Alternative Economic Welfare Measurement in The National ... › ... › uploads › 2016 › 09 › Held-Benjamin.pdf · Daly, H.E./ Cobb, J.B. (1989): For the common good: redirecting

Dipl. Volksw. Benjamin HeldProf. Dr. Hans DiefenbacherDorothee Rodenhäuser, M. A.

Institute for Interdisciplinary Research (FEST)and Alfred-Weber-Institute for Economics, University of Heidelberg

ISEE Conference 2016

Alternative Economic Welfare Measurement in Germany – The National and Regional Welfare Index (NWI/RWI)

Why we need a better indicatorfor measuring welfare than GDP

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Overview

1) Context andMetholodogical Overview

2)Results

3) Conclusion

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1) Context andMethodological

Overview

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Problem:GDP (growth) often used

as the central indicator forcountries (and politicans)

success

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‘The Gross National Product counts air pollution and cigarette advertising, and … the destruction of the redwood and the loss of our natural wonder in chaotic sprawl… Yet [it] does not allow for the health of our children, the quality of their education, or the joy of their play… the beauty of our poetry or the strength of our marriages… it measures everything, in short, except that which makes life worthwhile.’

1968

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‘The Gross National Product counts air pollution and cigarette advertising, and … the destruction of the redwood and the loss of our natural wonder in chaotic sprawl… Yet [it] does not allow for the health of our children, the quality of their education, or the joy of their play… the beauty of our poetry or the strength of our marriages… it measures everything, in short, except that which makes life worthwhile.’

Robert Kennedy, 1968

Remarks at the University of Kansas

• Nordhaus/Tobin 1972: Measure of EconomicWelfare (MEW)

• Japan 1974: Net National Welfare (NNW)

• Xenophon Zolotas 1981: Economic Aspects of Welfare (EAW)

• Daly/Cobb 1989: Index for Sustainable EconomicWelfare (ISEW)

• Cobb/Halstead/Rowe (Redefining Progress) 1995: Genuine Progress Indicator (GPI)

History of alternative measures of economic welfare

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The National/Regional Welfare Index: History

• National Welfare Index (NWI)first published 2008/2009revised NWI 2.0 2013NWI update 2015NWI update 2016

• Regional Welfare Indices (RWI)Schleswig-Holstein (2011)Bavaria, Thuringia, Saxonia (2013)Rhineland-Palatinate, Hamburg, Bavaria (2014)North Rhine-WestphaliaRhineland-Palatinate (2016)

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Starting point: Private consumption weighted with incomedistribution

+ welfare-creating components not included in the GDP, i.e. household and family work, voluntary work

+/- adjustments due to the temporal divergence of expensesand benefits of durable goods

- welfare reducing components: e.g. environmental impacts, traffic accidents, consumption of non renewables

Methodological Overview of the NWI

20 components

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Composite Indicator / Accounting approach of the„ISEW family“ (Index of Sustainable Economic Welfare)

The 20 components

of NWI/RWI

1 Index of income distribution Weighting

2 Weighted private consumption expenditure +

3 Value of housework +

4 Value of voluntary work +

5 Public expenditure on health care and education +

6 Durable consumer goods, costs / benefits + / -

7 Costs of travelling between home and workplace -

8 Costs of traffic accidents -

9 Costs of crime -

10 Costs of alcohol, tabacco and drug abuse -

11 Expenditure to compensate for neg. environmental impacts -

12 Damage costs of water pollution (“memo value”) -

13 Damage costs soil degradation (“memo value”) -

14 Damage of air pollution -

15 Damage costs of noise -

16 Value of increase/loss of ecosystems (“memo value”) + /-

17 Value of increase/loss of agricultural areas +/-

18 Replacement costs due to the consumption

of non-renewable energy resources

-

19 Damage costs from GHG emissions -

20 Costs of nuclear energy - 10

2) Results

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Diefenbacher et al. 2016 (to be published)

89.393.2

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NWI 2016 BIP

Phase 1 Phase 2 Phase 3

+11,2 / +10,7 -8,9 / +5,0 -0,3 / +11,3

NWI and GDP (2000=100)

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Diefenbacher et al. 2016 (to be published)

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NWI 2016 BIP

Phase 1 Phase 2 Phase 3

+11,2 / +10,7 -5,2 / +5,0 -0,3 / +11,3

NWI and GDP (2000=100)

GDP and NWI increase

Main reasons for increase of NWI:

Income inequality constant(Gini from 0,248 to 0,249)

Consumption expenditures increase(+8% ,93 bn €)

Environmental components decrease(–17%, – 88 bn €)

Damages from air pollution(– 44%, – 62 bn €)

GDP good estimator for welfare (NWI)

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Diefenbacher et al. 2016 (to be published)

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NWI 2016 BIP

Phase 1 Phase 2 Phase 3

+11,2 / +10,7 -8,9 / +5,0 -0,3 / +11,3

NWI and GDP (2000=100)

GDP increases, NWI decreases

Main reasons for decrease of NWI:

Income inequality increases(+16%, -192 bn €)(Gini from 0,249 to 0,289)

Consumption expenditures const.(+3%, +43 bn €)

Environmental components const.(–4 % , – 17 bn )

GDP bad estimator for welfare(NWI)

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Diefenbacher et al. 2016 (to be published)

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NWI 2016 BIP

Phase 1 Phase 2 Phase 3

+11,2 / +10,7 -5,2 / +5,0 -0,3 / +11,3

NWI and GDP (2000=100)

GDP increases, NWI stagnates

Main reasons for stagnation of NWI:

Income inequality constant(Gini from 0,289 to 0,291)

Consumption expenditures constant(+3%, +35 bn €)

Environmental components constant(–1%, –17 bn €)

Value of housework work decreases(–6%, – 42 bn €)

GDP bad estimator for welfare (NWI)

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Diefenbacher et al. 2016 (to be published)

89.393.2

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NWI 2016 BIP

Phase 1 Phase 2 Phase 3

+11,2 / +10,7 -5,2 / +5,0 -0,3 / +11,3

NWI and GDP (2000=100)

Overall:

GDP + 29,6NWI + 3,9

Consumption expenditures increased(+15%, +187 bn €)

Environmental components decreased(–25%, –181 bn )

Income inequality increased(+17%, -209 bn €)

(Gini from 0,249 to 0,291)

Value of household work decreases(–12%, – 88 bn)

GDP bad estimator for welfare (NWI)

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Conclusion

Why do we need an alternative welfare measure “beyond GDP”?Because GDP just measures economic output, and as the NWI and other studies (e.g. Daly/Cobb (1989), Kubiszewski/Costanza et al (2013),Bleys/Whitby (2015)) showed: Economic Output (GDP) is not a good estimator for welfare

Why do we need (also) a single indicator and not an indicator system?Because we need an indicator that can take on GDP. This by no means means that indicator systems are not necessary too. They are indispensable for responsible governing, but we also need a single indicator which is easy to communicate in the public and to politicians and which gives an indication of the overall development.

Next Steps: Methodological improvements; International harmonisation; Reducing time lag; Regular update and publication of NWI and RWI; Getting more federal states on board with RWI; Trying to make NWI/RWI and alternative welfare measurement more known/visible/relevant in Germany/Europe/Worldwide

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„What we measure affects what we do; and if our measurements are flawed,

decisions may be distorted.“

Joseph Stiglitz Amartya Sen Jean-Paul Fitoussi

(Report by the Commission on the Measurement of Economic Performance and Social Progress, Page 1)

Bleys, Brent/Whitby, Alistair (2015): Barriers and opportunities for alternative measures of economic welfare, Ecological Economics, Volume 117, September 2015, Pages 162-172, ISSN 0921-8009, http://dx.doi.org/10.1016/j.ecolecon.2015.06.021.Daly, H.E./ Cobb, J.B. (1989): For the common good: redirecting the economy toward community,environment, and a sustainable future. Beacon Press, Boston.Deutscher Bundestag (2013): Schlussbericht der Enquete-Kommission „Wachstum, Wohlstand, Lebensqualität – Wege zu nachhaltigem Wirtschaften und gesellschaftlichem Fortschritt in der Sozialen Marktwirtschaft“. URL: http://dip21.bundestag.de/dip21/btd/17/133/1713300.pdfDiefenbacher, H./Zieschank, R. (2010): Measuring welfare in Germany. A suggestion for a new welfareindex. Dessau: Umweltbundesamt. URL: Diefenbacher, H./Held, B./Rodenhäuser, D./Zieschank, R. (2013a): NWI 2.0 - Weiterentwicklung und Aktualisierung des Nationalen Wohlfahrtsindex. Heidelberg/Berlin: FEST/FFU. URL: http://fest-heidelberg.de/images/FestPDF/nwi_2_0_langfassung.pdfDiefenbacher, H./Rodenhäuser, D. (2013b): Der Regionale Wohlfahrtsindex für Thüringen1999 bis 2010. Heidelberg: FEST. URL: http://www.fest-heidelberg.de/images/publikation/RWI_TH_Langfassung.pdfDiefenbacher, H./Rodenhäuser, D./Schenke, J. (2013c): Der Regionale Wohlfahrtsindex für Sachsen1999 bis 2010. Heidelberg: FEST. URL: http://www.fest-heidelberg.de/images/publikation/RWI_SN_Langfassung.pdfDiefenbacher, H./Rodenhäuser, D./Schenke, J./Zieschank, R. (2014b): DerRegionale Wohlfahrtsindex fur Hamburg 1999 bis 2011. Heidelberg: FEST. URL: http://www.fest-heidelberg.de/images/FestPDF/NWI_RWI/rwi_hh_endbericht_14-07-10.pdfDiefenbacher, H./Rodenhäuser, D. (2014c): Regionaler Wohlfahrtsindex Bayern Aktualisierung der Zeitreihe 1999 bis 2011. Heidelberg: FEST.Diefenbacher, Hans/ Held, Benjamin/ Rodenhäuser, Dorothee/ Zieschank, Roland (2016): "Aktualisierung und methodische Überarbeitung des Nationalen Wohlfahrtsindex 2.0 für Deutschland –1991 bis 2012 – Endbericht", in: Umweltbundesamt (Hg.): Texte 29/2016. Download als pdf-Datei (UBA-Website)Kubiszewski, Ida/ Robert Costanza, Carol Franco, Philip Lawn, John Talberth, Tim Jackson, Camille Aylmer, Beyond GDP (2013): Measuring and achieving global genuine progress, Ecological Economics, Volume 93, September 2013, Pages 57-68, ISSN 0921-8009, http://dx.doi.org/10.1016/j.ecolecon.2013.04.019.Rodenhäuser, Dorothee/ Held, Benjamin/ Diefenbacher, Hans (2016a): "Der Regionale Wohlfahrtsindex für Nordrhein-Westfalen 1999 – 2013 und Leben in Nordrhein-Westfalen – subjektive Einschätzungen„. Rodenhäuser, Dorothee/ Held, Benjamin/ Diefenbacher, Hans (2016b): "Der Regionale Wohlfahrtsindex Rheinland-Pfalz 2015.

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