I wrote the following article for the December 2011 issue of Alberta Views magazine, one of Canada’s most progressive publications.
Genuine Wealth: Changing How We Measure Progress
One must make a new system that makes the old system obsolete.
Economics—the gospel of eternal growth—has failed Albertans and all of humanity as a means of delivering the well-being we all desire: happy and meaningful lives. Its high priests have lost touch with the original Greek meaning of the word economy (oikonomia), which means management of the household. Economists have also forgotten the origin of “wealth,” which comes from the 13th-century Middle English word for “the conditions of well-being.” The word “value,” generally associated with money, actually means “to be worthy or strong,” from the Latin valor. Instead of practising genuine economics, we have become experts at chrematistics (which Aristotle defined as the art of getting rich or the science of making money). Aristotle argued that the accumulation of money itself is an unnatural activity that dehumanizes those who practise it.
As an Alberta ecological economist and professor of corporate social responsibility and social entrepreneurship, I ask my business students: What is an economy for? Why do we measure progress and success the way we do? Why is it that despite rising gross domestic product (GDP) we’ve seen no commensurate increase in self-rated happiness of Canadians? If continuous growth has failed to improve our happiness, why must we continue to grow the economy—especially given evidence that we may be destroying the very capital (human, social and natural) that is the foundation of a good life? And what if the progress of our economies were instead measured in terms of the conditions that contribute most to our genuine happiness and societal well-being?
Aristotle defined happiness (eudaimonia) as “well-being of spirit” and argued that it resulted from a good birth, accompanied by a lifetime of friends, children, virtuous activity, health, wealth and a contented old age. The Buddha said the purpose of our lives is to be happy.
Western studies into happiness show that the key determinants are the quality of one’s upbringing and genetics (50 per cent), relationships with family, friends and colleagues (40 per cent) and income and education (only 10 per cent). New research suggests that the experience of one’s childhood years, more than genetics, is perhaps the most important contribution to one’s sense of well-being throughout life.
Recent research by economist John Helliwell of UBC, in collaboration with Robert Putnam (author of Bowling Alone), suggests that key contributions include trust, engagement (the more we get together), employment (paid or not), good relations with family, friends and neighbours, good health, good government, adequate income (relative to expectations) and no TV.
We know, it seems, what we need to be happy. In 2007, I published The Economics of Happiness: Building Genuine Wealth. Where GDP focuses on financial capital, my book outlines a Genuine Wealth accounting system, a balance sheet that accounts for the assets and liabilities of five capitals: human (people), social (relationships), natural (resources and the environment), built (infrastructure) and financial (money). The system includes objective and subjective indicators of well-being.
My book started slowly in Canada, but quickly gained attention in the US, winning two awards and landing me 30 interviews. I’d tapped into something important, it seemed. Since 2007 my book has become a bestseller and I’ve been invited to China, the Netherlands, Sweden, Tahiti, Bhutan and the US to advise people on developing a Genuine Wealth economy, or an economy of well-being and enduring happiness.
Former premier of Saskatchewan Roy Romanow said my book shows “how to achieve a balanced, sustainable way of life, where notions of progress and genuine wealth are understood as being fundamentally interrelated.” Ray Anderson, the recently deceased CEO and founder of eco-friendly flooring company Interface Inc., said it “visualize[s] an arresting and, importantly, a possible future, in which affluence will be measured in terms of more happiness and less stuff.”
Since 2007 many other books and projects have explored the economics of happiness. Most notably, in 2009 French president Nicolas Sarkozy formed a commission led by former World Bank chief economist and Nobel Prize winner Joseph Stiglitz to conceive of a new accounting system for measuring progress and well-being. Sarkozy urged other countries to adopt new measures, noting that the world has become trapped in a “cult of figures” and “behind all these statistical and accounting structures, there is also the cult of the market that is always right.”
The Stiglitz commission reported that GDP is flawed even as a measure of economic output, failing to account for public services or home-based activities. Worse, GDP is often equated with well-being itself and thus creates perverse incentives. For example, it includes spending on prisons, implying that more of this is good for society. Stiglitz noted that “what we measure affects what we do… If we have the wrong measures, we will strive for the wrong things.”
In November 2010 British prime minister David Cameron announced the National Wellbeing Project, a plan to measure Britain’s happiness. The Office for National Statistics has begun asking citizens to rate their own well-being, with the first official happiness index due in 2012. China is getting into the happiness game too. Last May its National People’s Congress announced a new five-year plan, hailed as a blueprint for a “happy China,” which aims to share the benefits of economic development more equitably and to raise China’s overall “happiness index” by, among other things, allocating two-thirds of the national budget to areas such as education, healthcare, social security and subsidized housing.
The French, British and Chinese were inspired by Bhutan, the tiny Buddhist kingdom of roughly 700,000 people sandwiched between China and India, which has since the 1970s been quietly advancing a well-being accounting system called the Gross National Happiness (GNH) as a complement, if not alternative, to GDP. “In Bhutan personal spiritual fulfillment is not just a spiritual pursuit, it is government policy,” Prime Minister Jigme Yoser Thinley has said. “My role is to help create conditions that will help our people find happiness.” Imagine if those words were spoken by our own Prime Minister or provincial premiers!
Canada has been slower to catch on to the ideas of Genuine Wealth. In 1996 I read about the US Genuine Progress Indicator (GPI), a measure of well-being developed by Redefining Progress, a San Francisco-based think tank. As a senior economic adviser at Alberta Treasury, I began dreaming of the day when Alberta might adopt such a measure. In 1999 I became a senior fellow with Redefining Progress, and in 2001 led a team of economists and biologists at the Pembina Institute to develop a prototype account of Alberta’s well-being from 1961–1999. We asked: Was Alberta on the right path?
Our study revealed that despite 40 years of steady economic growth (average GDP growth of 4.4 per cent per year), Alberta’s overall well-being, as measured by the GPI, declined over the same period. Our findings made national news. The front page of The Globe and Mail on April 23, 1999, announced “Fat Cat Albertans Struggle With Happiness,” while the Edmonton Journal’s stated “Alberta’s Natural Capital Slipping.” We had struck a chord, or a nerve, through our forensic accounting.
What we lacked, however, was longitudinal data on self-rated happiness that could tell us whether Albertans felt happier than they did 40 years previously. It seems remarkable that while pollsters collect opinions about all kinds of issues, and economists track GDP quarterly, Albertans are not asked simple questions about what makes them happy (or unhappy) about life in this province. While we know, for example, that GDP rises with every barrel of oil we extract, what might oilsands workers say about whether their work is meaningful or brings them joy?
Since the release of the Alberta GPI report, I’ve continued to track well-being indicators. Two of the more disturbing are cancer rates and income inequality. Between 1981 and 2006, the incidence of all cancers in Alberta (the rate per 100,000 population) increased by 23.6 per cent in males and 28.4 per cent in females, while Alberta’s real per capita GDP increased by 52.2 per cent. Bizarrely, more cancer is good for Alberta’s GDP (the more we spend on treatments, the more GDP grows). Income inequality is also rising. Alberta is second only to BC in terms of the gap between rich and poor, and this gap increased 14.2 per cent between 1981 and 2009.
Why is inequality significant to happiness? In their book Spirit Level, epidemiologists Richard Wilkinson and Kate Pickett show that inequality leads to erosion of communities’ social capital. Inequality causes shorter and unhealthier lives; it increases the rate of teenage pregnancy, violence, obesity, imprisonment and addiction; it destroys relationships between people of different classes; it drives consumption, depleting the planet’s resources.
They also show that for virtually every measure of quality of life, a strong correlation exists between a country’s level of equality and social outcomes. In most cases, Japan and the Scandinavian countries have more equality, while the US, the UK and Portugal have less equality. Canada, Australasia and continental European countries are in between. The bottom line is that we do better when we are more equal.
In 2010 a study titled Does Money Matter? Determining the Happiness of Canadians was released by the Ottawa-based Centre for Study of Living Standards. A thorough examination of happiness statistics and subjective well-being, the study found that the most important contributor to happiness is a strong sense of belonging. This was highest in smaller communities, rural areas and in Atlantic Canada. Quebec had the lowest sense of belonging, while Newfoundland had the highest.
Next in order of importance was mental health, physical activity, stress, marriage status, employment status and how recently one immigrated. The least important factor in self-rated happiness was household income. The researchers concluded that more money does not translate into happier households. This is consistent with studies by British economist Richard Easterlin, who found that both within and among nations, happiness varies directly with income, but over time does not increase when a country’s income increases.
Who are the happiest Canadians? Based on a scale of 1 to 5, with 5 being highest, the average happiness (life satisfaction) of Canadians aged 20 and over in 2007–2008 was 4.26. Prince Edward Island had the highest level of self-rated happy people, at 4.33. Alberta was at 4.3. Ontario was the lowest, at 4.23. Of the 33 cities analyzed, the average happiness ranged from a high of 4.37 in Sherbrooke, Quebec, to a low of 4.15 in Toronto. Calgary ranked 6th and Edmonton 22nd, while Toronto ranked last overall. The gap between the happiest and least happy provinces and cities, however, was relatively small.
A bigger difference could be seen in my own analysis of happiness per dollar of median household income (2005). Sherbrooke, Quebec City and St. John’s were highest, while Calgary and Edmonton ranked much lower—25th and 26th, respectively. For example, the median household income of Calgarians was $79,084 with an average life-satisfaction of 4.33 (out of 5), while Sherbrooke had a median household income of $42,262 ($36,000 less) but a higher life-satisfaction of 4.37. Again, this suggests that higher incomes don’t translate into happier households.
Albertans are currently blessed with tremendous natural, social and human capital, yet the province is without a comprehensive balance sheet that accounts for these forms of capital. At the same time, unfunded ecological liabilities—carbon emissions and the degradation of the ecosystem and its ecological services—go unaccounted for on government balance sheets.
Over the past 10 years, I’ve worked with researchers on the development of the Canadian Index of Wellbeing (CIW), with Romanow as our political champion. The CIW was released last October and is the world’s first and most comprehensive index of economic, social and environmental well-being (well ahead of schedule of both the French and British efforts).
The CIW, composed of 64 well-being indicators (much like the TSX or Dow Jones), charts how our lives are getting better—or worse—in areas that matter most, including health, standard of living, environmental quality, the way we use our time, education and skill levels, community vitality, participation in the democratic process, and arts and culture. The index seeks to spotlight connections: how, for example, changes in income are linked to health, or how community engagement and living standards are intertwined. As Romanow says, “New tools such as the CIW refocus political discourse, reshape public policy and hold decision-makers to account.” For the first time, Canadians will have an evidence-based, integrated picture of how public policies are taking us closer to or further from our shared vision of society. The index will be updated regularly by the CIW Network, an independent, non-partisan group based at the University of Waterloo.
But while French and British leaders have stood behind their country’s efforts to develop alternative measures of progress, we’ve had no firm commitment from our federal government or any of the provinces to adopt the CIW. We have, however, seen encouraging signs from local municipal leaders.
Calgary mayor Naheed Nenshi introduced me at a 2010 Imagine Calgary event as “no stranger to me. Indeed, my political strategist suggested I must read The Economics of Happiness before I ran for mayor.” Dominic Mishio, the 26-year-old deputy mayor of Leduc, decided to run for council in 2006 after hearing about Genuine Wealth ideas. Mishio led a motion at the 2008 AUMA conference for municipal governments to consider using the Genuine Wealth model. And Edmonton’s former chief economist, Paul Tsounis, contacted me in 2007 to ask if I could replicate the GPI for the Alberta capital. In 2008 Edmonton became the first city in North America to attempt such an accounting. The results were updated in 2010, and the GPI indicators were written into Edmonton’s long-term strategic plan, “The Way Ahead.” There has also been interest from Olds, Fort Saskatchewan and Strathcona County in the Genuine Wealth model.
Last January I proposed (through Toby Heaps, publisher of Corporate Knights magazine) a new genuine wealth economic blueprint to 81-year-old billionaire George Soros and to Ciao Koch-Weser, vice-chairman of Deutsche Bank, at the World Economic Forum in Davos, Switzerland. I urged them to help finance the development of a Genuine Wealth accounting system for all countries. I figured Soros would be interested, given his $50-million grant in 2010 that established the Institute for New Economic Thinking. The Institute was “created to broaden and accelerate the development of new economic thinking that can lead to solutions for the great challenges of the 21st century,” including “the havoc wrought by our recent global financial crisis [which] vividly demonstrated the deficiencies in our outdated current economic theories.”
I wrote the following in my letter:
Robert Kennedy in 1968 said that the GNP has failed to measure the things that actually make life worthwhile. And Simon Kuznets, one of the key architects of the national income accounting system, noted that “national income concepts will have to be either modified or partly abandoned in favor of more inclusive measures, less dependent on the appraisals of the market system.” And John Maynard Keynes, near the end of his life, foreshadowed our situation today, noting, “The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied, or reoccupied, by our real problems—the problems of life and of human relations, of creation and behaviour and religion.”
I want today’s leaders to understand that the old global economic architecture (born during the Second World War) is obsolete. I want them to consider a new system, one with a heart and wisdom, one that measures and manages what matters most. I also believe that Genuine Wealth accounting can be the salvation of Economics (in its original sense), engaging young economists, accountants and business leaders in redesigning how we measure progress, and allowing politicians to govern with greater wisdom—in alignment with a sense that the economy should enable genuine well-being.
Soros responded: “I’m on board with the fundamental importance of the genuine wealth idea, but there is a lack of sentiment that a framework for more holistic wealth is ready for prime time.” Koch-Weser sent a more promising response, noting he’d consider being a “sherpa” of a focused proposal to the next G20 if we get the right material in his hands.
I also planted the seeds of these ideas in the Dutch Ministry of Finance in September 2010 and in the minds and hearts of 500 bankers and insurance industry professionals at the New Financial Forum in The Hague. Their responses gave me hope that the financial and insurance world might actually lead an evolution to the building of genuine wealth.
Ask yourself: Why must we continue to “grow” Alberta’s economy, exporting our natural capital and risking our ecological, human and social well-being? How can we sleep at night knowing that we have vast material wealth but don’t spend enough quality time with the people we love? Shouldn’t government invest more of the proceeds from non-renewable assets into building genuine wealth in our communities?
What if happiness and well-being were the ultimate goals of economic policies in Alberta, Canada and all nations? What if the goal of our new premier were to chart a course for a flourishing economy of genuine wealth? What if our city councils, provincial treasurers and national finance minister were required to report regularly on citizens’ well-being?
As Buckminster Fuller suggests, it’s time for a compelling new system to replace the old one. Building a society based on Genuine Wealth will be challenging; the status quo won’t change easily. It will take a commitment to genuine engagement through listening to our neighbours, children, elders and politicians, rooted in the belief that solutions lie within a collective wisdom. Most importantly it will draw on our greatest strength: love. Do we have the courage and wisdom to build a more compelling and compassionate world?