by Phoebe Harpham
With the Australian federal election looming there has been much focus on the economy as of late. Tune into any radio station, flick through the newspaper or turn on the TV and you’re guaranteed to be faced with a politician making all sorts of wild promises about leading us out of national debt.
So obsessed are we about the economy, that issues such as health, aged care and the environment have all but slipped off the radar. Obviously it is good thing to strive for a strong economy and a debt free nation as this generally equates to lower unemployment and a higher standard of living. But does a strong economy really equate to national wellbeing? And is a strong economy the only measure that we should be striving for?
Well according to Harvard Business School Professor, Michael Porter, clearly not. Professor Porter who has recently launched the Social Progress Index (SPI), a new tool for measuring national wellbeing, believes that “while economic development is beneficial for social progress, generally, it’s not sufficient”. Porter is not alone in his ideas.
Other efforts at introducing alternative ways to measure a country’s wellbeing have included:
GNH (Gross National Happiness) – a term coined in 1971 by the then king of Bhutan has been adopted by the government of Bhutan and developed into an index which places happiness rather than economic growth as its core.
The Beyond GDP initiative – a work in progress which seeks to develop worldwide indicators to measure social and environmental progress alongside economic progress. This effort is being spearheaded by the European Commission and the European Parliament together with the Club of Rome, OECD and WWF.
Human Development Index (HDI) – developed in 1990 and adopted by the United Nations Development Program to measure a country’s life expectancy, education and income.
Even UK Prime Minister David Cameron has thrown his support behind the idea and has said, “It’s time we admitted that there’s more to life than money, and it’s time we focused not just on GDP but on GWB – general wellbeing.”
The problems with Gross Domestic Product (GDP)
The heart of the problem lies in the measurement tools that we currently use to evaluate progress, which are dominated by a single measure – Gross Domestic Product (GDP). GDP is a measure of the total outputs produced by a country (i.e. all of the goods and services produced by a country over a certain time period) and is used as the worldwide indicator of the health of a country’s economy.
Developed by Simon Kuznets in 1934, GDP was only ever intended as a measure of economic growth. In fact, Kuznets warned against using GDP as a measure of wellbeing advising at the time that “the welfare of a nation can scarcely be inferred from a measurement of national income”.
Somewhere along the way, however, this message has been lost. GDP is now viewed as the universal yardstick of progress – and is used not just as a measure of a country’s wealth but also of it’s health. It has become so powerful, in fact, that some might say that politicians have become slaves to it, creating and dropping policies in response to its fluctuations.
The problem? When a nation’s success is measured against a single yardstick, and that yardstick only measures economic performance, things – such as social and environmental progress – can slip through the cracks.
A major criticism of GDP is that it fails to take into the account the harm caused to the social or physical environment for the sake of economic progress. For example, GDP does not differentiate between $5 million generated from logging trees or $5 million in cigarette sales and $5 million generated from increased retail sales. Under the cool eye of GDP, all income, no matter how it was generated, is equal.
So in essence, using GDP to measure the wellbeing of a country is like using a ruler to measure the weight of an object. You simply cannot do it. GDP is great for measuring what it supposed to measure – economic outputs – but it would be crazy to use it to measure the wellbeing of a country.
There is a clear and definite need to introduce other tools that are designed specifically to measure wellbeing. Enter the Social Progress Index.
A new way of measuring wellbeing – the Social Progress Index (SPI)
Launched in the UK in April 2013 by Harvard Business School Professor, Michael Porter, the Social Progress Index (SPI) is a tool that measures the social and environmental progress of a country. The tool ranks 50 countries on 52 social and environmental indicators including, amongst others: nutrition, sanitation, shelter, health and wellness, ecosystem sustainability and personal freedom.
The strength of the SPI is that it separates economic growth from social and environmental wellbeing and unlike other similar rating scales it counts outcomes, such as number of primary school enrolments, rather than inputs, such as education policy or spending. In doing so it highlights clear areas where countries should be focusing their efforts to improve the wellbeing of their citizens.
The first results of SPI were published in April this year with Sweden topping the charts and Ethiopia at the bottom. There were a few surprises, however, with a number of low income countries outranking their wealthy counterparts.
Costa Rica, for example, outranked the United Arab Emirates (UAE) on the SPI with a ranking of 12 and 19 respectively. This is the reverse of their GDP per capita (PPP) rankings, with the UAE ranked 3 and and Costa Rica ranked 23. Other low income countries such as Brazil (GDP 24) and Bulgaria (GDP 20) also outranked the UAE on the SPI.
Although Australia came in with a total SPI ranking of 7, we performed poorly in ecosystem sustainability (46th) and shelter (22nd) indicating a need for Australia to focus on improvements in these areas.
Such results illustrate that economic progress does not always equate to social and environmental progress and furthers the case for a more comprehensive way of measuring the wellbeing of a nation.
How is the SPI relevant to business?
Porter believes that there is great opportunity for businesses in tackling social issues and social challenges, and the SPI could be “a powerful tool in helping government, business and civil society leaders to decide which social issues to prioritise”.
This must ring true as the business community seems to be getting on board. On 6 August 2013 Heather Hancock, managing director of Deloitte – one of the Big Four professional service firms in the world – became the director of the Social Progress Imperative (the overarching organisation of the SPI). Hancock’s decision to take on this role indicates her belief that the business world has a responsibility for the wellbeing of society.
“To tackle the issues outlined in the Index, we need to think differently – government, business and civil society need to work together in new and innovative ways,” said Hancock of the SPI, “We believe the Index will provide a framework that will aid a different conversation, making it easier for business to understand where and how it can more actively get involved. This will help to prioritize social investment decisions, galvanize collective action, and hopefully unlock future growth and competitiveness.”
A vision for the future
So, back to the federal election. Wouldn’t it be great if our politicians were campaigning not just to lead us out of national debt and strengthen our economy, but to also strengthen our nation’s social and environmental wellbeing? The SPI may be just the tool that could hold governments accountable to such measures. By measuring the things that really matter to people – the SPI may prove to be a useful tool in re-shaping policies to redress the current imbalance between people, planet and profit.
Contact the Social Enterprise Manager at One Health Organisation to find out how we can help your business make a positive impact on society.