FISCAL STUDIES, vol. 34, no. 3, pp.

285288 (2013) 0143-5671

Moving beyond GDP*

PAUL ANAND, MARCO MIRA DERCOLE and HAMISH LOW
The Open University; Health Economics Research Centre, Oxford University;
Centre for Philosophy of Natural and Social Sciences, London School of Economics
(p.anand@open.ac.uk)
OECD Statistics Directorate
(marco.mira@oecd.org)
University of Cambridge; Institute for Fiscal Studies
(hamish.low@econ.cam.ac.uk)

National income has a venerable history dating back in the UK to the work
of the seventeenth-century polymath William Petty. However, there is now a
view that a broader set of statistics and concepts is useful for assessing what
it means for economies to succeed. The agenda for these developments has
been around at least since environmental concerns were raised about the
limits of GDP accounting and the emergence of the social indicators
movement in the early 1970s. Economists have, after all, long warned
against equating economic welfare with human well-being, despite the
emphasis of economic welfare in the concept of utility. Increasingly, this
view shared by a range of disciplines is gaining traction with economists,
statisticians and policymakers around the world.
Many of the relevant theoretical economics arguments supporting these
developments can be found in work on the capabilities approach to welfare
*Thanks are due to a large number of economists in policy and academia for their contributions to the
Second New Directions in Welfare congress, particularly Angel Gurra, Martine Durand and Marco
Mira dErcole from the OECD, Enrico Giovannini from ISTAT and Andy Ross from the Government
Economic Service. Thanks are also due to the following organisers and speakers: Xavi Ramos,
Christophe Muller, Clemens Puppe, Franois Bourguignon, Stephen Klasen, Ellen Nolte, Lise Rochaix,
Marco Caliendo and Radu Vranceanu. For commenting on the papers in this issue, the guest editors are
grateful to Indranil Dutta, John Ermisch, Charlene Kalenkoski, Gay Meeks, Geoff Meeks, Jess PrezMayo, Jrgen Volkert and Cristina Santos. Finally, the first author wishes to acknowledge support from
the Leverhulme Trust for funding the capabilities measurement project at the Open University and Oxford
University, of which this work is part.
Keywords: welfare economics, beyond GDP, capabilities, happiness, multiple dimensions.
JEL classification numbers: H00, I31.
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Fiscal Studies 2013 Institute for Fiscal Studies. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford,
OX4 2DQ, UK, and 350 Main Street, Malden, MA 02148, USA.

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economics, initiated by Amartya Sen. This reworking of welfare economics,

from axiomatic foundations through estimatable equations to global public
engagement, brings together a number of important ideas. It has been
particularly notable for its emphasis on the fact that well-being is inherently
defined in many dimensions or life domains and that opportunities are of
crucial importance, instrumentally and intrinsically, to people.
A rather different but also relatively novel strand of thought and work in
welfare economics depends on a group of economists led in recent years by
Lord Richard Layard, who argues that experiences and perceptions of quality
of life are an essential input into the evaluation of public policies. The core
innovation for this group of economists lies in their willingness to analyse
data of a subjective nature. The methodological differences have perhaps
been overplayed, and innovations within welfare economics share the view
that looking primarily at financial indicators of human well-being is often
just not sufficient to provide an accurate assessment of progress and success.
These somewhat theoretical ideas have, in recent years, met with growing
interest in policy circles (for example, the ONSCameron quality-of-life
initiative, the EU Beyond GDP initiative and the OECD Measuring WellBeing and Progress programme and its Better Life Index). To provide further
visibility for some of these ideas and initiatives, this special issue of Fiscal
Studies presents a small sample of papers derived from, or closely related to,
the Second New Directions in Welfare congress, held in Paris at the OECD
in July 2011. The papers collected here are all accessible and help indicate
how economists, statisticians and others are putting forward a new approach
to the measurement of well-being that might be characterised by the
following five key core features.
First, multidimensionality is central. This complements the
unidimensional approach associated with financial measures such as national
income. The papers in this collection that address multidimensionality focus
on the difficult issue of index construction. However, it is worth stressing the
considerable policy interest in sets of indicators presenting information about
different variables without the creation of an overall index. Indices provide a
useful measure, but indexification may bury useful information and impose
weights that have relatively little justification in themselves.
Second, the value of subjective indicators, such as life satisfaction (often
referred to as happiness) or satisfaction with particular subdomains of life,
should be considered. For a long time, there were questions about the value
of subjective indicators, but there is now perhaps a greater recognition that
many statistics that economists analyse are in fact based on self-report and
are subjective (and this includes income in household surveys). Error and
bias will always be present in such data, but the real questions for decisionmakers are whether such variables add to what we know, and to what extent

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any difficulties can be handled through careful analysis or thoughtful

interpretation.
Third, there is a concern about the distribution of well-being within
society. The use of Gini coefficients applied to income is well established,
but the capabilities approach has provided a tool to engage with the
distribution of other dimensions of well-being. Even many would-be
utilitarians now drop sum-maximisation in preference for policies that are
more distributionally sensitive or possibly prioritarian. The emphasis on
distribution is, for example, reflected in Treasury policy on the cost of
evaluations, where the underlying utilitarian calculus embedded in cost
benefit analysis must ultimately be sensitive to impacts on particular groups.
Fourth, it is increasingly recognised, in labour market regulations and
elsewhere, that concepts such as opportunity, whilst not easy to observe
directly, are crucial to human welfare and can be monitored if appropriate
data are collected. Such concepts speak to the freedoms that people possess
in a positive sense as distinct from negative freedoms (i.e. the absence of
externally-imposed constraints).
Fifth, and related to the first of these points, is the matter of how we think
about income itself. Income measures a persons opportunities to consume
and is undoubtedly important in that context, but many sources of well-being
are not traded on markets, even in high-income countries. Conversely, as
money income grows, it is sometimes observed that other negative indicators
of human welfare for example, related to body mass index or crime rates
also rise. For these reasons, economists who need measures of well-being are
becoming more cautious about assuming that all the outcomes that matter are
positively and closely correlated to income and more interested in direct and
comprehensive indicators of progress and so-called experienced utility.
All five propositions are reflected in some way in the papers that follow.
The opening paper, by Romina Boarini & Marco Mira dErcole (economists
from the OECD Statistics Directorate), provides a discussion of the historical
background to recent developments, indicates connections to initiatives such
as the StiglitzSenFitoussi report and highlights some of the welfare
measurement challenges associated with health and the environment. It
concludes with a number of proposals for future work, including the
development of information systems that allow for the understanding of the
joint distribution of dimensions of well-being. This paper provides useful
pointers for policy and research alike and sets the scene for three further,
shorter works that engage with issues arising from the move to
multidimensional measures of well-being. Two of these look at issues
associated with the choice of weights, whilst a third looks at
multidimensional measures of the well-off. Based on research in Belgium
and in the UK, Koen Decancq, Luc Van Ootegem & Elsy Verhofstadt and
Luna Bellani, Graham Hunter & Paul Anand, respectively, provide evidence
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that equal weighting of different dimensions provides a poor fit for

understanding general adult population preferences. A fourth paper, by
Andreas Peichl & Nico Pestel, provides a novel look at the multidimensional
well-being of those on high incomes. It finds that only a small fraction of the
population are well off when multiple dimensions are taken into account and
that health plays a key role, alongside income, when we try to understand
why people are well off in a multidimensional sense.
A final pair of papers illustrate ways in which well-being can be explored
through data on time use and life satisfaction. Work by Lina Glvez-Muoz
& colleagues from Spain develops an econometric model of time use within
families and draws out findings about parental activities, gender inequalities
within households and childrens quality of life. In a related vein, the paper
by Cristina Santos applies measures of life satisfaction to a unique UK data
set on various forms of fear and violence to derive cost estimates that are
significantly higher than those published to date. The size of the implied
financial cost of domestic violence underlines the importance of nontraded items for human well-being but also hints at the complex relations
between direct measures of well-being and their translation into financial
assessments.
Taken together, the collection provides a window onto a literature that is
developing different answers to questions about well-being measurement.
This new work helps highlight the ultimate welfare goals of economic
activity, measures how well we are doing in those terms and offers a view of
the economy from a human perspective that complements our more
developed understanding of markets, firms and competitive processes. Such
measures are already informing the evaluation of interventions in health, but
it seems that this only touches the surface and that many more policy uses
and research developments will emerge from this field in the near future.

2013 The Authors

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