What I found most intriguing about the report was the fact that Sarkozy had commissioned it, and his foreword to it is worth reading. I've never liked him, but before the 2007 elections in France I started to get annoyed by the viciousness of the Left's attacks on him (particularly when the Socialists were running someone as transparently snobbish and self-serving as Ségolène Royal), and since his election he's done a few things that I've approved of, in particular making access to housing easier for first-time buyers, focussing on making Paris's public transport even better, and arguing for tighter regulation of the financial sector.
The report itself makes good points and is reassuringly concerned with aspects of life other than those that have prices, and it's a good thing that these elements are being disseminated more widely. The report incorporates a few interesting indices that haven't been widely used before and recommends their application everywhere. I'll summarise them below, but first a few snappy lines from Sarko's foreword:
We have wound up mistaking our representations of wealth for the wealth itself, and our representation of reality for the reality itself. But reality always ends up having the last word.
[...]
The intellectual, moral, and political battle has begun between those who want everything to go back to the way things were before, because they are unable to change the way they think or out of self-interest, and those who are convinced that nothing can stay the same and that change must be made as quickly as possible.
[...]
There are injustices, improprieties and acts of folly that in future will no longer be tolerable and will not be tolerated.
[...]
If the poor maintenance of transport infrastructures causes more accidents and higher repair costs, and even higher medical costs, which increase output; if we count activities that lengthen the distance between home and work and increase insecurity and exclusion as positive contributions to progress; if ever-growing nervous tension, stress and anxiety undermines society, and the ever-greater resources devoted to fighting their effects are included in economic growth - if we do all this, then what, concretely, is left of our notion of progress?
[...]
If our measuring systems overvalue the usefulness of society of speculation compared with work, entrepreneurship and creative intelligence, then this dangerously reverses the value system underpinning our vision of progress and introduces into the heart of capitalism a contradiction that can only end up ruining it.
[...]
The only thing that will save us is unchaining our minds so as to free ourselves from conformism, conservatism and short-sighted interests.
Pretty good, I thought. Some highlights of the report itself (slightly dry):
GDP: This Chapter suggests five ways of dealing with some of the deficiencies of GDP as an indicator of living standards. First, emphasize well-established indicators other than GDP in the national accounts. Second, improve the empirical measurement of key production activities, in particular the provision of health and education services. Third, bring out the household perspective, which is most pertinent for considerations of living standards. Fourth, add information about the distribution of income, consumption and wealth to data on the average evolution of these elements. Finally, widen the scope of what is being measured. In particular, a significant part of economic activity takes place outside markets and is often not reflected in established national accounts.
Conceptual approaches to measuring quality of life: Three conceptual approaches have retained the attention of the Commission as useful in thinking about how to measure quality of life. The first approach, developed in close connection with psychological research, is based on the notion of subjective well-being. A long philosophical tradition views individuals as the best judges of their own conditions. The second approach is rooted in the notion of capabilities. This approach conceives a person’s life as a combination of various “doings and beings” (functionings) and of his or her freedom to choose among these functionings (capabilities). The third approach, developed within the economics tradition, is based on the notion of fair allocations. The basic idea, which is common to welfare economics, is that of weighting the various non-monetary dimensions of quality of life (beyond the goods and services that are traded in markets) in a way that respects people’s preferences.
Main messages and recommendations [on measuring quality of life]: Quality of life includes the full range of factors that make life worth living, including those that are not traded in markets and not captured by monetary measures. Recent advances in research have led to new and credible measures for at least some aspects of quality of life. The Commission’s recommendations in this field can be summarised as follows: Recommendation 1: Measures of subjective well-being provide key information about people’s quality of life. Statistical offices should incorporate questions to capture people’s life evaluations, hedonic experiences and priorities in their own surveys. Recommendation 2: Quality of life also depends on people’s objective conditions and opportunities. Steps should be taken to improve measures of people’s health, education, personal activities, political voice, social connections, environmental conditions and insecurity. Recommendation 3: Quality-of-life indicators in all the dimensions they cover should assess inequalities in a comprehensive way. Recommendation 4: Surveys should be designed to assess the links between various quality-of-life domains for each person, and this information should be used when designing policies in various fields. Recommendation 5: Statistical offices should provide the information needed to aggregate across quality-of-life dimensions, allowing the construction of different scalar indexes.
Indices:
Osberg and Sharpe’s Index of Economic Well-Being (Osberg and Sharpe, 2002). This IEWB covers simultaneously current prosperity (based on measures of consumption), sustainable accumulation, and social topics (reduction in inequalities and protection against “social” risks). Environmental issues are addressed by considering the costs of CO2 emissions per capita. Consumption flows and wealth accumulation (defined broadly, to include R&D stock, a proxy for human capital, and the costs of CO2 emissions) are evaluated according to National Accounts methodology. Normalization of each dimension is handled through linear scaling (nine OECD countries) and aggregation relies on equal weights.
Nordhaus and Tobin's Measure of Economic Welfare (MEW) obtained by subtracting from total private consumption a number of components that do not contribute positively to welfare (such as commuting or legal services) and by adding monetary estimates of activities that contribute positively to welfare (such as leisure or work at home). Additionally, based upon their MEW, they built a Sustainable Measure of Economic Welfare (SMEW) taking into account changes in total wealth. To convert the MEW into the SMEW, Nordhaus and Tobin used an estimate of total public and private wealth including reproducible capital, non reproducible capital (limited to land and net foreign assets), educational capital (based on the cumulated cost of years spent into education by people belonging to the labor force) and health capital, based on a method of permanent inventory.
Adjusted net savings are derived from standard national accounting measures of gross national savings by making four types of adjustments. First, estimates of capital consumption of produced assets are deducted to obtain net national savings. Then current expenditures on education are added to net domestic savings as an appropriate value of investments in human capital (in standard national accounting these expenditures are treated as consumption). Next, estimates of the depletion of a variety of natural resources are deducted to reflect the decline in asset values associated with their extraction and harvest. Estimates of resource depletion are based on the calculation of resource rents.
