It is quite fitting that in six months’ time, Wellington will be playing host to one of the world’s premier conferences on economic wellbeing.
News that New Zealand will be the first country to make wellbeing a core part of future budgets quickly caught the eyes of many of the world’s experts in this area.
One of those experts is Chairman of Wellbeing and Public Policy and Professor at Victoria University’s School of Government, Arthur Grimes, who has been studying wellbeing economics for years.
And it’s a good time to be researching this field.
“We want to measure the success of our economy better – we aren’t satisfied with just measuring GDP growth,” said Finance Minister Grant Robertson late last year.
He was announcing the Government would assess bids for budget spending against a wellbeing framework in its 2019 Budget and will amend the Public Finance Act to make this a priority.
As Treasury seeks feedback and submissions on the framework, it’s likely Grimes will play a part in helping to shape what the policy looks like in the future through that process.
It all starts with one question – what is economic wellbeing?
“It is essentially designing economic policies to make people’s lives better – not necessarily to give them higher incomes, but that may be part of it,” Grimes says.
Although an official economic wellbeing measure has never been implemented by a Government, Grimes says at a local government level it has been put into practice in the past.
In the UK, for example, accounting for wellbeing is within local government legislation.
It is the job of the councils to account for not just economic wellbeing but social, personal and environmental wellbeing as well.
That used to be the case for New Zealand, until it was removed by the previous Government.
“I think [the Government] thought that local government should stick to its knitting – footpaths and water and things like that – rather than thinking they should have a broader role in improving people’s wellbeing,” Grimes says.
The social, personal, environmental and economic wellbeing indicators have all been flagged by Robertson as areas of interest for his wellbeing measures.
This seems to be the basis for Treasury’s approach so far.
‘Fantastic approach’
It has drawn on the OECD’s ‘How’s Life?’ analysis to create a ‘Living Standards Framework’ based on four capitals - natural, social, human and financial/physical.
Grimes says this approach is “fantastic” from a sustainability angle but wants to see how that all marries up with policies that “make people feel better about themselves.”
“We know from the literature, especially from the UK, that money spent on mental health activities probably has the biggest bang for its buck in terms of subjective wellbeing, making people’s lives better.
“That’s the type of approach I would really like to see cemented in here.”
This is an area that has been researched a lot by the London School of Economics.
In these instances, the research starts directly from subjective wellbeing itself – “measuring how people feel about themselves and work to see what it is that has the biggest impact on people’s subjective wellbeing,” Grimes says
He says the policy has the potential to amount to quite a lot, but also has the potential to be window dressing.
“That’s going to be the really hard test of both the Treasury’s work and the Government’s, to see how they really tied it down and say ‘these policies here that we’re implementing, we think will make people’s lives better through this mechanism, to this degree.”
38 Comments
”It all starts with one question – what is economic wellbeing?“
The answer to that is different things to different people.
- rp, I completely agree with your sentiment. I’m always amazed that so few New Zealanders seem to want to be self determining and look to others for solutions to their problems.
No, the real question is who gets to decide. The history of general interest clauses is not good. They are beloved by autocratic regimes as it allows them to do as they please. Under our current system it seems that Winston Peters gets to decide. Is that what we want?
Having said that, I am all in favour of measuring real things, like number of people per household, suicide rate, murder rate, car death rate, cancer death rate; rather than made up statistical concepts like "gross domestic product" and "inflation". Where is Newton when you need him?
In a way that was what I was getting at. Who gets to decide? I don’t think well-being should be decided by politicians left or right, it should be decided by each of us for ourselves. I feel this “wellbeing” framework is a step in the wrong direction, yes there are issues but is government intervention like this the cure or will it lead to more unintended consequences?
Regarding the measuring of real things you stated above, all of those are measured already (correct me if I’m wrong)? Or are you meaning you want the government to then go on and try and to fix those too?
But you're dreaming if you think you have self-determinism simply by having people at the top with less interest in your well-being. You'll ultimately end up with less self-determinism if you allow few people to write the rules without the interests of the lower and middle classes in mind - history is cyclical in that regard.
Realistically it would be very difficult to near impossible to have a system that would allow us to be completely self determining how ever I would like to see us moving more towards that than further away from it. Where I’m coming from is I’m more a fan of small government providing base services that protect your life and liberty so to speak and les of an interventionist one. For an extreme example take Venezuela, I’m sure their leaders thought they knew what was best for the well-being of their people.
History is cyclical and it seems the more interventionist a government is the more freedoms are taken away from there people.
My point is more practical - you're going to have a limited amount of self-determinism either way, and the ideological swing of "small government" vs. "big government" is a bit of a distraction from reality.
For example, a nominal ideology of "small government" such as in the USA would see you 1) being able to be fired without reason with no recourse, 2) having a great chance of medical bankruptcy, 3) having a huge student debt in order to get a good job, and 4) having less social mobility on average than in NZ.
How's that more free? How is it enabling more self-determinism than, say, lower cost health and education and lower cost housing that boomers had access to following government interventions? Has not that access to housing been an enabler of self-determinism by increasing your access to capital?
Selecting an extreme dictatorship as the example of less self-determinism is an equally ideological distraction. No one is arguing for a Venezuelan model vs. an extreme right or an extreme libertarian model.
Either way, we're going to have rules made at the top for the interests of few or many - I would rather the rules enable more self-determinism for more people than more exploitation by few people.
We do seem to have a strange phenomenon in NZ of those who have received much enablement from NZ's social democracy proclaiming they've done it all on their own two feet, and insisting they shouldn't have to contribute to the same for others. (I am not lumping you in with this, so you know.)
Thanks for the thoughtful comment Rick. I agree with your statement about your point being more practical, we are probably looking at this from two different levels with mine being more ideological.
I’ll try and respond to your points practically below:
1) being able to be fired without reason with no recourse,
I wonder how big of an issue this actually is? (Not saying it wouldn’t be an issue at all though) If you gave your best as an employee do you think this would happen to you? If you ran a business and fired people for no reason how long do you think your business would last? An employee/employer relationship should be a consentually agreed contract which can have clauses to protect against this if both parties agree.
2) having a great chance of medical bankruptcy
If you don’t have health insurance then yes (if you do have insurance you will have a much higher level of service via private sector). Rather than tax people to pay for their own care why not let them decide what cover they want. In relation to people who cannot afford even basic health insurance I think Sweden has a decent healthcare model where a certain level of cover is mandatory to alleviate this.
3) having a huge student debt in order to get a good job
Where’s the difference to NZ or anywhere which has government loan programs (which are the main cause of tuition fee increases) I have approximately double the average US student loan myself.
4) having less social mobility on average than in NZ
I don’t quite follow on the social mobility but economic mobility in the US is relatively high if that’s where that was going
Lower costs for the boomers is interesting and (my opinion) gets into the initial effect of socialistic/redistributive policies which most often produce great results initially but lead to ever diminishing returns and then to counterproductivity. While it may have advantaged them it disadvantages future generations so I don’t want the same happening now even if it would be to my own benefit. Either the government borrows and we all have more debt or the government taxes and tax payers have less money.
Thanks for not lumping me in with your final statement however I disagree it’s social democracy which creates enablement. Within any society some people will be more successful than other, you can only operate in the environment you are in so for those people who are successful good on them and if they want to crow about it then as unpalatable as it is, all power to them.
Hope this comes across ok, I’m a new commentator to interest and I’m learning very quickly exactly how hard it is to make concise points to complex issues hence my “war and peace” like answer.
Enjoyable discussion, thanks mate. I'm most interested in what works, and least in ideologies...so always enjoy a discussion with genuine intent.
1) Fired without cause
This is absolutely a reality in many parts of the USA. We struggle to visualise it because it's so foreign a concept...but this and Zero Hour Contracts have made the lifestyle of many Americans precarious.
https://www.thebalance.com/can-you-get-fired-for-no-reason-2060736
Companies tried to bring in zero hour contracts in NZ too, before the last National government put the kibosh on this (kudos to National for this).
These things are good for short-term profitability but bad for long term economics, as they also undermine purchasing power thus then undermining local business.
2) Medical costs are the biggest cause of bankruptcy in the USA
https://www.usatoday.com/story/money/personalfinance/2017/05/05/this-is…
The USA is also a great example of a place where the rule-makers are basically giving the best deal to companies (rather than the needs of individuals), creating a more expensive and less free environment for individuals - undermining self-determinism. Even the more honest of those on the Right can be found ranting against it on occasion:
http://www.anncoulter.com/columns/2010-03-17.html
http://www.anncoulter.com/columns/2017-03-29.html
(Point amongst Ann's slightly ranty diatribes: the folk at the top are making policy for the benefit of the few, not the many, and it's reducing the self-determinism of the many.) Policy for the betterment of the many could either do what Coulter suggests or do what Obama has, but not this in-the-middle policy-for-the-benefit of the few monstrosity that prevails.
3) Sorry, not quite catching your argument there - I'm arguing that lower levels of student debt gives young people greater self-determinism because they're not hampered by a massive level of debt early in their adult life.
4. Social mobility is in fact declining in the USA
https://www.businessinsider.com.au/social-mobility-is-on-the-decline-an…
https://www.businessinsider.com.au/the-american-dream-of-social-mobilit…
https://www.theatlantic.com/business/archive/2016/07/social-mobility-am…
"A new study indicates that from the 1980s to the 2000s, it became less likely that a worker could move up the income ladder."
Hence, my argument is that the pseudo-small-govt and "freedom" model of the USA doesn't in fact enhance self-determinism, but is reducing it. It saddles people with massive debt whilst reducing their social mobility, thus reducing their choices and their flexibility that would enable self-determinism.
I agree that socialism greatly benefited the Boomers, and agree that NZ's social democracy became bloated and unweildy before Labour liberalised things. I simply argue that if we continue in the same direction we're currently going in while not recognising the role that social democracy has played in creating an empowered middle class, we'll simply repeat the economic cycle that preceded the creation of those middle classes - i.e. a return to 19th century economics with a depressed, disempowered and depleted set of people at the lower end (after all neo-liberalism by nature harks back to this time).
And that won't increase opportunity for self-determinism. Would John Key have had more chance of becoming global head of FX at Merril Lynch then PM of NZ without the assistance NZ society gave him and his mother, or with it? Which would have on average enabled greater self-determinism?
Nothing wrong with War & Peace. Good book :)
RickS,
How very pleasant to read a thoughtful,well argued piece. of course,in liking the content,I must acknowledge my bias,as my own views broadly mirror yours. You have pointed people to websites;I would recommend books such as The Unwinding,Hillbilly Elegy,Glass House, The Spirit Level,Saving Capitalism and others to see just why America in particular,has become so polarised,capable of electing Trump.
An increase in mental health spending would help a lot. The number of recent suicides of people that I know is rather concerning. I don't think GDP growth was helping their wellbeing at all.
One of the reasons for GDP being pushed so much is that until recently it did improve people's wellbeing significantly. It is the whole point of economics.
What's so Orwellian about making people's lives better, as opposed to 1984 using propaganda to say that everything was fine or someone else's fault when things were going badly.
Some decent houses might help the happiness levels. How many ma-pa Landlords would be offended if told they were slum Landlords?
https://www.radionz.co.nz/news/national/353888/property-managers-frustr…
"An Auckland Council study interviewed 15 property managers, who collectively manage thousands of rental properties across the region.
While they experienced problems with some tenants, the managers saved their strongest criticism for tight-fisted landlords."
Thank god, now they are thinking about the well being of the people of New Zealand. That is what Government is for. Invest in the well being of the people and everything becomes better. The water, the education, the health are all matters for Government investment.
You want a measure of "progress"? In the period 1993 to 2005 across 25 advanced economies just 2% of households had flat or falling incomes, between 2005 and 2014 65-70% of households across advanced economies had flat or falling incomes. Capitalism is failing but unfortunately many are too stubborn or stuck living in a dream world to identify this change has occurred. Link: https://www.mckinsey.com/global-themes/employment-and-growth/poorer-tha…
... your car needs counseling and a better understanding ... perhaps a powhiri .... some quality time with it's whanau ... it is not failing ... there was still air at the top of the tyre , was there not .... therefore what you have is an air distribution problem ....society is to blame ....
Capitalism is not yet failing those wealthy enough to have political influence. The real issue is that no one has yet articulated something better.
There is much fighting against the system, but little fighting for something better. Fighting against something generally makes it stronger.
Articulating a vision of a better system, to rally the citizenry around, has been missing from the debate. Most just propose tinkering with policy settings. With where global capitalism is now, that is akin to shuffling the deck chairs on the Titanic.
hyperinflating house prices with stagnant wages. 3rd world immigration rate set on high. Foreigners buying houses hand over fist using low overseas interest rates. Raising GST and tobacco tax while lowering the top tax rate and reducing public services.
Those settings are about right aren't they?
According to John Key those setting are correct. There's no housing crisis in Auckland, John Key 2015. Rather Orwellian I'd say.
https://www.stuff.co.nz/business/money/68621964/no-housing-crisis-in-au…
Industrial relations law has to strengthen unions to ensure that labour income share increases in step with productivity growth. It can't continue the way it is with corporations capturing all the real growth in the economy. At present we have a huge demand deficiency. Ordinary people need a boost in wages to pay down debt and to stoke demand so as to get some investment happening. The post 1970s experiment in crushing unions has led to a situation where a disgruntled populace starts voting Trump and Brexit. Capitalists who value their own well-being should take note and "give a little".
Unions had their place until the 70's when their demands became outrageous. The strikes of the 80s crippled NZ so rather than stay manufacturers instead outsourced to China and invested in automation. Strengthening unions will just see more outsourcing and union fat cats collecting more fees from members.
I believe the answer is reducing immigration and investment in the trades (particularly in the regions). For example a kiwi Welder wont get a decent pay rise so long as there's an immigrant willing to do the work for a lot less.
Unfortunately reducing immigration just isn't going to happen under this new Govt.
CS and Delboy you are both partially correct. CS - peoples wages do need to grow, but there needs to be balance. As Del points out the Unions got too big for their boots and did a lot of damage. Balance is required, Unions as much as the owners must learn that a business must be profitable. For that to happen, they cannot demand too much of the pie in wages and owners must realise that their workers usually have more invested in their business than they do, because losing a job these days, particularly in the regions, usually means that there is not many alternatives to turn to. Looking after your staff pays dividends for businesses, as much as selling product.
Militant unionism is as damaging as rampant capitalist, oppressive owners.
Will the government get it right? I don't know,but they should be congratulated for acknowledging the problem of measuring our economic progress by GDP. It's just too crude a measure.
Many know of the role of Simon Kuznets in devising GDP. His first report to Congress was in 1934. It ran to 261 pages and was titled,National Income 1929-32.What is less well known is that he wanted to excludes such things as defense spending and most government spending.The role of Keynes is also not well known.
We need to move beyond GDP. let me quote Nicolas Sarkozy,a right-of centre- former French president. "We will not change our behavior unless we change the ways we measure our economic performance.We knew that our indicators had limitations,but went on using them as if they didn't."
GDP also fails to capture much of today's service based economy-Air B&B,Uber,Spotify and so on. We should all-whatever our political views-wish the government well.
I just cant get my head around this .
Firstly, how does one measure a relative concept like wellbeing ?
Secondly , how is wellbeing defined ?
How is wellbeing meaured when we are all different ? Do we measure Personal health , personal wealth , freedom, overall satisfaction with life , your ability to work ?
Then , who will we compare ourselves with Switzerland or Syria ?
Then of course will we measure wellbeing in decline due to an ever increasing raft of new taxes that are likely to empoverish us ?
For example the proposed Auckland fuel tax ........... how will that help the shiftworker who cannot use the bus , the solo mum with a waitress job who needs to take he child to kindy , or the schoolteacher who has no option but to drive to work ?
this is a discussion that is vitally important. the current economic models being applied by Governments around the world are not working as the big players manipulate and control., which result in most people in society literally missing out. Get this right and everyone is better off, less people in prisons, healthier and happier societies. Not a small ask though - lots of obstacles. This weeks Top 10, and some of the comments to it, identifies just a few.
Some commentators have presented some statistics which they have used to present a view as to whether things are good or bad. Meaning that we are capable of using existing objective data to figure out whether wellbeing is good or bad.
GDP is just one of those measures. This is not to say GDP is the only measure, and no one ever said that GDP should be the only measure.
There are organisations that rank countries according to a whole bunch of statistics, presumably objective ones (?). Why can't we start there, instead of using subjective measures? (if that is what is being suggested).
I believe what's being suggested is based ont he OECD Better Life Index.
http://www.oecdbetterlifeindex.org/#/11111111111
Paper on measuring wellbeing.
https://unstats.un.org/unsd/broaderprogress/pdf/How's%20life%20-%20Meas…
A Ted talk about it for the brief version.
https://www.youtube.com/watch?v=XuInKItBSLY
Thanks for the first link. It's a really good source of info.
The second link didn't work.
From the brief look I gave it, the OECD has taken a whole raft of objective stats, from which we can build a picture of NZ and other OECD countries and make comparisons.
Using these measures is great - the more data the better. What I am worried about, and I suggest others are too, is that the govt invents new wishy-washy subjective measurements akin to a happiness index.
So is the idea here to establish what measures the govt is going to use to determine what success looks like? And if so, what are the current measures that we are using for this purpose?
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