by Garry Jacobs, Ivo Slaus
Abstract
Right measurement is a powerful instrument for social progress; wrong or imprecise measurement a source of hazard and even havoc. As modern medicine depends on precise measuring tools as the basis for both accurate diagnosis and effective treatment, modern economy would be inconceivable without the simple advance from Roman to Arabic numerals and double-entry bookkeeping, whose role can be likened to that of thermometer and stethoscope in medicine – essential but far from sufficient. Today there is an urgent need for more effective economic indicators to guide policy and decision-making. The essential purpose of economic activity is not growth for growth’s sake, but rather the promotion of human development, welfare and well-being in a sustainable manner. The successes of science today are rooted in precise and adequate measurements married with sound theory. Advances in theory and measurement must necessarily proceed hand in hand. A companion article in this publication sets forth the urgent need for new theory in economics. This article sets forth the complementary need for new measures.The stakes are high and the choice is ours. On one side, rising social tensions, recurring financial crises and ecological disaster; on the other, the progressive unfolding and development of human capacity in harmony with Nature.
The deficiencies of GDP as a measure are well-documented, but the attributes that have made it so successful are often overlooked. The challenge is to derive more appropriate indicators to reflect real, sustainable economic welfare, social development and human well-being. Many commendable efforts are underway to formulate new composite measures of social progress, but in an effort to be both comprehensive and precise, they often sacrifice the clarity and utility of existing measures. The authors present a new Human Economic Welfare Index (HEWI) that seeks to retain the strengths associated with GDP, while substantially enhancing its value as a measure of human economic development. HEWI monitors progress on five essential components of economic welfare – household consumption and savings, income distribution, employment, education and fossil fuel energy efficiency. The index is applied to assess the economic performance of select countries from 1980-2005.