The Happy Planet Index – Economics as if People and the Planet Mattered by the New Economics Foundation

“What is the point of having a great amount of production, if the people doing the producing are unhappy, and the land cannot sustain the same level of production so that collapse and more misery will ensue?”

Why do we need a new index?

In the Western world, economics is at the heart of our thinking about most issues. When we talk of growth or development, we are typically thinking about the distribution and flow of money. A nation’s progress is also most commonly measured in terms of GDP. Defined as the total value of a country’s annual output of goods and services. Its the standard measure of economic activity and the key headline indicator for government policy in the vast majority of countries.

It is well known that GDP was never intended to function as an indicator of well-being. Even the economist Simon Kuznets, a central figure in the development of GDP, in 1934 urged the US Congress to remember “The welfare of a nation can scarcely be inferred from a measurement of national income.” However, until quite recently, it has routinely been assumed to be a reliable proxy for standard of living. The logic underlying this is that- growth in GDP implies economic activity, which in turn implies that people are spending money and improving their quality of life.

But GDP turns out to be a poor indicator of welfare in several key respects. For a start, interpreting it as a standard-of-living measure means assuming that income is strongly correlated with well-being at the national level, such that -all else being equal general well-being will increase as the economy grows. It has been repeatedly shown in recent years that this is simply not true. Undoubtedly, a relationship exists between income and well-being, but after a certain, surprisingly low level of GDP is reached, the strength of this relationship declines markedly.

GDP is insensitive to the distribution of income within countries. A country with high rates of poverty, a small but affluent elite, and high exports could have a similar GDP per capita to one with comparably little inequality and a thriving domestic economy. GDP also fails to distinguish money spent correcting or compensating for undesirable events. This can lead to some apparently perverse results. For example, it has been estimated that the Enron accounting scandal may have contributed up to $1 billion to US GDP. Natural disasters,- hurricanes, floods and so on -also tend to boost GDP, because huge amounts of public money are typically spent in mitigating the resulting damage. From an environmental perspective this is a disastrous oversight – GDP counts resource consumption, but takes no account whatsoever of the extent to which it can be maintained.

The Happy Planet Index

A new report is demonstrating that happiness cannot be measured in terms of financial rewards alone, yet all our global decision-making is still based on unhelpful measures of Gross Domestic Product. But what is the point of having a great amount of production, if the people doing the producing are unhappy, and the land cannot sustain the same level of production so that collapse and more misery will ensue?

The New Economics Foundation and Friends of the Earth have asked that question and come up with a solution: the Happy Planet Index or HPI, with the tagline “economics as if people and the planet mattered”. The Index doesn’t reveal the ‘happiest’ country in the world. It shows the relative efficiency with which nations convert the planet’s natural resources into long and happy lives for their citizens.

The nations that top the Index aren’t the happiest places in the world, but the nations that score well show that achieving, long, happy lives without over-stretching the planet’s resources is possible. The HPI shows that around the world, high levels of resource consumption do not reliably produce high levels of well-being (life-satisfaction), and that it is possible to produce high levels of well-being without excessive consumption of the Earth’s resources. It also reveals that there are different routes to achieving comparable levels of well-being. The model followed by the West can provide widespread longevity and variable life satisfaction, but it does so only at a vast and ultimately counter-productive cost in terms of resource consumption.

The Happy Planet Index (HPI) strips the view of the economy back to its absolute basics: what we put in (resources), and what comes out (human lives of different length and happiness). The resulting Index of the 178 nations for which data is available, reveals that the world as a whole has a long way to go. In terms of delivering long and meaningful lives within the Earth’s environmental limits – all nations could do better. No country achieves an overall ‘high’ score on the Index, and no country does well on all three indicators.

No single country listed in the Happy Planet Index has everything right. We have to acknowledge from the start that while some countries are more efficient than others at delivering long, happy lives for their people, every country has its problems and no country performs as well as it could. Yet, fascinatingly, it is possible to see patterns emerging that point to how we might better achieve long and happy lives for all, whilst living within our environmental means.

The challenge will be whether we can learn the lessons of the HPI and apply them.

How it is calculated

The HPI incorporates three separate indicators: ecological footprint, life-satisfaction and life expectancy. The statistical calculations that underlie the HPI are quite complex. However conceptually, it is straight forward and intuitive:

HPI = (Life satisfaction x Life expectancy)/Ecological Footprint

The HPI reflects the average years of happy life produced by a given society, nation or group of nations, per unit of planetary resources consumed. Put another way, it represents the efficiency with which countries convert the earth’s finite resources into well-being experienced by their citizens.

Life satisfaction

Extensive research has been conducted in psychology and the social sciences to understand the factors influencing well-being. Nevertheless, it is only relatively recently that subjective measures of well-being have begun to be taken seriously outside academia. In the UK there has been a groundswell of interest in the potential of subjective well-being measures both from within government and from those – such as nef – seeking to inform and influence policy from outside. However, just as there is controversy over whether IQ tests really measure intelligence, there is considerable debate over whether self-reports of life satisfaction have anything to do with real ‘well-being’. Yet, self-reports of life satisfaction are considered valid if they correlate reliably with predicted objective indicators that are thought to be associated with well-being.

Most academics working on well-being are satisfied that ratings of life satisfaction within a country or culture are acceptably valid. An individual’s self-reported life satisfaction correlates with reports from loved ones, with how often they experience good moods, and even the likelihood they will commit suicide later on in their life. People with positive self-perceptions also tend to live longer than those who regard themselves more negatively. As well as being valid, self-reports of life satisfaction seem to be reliable. In other words, people tend to give the same patterns of response over time, and when slightly different question wordings are used.

Some researchers – notably those from an economics background – tend to see happiness, life satisfaction and well-being as synonymous and interchangeable. But there are important and clearly discernable differences. Satisfaction with life overall, tends to be generally stable since it reflects a summary of “judgements about feelings”. Whilst on the individual level, day-to-day changes in happiness are of interest, at a policy level it is overall satisfaction that gives the best indication of how groups of people are faring. If a majority of people in a country report dissatisfaction with their lives, this seems to be a reasonable indication that something is awry, either with government policy, with society, or with both.

International surveys tend to consider life satisfaction by asking respondents a question such as: ‘If you consider your life overall, how satisfied would you say you are nowadays?’ Responses are given on a 0-10 scale, from not at all satisfied to extremely satisfied. Clearly this is not a perfect measure. Ideally, subjective well-being would be assessed by asking a series of questions, perhaps probing different aspects of life and framing the issue in different ways so as to gain a more complete picture. As a general indicator of the state of well-being in a country, however, this single question performs surprisingly well, showing good validity when compared with other national-level statistics.

Life expectancy and happy life years

Life expectancy at birth is an estimate based on the prevailing conditions in the country, and is calculated through large-scale data collection of mortality rates at different ages.

Life expectancy is often regarded as a gold-standard measure of well-being. This is not simply because a long life is necessarily a good thing (although most people would probably say that it is, all else being equal), but because rates of life expectancy depend on numerous factors that relate directly to material conditions in a country. For instance, life expectancy at birth is extremely sensitive to the rate of infant mortality, which is itself a robust proxy indicator of access to sanitation and the state of healthcare. For these reasons, and undoubtedly thanks to its clarity and tangibility, life expectancy is widely used as a development indicator, and is one of the main components of the UN’s HDI (Human Development Index).

As the ultimate end of society, the HPI uses a model combining longevity and subjective life satisfaction devised by the Dutch sociologist Ruut Veenhoven and dubbed happy life years (HLY) – “the degree to which people live long and happily in a country at a certain time”. To calculate a nation’s mean HLY, ratings of life satisfaction are multiplied by mean life expectancy at birth. Veenhoven describes this as an “ultimate output measure”, because it incorporates both “apparent” and “assumed” quality of life. HLY correlates with factors such as affluence, education, political freedom and gender equality – however, it is not completely explained by them. This suggests that the subjective component adds something distinctive that is not captured by purely objective measures of quality of life.

Ecological footprint

Nature can keep up with the demands of human economic activity, but only as long as this activity stays within the regenerative capacity of the biosphere: the living part of the planet. Ecological footprint accounting measures the extent to which the ecological demand of human economies stays within or exceeds the capacity of the biosphere to supply goods and services. These accounts help individuals, organisations, and governments to frame policies, to set targets, and to track progress towards sustainability.

The ecological footprint measures how much land area is required to sustain a given population at present levels of consumption, technological development and resource efficiency, and is expressed in global-average hectares (gha). The largest component elements of Footprint are the land used to grow food, trees and biofuels, areas of ocean used for fishing, and – most importantly – the land required to support the plant life needed to absorb and sequester CO2 emissions from fossil fuels.

Footprint takes account of the fact that in a global economy people consume resources and ecological services from all over the world. Therefore, a Chiquita plantation in Costa Rica will not count towards Costa Rica’s Footprint, but rather towards the Footprint of those countries where the bananas are consumed. For this reason, a country’s Footprint can be significantly larger than its actual biocapacity. The Footprint of a country is thus best understood as a measure of its consumption, and its worldwide environmental impact.

The same methodology can be used to calculate, in the same units, the Earth’s biocapacity – its biologically productive area. Currently, the biocapacity of the Earth is around 11.2 billion hectares or 1.8 global hectares per person in 2001 (assuming that no capacity is set aside for non-human species). In 2001, humanity’s demand on the biosphere – its global ecological footprint – was 13.7 billion global hectares, or 2.2 global hectares per person. At present, therefore, our Footprint exceeds our biocapacity by 0.4 global hectares per person, or 23 per cent. This means that the planet’s living stocks are being depleted faster than nature can regenerate them.

The Happy Planet Index: What it reveals

On a scale of 0 to 100 for the HPI, we have set a reasonable target of 83.5. This is based on attainable levels of life expectancy and well-being and a reasonably sized ecological footprint. Today, however, the highest HPI is only 68.2, scored by the Pacific archipelago of Vanuatu. The lowest, and perhaps less surprising than some other results, is Zimbabwe’s at 16.6. No country achieves an overall high score and no country does well on all three indicators. Vanuatu, for example, has only a moderate level of life expectancy at 69 years. The message, simply put, is that when we measure the efficiency with which countries enable the fundamental inputs of natural resources to be turned into the ultimate ends of long and happy lives, all can do better. This conclusion is less surprising in the light of our argument that governments have been concentrating on the wrong indicators for too long. If you have the wrong map, you are unlikely to reach your destination.

Some of the most unexpected findings concern the marked differences between nations, and the similarities among some groups of nations:

Island nations score well above average in the Index: They have higher life satisfaction, higher life expectancy and marginally lower Footprints than other states. Yet incomes (by GDP per capita) are roughly equal to the world average. Even within regions, islands do well. Malta tops the Western world with Cyprus in seventh place (out of 24); the top five HPI nations in Africa are all islands; as well as two of the top four in Asia. Perhaps a more acute awareness of environmental limits has sometimes helped their societies to bond better and to adapt to get more from less. Combined with the enhanced well-being that stems from close contact with nature, the world as a whole stands to learn much from the experience of islands.

It is possible to live long, happy lives with a much smaller environmental impact: For example, in the United States and Germany people’s sense of life satisfaction is almost identical and life expectancy is broadly similar. Yet Germany’s Ecological Ecological footprint is only about half that of the USA. This means that Germany is around twice as efficient as the USA at generating happy long lives based on the resources that they consume.

NEF’s Global Manifesto for a happier planet

We are asking individuals, policy makers, and governments to sign nef’s Global Manifesto for a happier planet
nef’s Global Manifesto for a happier planet makes recommendations for each component of the HPI. Nations score on the constituent parts of the Index, provides an indication of which component policy-makers in countries around the world need to prioritise:

1. Eradicate extreme poverty and hunger.

Increasing material wealth in (so-called) developed countries does not lead to greater happiness, and that extreme poverty systematically undermines people’s opportunities to build good lives for themselves and their families. We urgently need to redesign our global systems to more equitably distribute the things people rely on for their day-to-day livelihoods, for example: income, and access to land, food and other resources.

2. Improve healthcare.

High life expectancy in a country reflects good healthcare and living conditions, and has a positive relationship to people’s sense of well-being. Globally we need to increase access to clean water, halt the rise in diseases such as HIV/AIDS and malaria, and reduce child and maternal mortality. The World Health Organization estimates that everyone in the world could be provided with a good level of basic healthcare for just $43 per person, per year.

3. Relieve debt.

Many developing countries are forced to prioritise the service of crippling financial debt over providing a basic standard of living. Debt sustainability calculations should be based on the amount of revenue that a government can be expected to raise without increasing poverty or compromising future development.

4. Shift values.

Value systems that emphasise individualism and material consumption are detrimental to well-being, whereas those that promote social interaction and a sense of relatedness are profoundly positive. Government should provide more support for local community initiatives, sports teams, arts projects and so on, whilst acting to discourage the development of materialist values where possible (for example, by banning advertising directed at children).

5. Support meaningful lives.

Governments should recognise the contribution of individuals to economic, social, cultural, and civic life and value unpaid activity. Employers should be encouraged to enable their employees to work flexibly, allowing them to develop full lives outside of the workplace and make time to undertake voluntary work. They should also strive to provide challenges and opportunities for personal development at work.

6. Empower people and promote good governance.

A sense of autonomy is important at all levels for people to thrive, and there is growing evidence that engaging citizens in democratic processes leads to both a more vibrant society and happier citizens. Promoting open and effective governance nationally and internationally, including the peaceful resolution of conflicts and elimination of systematic corruption, is important for all of us achieving greater well-being in the long term.

7. Identify environmental limits and design economic policy to work within them.

The ecological footprint gives us a measure of the Earth’s biocapacity that, if over-stretched, leads to long-term environmental degradation. Globally we need to live within our environmental means. One-planet living should become an official target of government policy with a pathway and timetable to achieve it. (The UK currently consumes at just over three times this level. If everyone in the world consumed as we do in the UK, we would need 3.1 planets like Earth to support us.)

8. Design systems for sustainable consumption and production.

We need to reverse the loss of environmental resources, conserve our ecosystems and integrate a sustainable development approach throughout the global community. Ecological taxation can be used to make the price of goods include their full environmental cost, and to encourage behaviour change. Clear consistent labelling that warns of the consequences of consumption, as with tobacco, would also help, as well as giving manufacturers full life-cycle responsibility for what they produce.

9. Work to tackle climate change.

For the UK to play its part in preventing catastrophic and irreversible global warming it is estimated that we will need to cut our greenhouse gas emissions by at least three per cent every year. More broadly, rich countries need to meet and exceed their targets for reducing greenhouse gas emissions set under the Kyoto Protocol, cutting emissions to a level commensurate with halting global warming so that temperature rise is kept well below 2C. After 2012, and in subsequent commitment periods of the Kyoto Protocol, emissions cuts should put industrialised countries on track to savings of up to 80 per cent by 2050.

10. Measure what matters.

People all over the world want to lead happy and complete lives, but we all share just one planet to live on. We urgently need our political organisations to embrace and apply new measures of progress, such as the HPI and adjusted GDP indicators. Only then will we be equipped to address the twin challenges of delivering well-being for all whilst remaining within genuine environmental limits.

~ From “The Happpy Planet Index” by the New Economics Foundation (NEF)

Read the full HPI report (In PDF)

Keywords : ecosocial crisis, poverty, environmental crisis, economic growth, GDP, the Happy Planet Index, life satisfaction, life expectancy, happy life years, ecological footprint, one planet living, less is more, well being, new economics
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