind

Mental/feel good factors of well-being

2. Well-beings as a State of the world

Non mental Constituents and Determinants of welfare/well-being

3. Well-being as human capability

4. Well-beings as the satisfaction of underlying needs

http://www.ima.kth.se/utb/mj2694/pdf/Dodds.pdf

Well-being vs Welfare"Enjoyment of life" vs. "production of goods“

Max-Neef underlaying needs

No hierarchy, hard to operationalize, more philosophical

Quality of life Index (QLI)

An hierarchy Index of

National footprint/global biocapacity (>1 bad)Global Gini (> 0,3 = bad)4 Dodds well-being Indices

Prosperity w/o growthhttp://www.sd-commission.org.uk/publications.php?id=914

Every society clings to a myth by which it lives. Ours is the myth of economic growth. For the last five decades the pursuit of growth has been the single most important policy goal across the world. The global economy is almost five times the size it was half a century ago. If it continues to grow at the same rate the economy will be 80 times that size by the year 2100.

An even stronger finding is that the requirements of prosperity go way beyond material sustenance. Prosperity has vital social and psychological dimensions. To do well is in part about the ability to give and receive love, to enjoy the respect of your peers, to contribute useful work, and to have a sense of belonging and trust in the community. In short, an important component of prosperity is the ability to participate meaningfully in the life of society.

Well-being is multi-dimensional

1. Material living standards (income, consumption and wealth);• Give more prominence to the distribution of income, consumption and wealth• Broaden income measures to non-market activities

2. Health;3. Education;4. Personal activities including work5. Political voice and governance;6. Social connections and relationships;7. Environment (present and future

conditions);8. Insecurity, of an economic as well as a

physical nature.

Report by the Commission on the Measurement of Economic Performance and Social Progress

http://www.stiglitz-sen-fitoussi.fr/en/index.htm

The starting point for, the European Commission Communication on GDP, was an awareness of the need to complement GDP with measures of equitability and sustainability, and of the fact that all dimensions of well-being were not covered by GDP.

GDP and beyond – Measuring progress in a changing world

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2009:0433:FIN:EN:PDF

Beyond GDP http://www.beyond-gdp.eu/index.html

“GDP is an indicator of economic market activity. It was not intended to be an accurate measure of well-being. Even Simon Kuznets, . . . one of the main originators of GDP, said: 'the welfare of a nation can scarcely be inferred from a measure of national income'”.

"We cannot face the challenges of the future with the tools of the past“

"It's time to go beyond GDP”.

Manuel Barosso

• Genuine Savings • The Happy Planet

Index• World Database of

Happiness• Living Planet Index