Measuring our success and standard of living – it’s not only about the money we make!

There was a sign in Albert Einstein’s office at Princeton which said: “Not everything that counts can be counted, and not everything that can be counted counts.”

With our singular focus on money in our global culture, many carry the belief that simply “more money” equals “more happy”.  At a very basic level of subsistence more material goods and services in our lives are necessary for a degree of happiness, but beyond the fundamental level, there are diminishing happiness returns on every extra dollar of income or accumulation.  All of us know in our heart of hearts that at for anyone who has their basic needs met, the “more money equals more happy” is not really true.

Then, how do we measure the standard of living or true well being happiness in a community or a region?  Challenge is that our much of lives and well being do not all fall into the category of “economic activity.”  Yet the issue remains — how do you MEASURE the level of progress and standard of living in all of the non-financial dimensions?

In his book “Prosperity without Growth – Economics for a Finite Planet” Tim Jackson states:

“There is an interesting overlap between components of prosperity and the factors that are known to influence subjective well being or ‘happiness’. Indeed to the extent that we are happy when things go well, and unhappy when they don’t, there is an obvious connection between prosperity and happiness. This doesn’t necessarily meant that prosperity is the same thing as happiness. But the connection between the two provides a useful link into recent policy debates about happiness and subjective well being.”

Some of the components of “quality of life” – real wealth – are loving relationships, supportive and vibrant community, good health, cultural and creative stimulation, healthy and vibrant natural environment, contributing to society in a meaningful way and spiritual fulfillment.

Yet, ironically, one of the key methods that most countries define standard of living is the measure of “Gross National Product” or GDP, which is simply a financial measure of economic activity.  But to meet the Earth’s challenges, these outmoded ways of measuring the “product” of our economy have to be reexamined. They are out of touch with our finite supply of natural resources (or natural capital) upon which our economic growth depends and they are similarly out of touch with the non-financial dimensions of the well being of participants in a society.

One of the key aims in the field of sustainable and responsible investing space is to define new measures, new metrics to determine the “non-financial” impact of any economic activity or any investment.

Encyclopedia Britannica states on the issue:

 “Difficulties accompany any comparison of living standards between population groups or countries. Care must be taken to distinguish between the average value of some measure of actual consumption and the dispersion around that average. If, for example, the average value increases over time, but at the same time the rich become richer and the poor poorer, it may be incorrect to conclude that the group is collectively better off. Accordingly, it can be difficult to compare standards of living between countries that exhibit widely differing degrees of dispersion. In practice there are wide disparities both within countries and between countries. By most criteria, the differences in living standards between developed and less-developed countries are more acute than the differences that exist between countries with developed economies.”

The World Bank says: The level of well-being (of an individual, group or the population of a country) as measured by the level of income (for example, GDP per capita) or by the quantity of various goods and services consumed (for example, the number of cars per 1,000 people or the number of television sets per capita). The World Bank definition is focused only through the economic lens that standard of living is related to how much money you have and what you spend it on.

There are many different efforts to account for the standard of living of countries, and societies. Beyond GDP I have found 4 different ways to measure standard of living.

1. Gross Domestic Product

 Gross Domestic Product is the financial value of all the goods and services produced in a country in a year. Since our prevailing world view is still stuck on more money = better life, GDP is the most commonly used measure, and considered the measure of well being for a country.

One of the key challenges of GDP it can not be relied upon to be a comprehensive representation of standard living because it does not account for depletion of either human or natural capital. Consider statement of the late Robert Kennedy on what GNP does not measure:

The Gross National Product includes air pollution and advertising for cigarettes, and ambulances to clear out highways of carnage. It counts special locks for our doors, and jails for people who break them. GNP includes the destruction of the redwoods and the death of Lake Superior. It grows with the production of napalm and nuclear warheads … and if GNP includes all this, there is much that it does not comprehend.

GDP top 10 in 2010 according to the IMF (GDP given in millions of $):

1. United States (14,624,184)
2. China (5,745,133)
3. Japan (5,390,897)
4. Germany (3,305,898)
5. France (2,555,439)
6. United Kingdom (2,258,565)
7. Italy (2,036,687)
8. Brazil (2,023,528)
9. Canada (1,563,664)
10. Russia (1,476,912)

2. Genuine Progress Indicator

Redefining Progress created the Genuine Progress Indicator (GPI) in 1995 as an alternative to the gross domestic product (GDP). The GPI enables policymakers at the national, state, regional, or local level to measure how well their citizens are doing both economically and socially.”  With their Genuine Progress Indicator factors are taken into account which point to the heart of well being for a society. Some of the factors the consider are worthy of note – resource depletion, leisure time, environmental damage, lifespan of consumer durables and public infrastructure – are just some of the factors they consider.

3. Human Development Index

The  Human Development Index  is a measure born out of the United Nations Development Program and incorporates health, education and income as essential factors for standard of living.

The  ‘‘to shift the focus of development economics from national income accounting to people centered policies’’  as a way to assess development in terms of human wellbeing as well as economics. It’s a composite statistic that takes into account health, education, and income. There is no sustainability, or ecological factors incorporated into the calculation of the indexUN Development Program publishes a list and relative ranking of countries every year called Human Development Reports.  Countries are in three categories: developed, developing, or underdeveloped.

HDI top 10 in 2010 according to the UN:

1. Norway
2. Australia
3. New Zealand
4. United States
5. Ireland
6. Lichtenstein
7. Netherlands
8. Canada
9. Sweden
10. Germany

4. Satisfaction With Life Index

This index was created by an Analytic Social Psychologist at the University of Leicester, the Satisfaction With Life Index aims to measure well being and happiness with simple and direct questions about how they feel about they are with their health, wealth, and education, and assigning a measures to their responses.

The Satisfaction with Life Index is similar to the concept of Gross National Happiness created by the Buddhist government of Bhutan which has been set on pursuing the goal of “gross national happiness” instead of pure GNP (gross national product) for nearly forty years. This goal was announced by the king of Bhutan when he took the throne in 1972, and in the last 20 years the government has been incorporating the philosophy in development and economic policy.

Satisfaction With Life Index top 10 in 2006 :

1. Denmark
2. Switzerland
3. Austria
4. Iceland
5. The Bahamas
6. Finland
7. Sweden
8. Bhutan
9. Brunei
10. Canada

5. Happy Planet Index

The  Happy Planet Index was introduced by the New Economics Foundation in 2006. They created this index partly in response to the shortcomings of GDP, and the fact that the Human Development Index had not taken sustainability into account.

The HPI is calculated based on common sense ideas that most people are not only motivated  to become wealthy, but to simply be happy and healthy, and to live long and fulfilling lives.

The index is based on factors including on happiness, life expectancy, and sustainability factors of the country’s impact on life support systems of nature. It is known as a measure of  “environmental efficiency of supporting well-being of a given country.”

Happy Planet Index top 10 in 2009: