Analysing whether a country's policies and actions sustainably increase its wellbeing

Since we stopped measuring success through military victories, money (and GDP in particular) has been the most common economic measure of a country’s success. A 2009 study by economists Amartya Sen, Joseph Stiglitz, and Jean-Paul Fitoussi examined alternatives to GDP and caused a seismic shift in attitudes.

In 2016, Arthur Grimes and colleagues finished up his “Testing the validity and robustness of national wellbeing and sustainability measures” project, generously funded by a Marsden Grant. An overview of this research is attached here.

The research addresses a fundamental question: "Are a country's policies and actions sustainably increasing its wellbeing?" Social scientists and ecologists have developed many indicators of national wellbeing and sustainability. Dr Grimes’s research is an overarching study that tests the adequacy and robustness of these aggregate measures for answering the fundamental question.

Key findings of the programme include:

• Policy-makers need to consider both income-related outcomes and broader subjective wellbeing outcomes when designing policy.
• People’s overall life satisfaction is related to their absolute income and to their relative income both within their own country and relative to people in other countries. Policy-makers have a role in ensuring that their own country’s incomes are ranked highly relative to those in comparable countries in order to raise their citizens’ subjective wellbeing.
• Consumption-based measures provide a more accurate predictor of an individual’s subjective wellbeing than do income-based measures. This is the case across different income and consumption levels, across region-types, and across different ethnicities (Pākehā, Māori, Pasifika and Asian).
• Fiscal (taxation and government expenditure) policies directly affect people’s life satisfaction in ways that may conflict with economic growth objectives. Specifically, indirect taxes such as GST have a more deleterious effect on life satisfaction than do comparable levels of income tax, although these effects differ by individual income level.
• By contrast, income taxes have a more deleterious effect on economic growth than does GST. These life satisfaction results demonstrate why governments tend to adopt fiscal structures that do not maximise economic growth.
• New Zealand households are ranked third richest in the world (behind USA and Canada) when using a newly developed consumption-based measure for households with a 15-year old child.
• When using the data used to construct this measure, the degree of inequality across New Zealand households is one of the highest within the developed world.
• International migration is driven by both comparative income and comparative subjective wellbeing (i.e. life satisfaction) factors across countries.
• Domestic migration (within a country) is also driven by both comparative income (and employment) and comparative subjective wellbeing factors across regions.