“On January 4, 1934, a young man delivered a report to the United States Congress that 80 years on ... still shapes the lives of everyone on this planet,” social progress expert Michael Green says to introduce his TED talk on the subject. Green goes on to say that this young man wasn’t a politician, a businessman, a civil rights activist or a faith leader. He was an economist named Simon Kuznets and the “dry as a bone” report that he delivered was called “National Income, 1929-1932.”
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“The U.S. economy was plummeting into the Great Depression and policy makers were struggling to respond because they didn’t have data and statistics,” Green says. Kuznets invented a tool to help measure economic performance: gross domestic product.
Now, 81 years on, Kuznets’s GDP is still the main economic index shaping our lives. Every month, billions of investors’ dollars move around the world based on GDP growth forecasts. The socioeconomic policies of most countries still seek to “maximize production,” and “GDP is the benchmark of success in a global economy.”
But in the introduction to his historic report from 1934, Kuznets issued a warning, writing: “The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.”
Indeed, the flaws of GDP as a measure of well-being are no secret. “It ignores the environment. It counts bombs and prisons as progress,” Green notes, as well as rebuilding after natural disasters, while completely ignoring considerations such as education, personal freedom and security, unequal distribution of income and property, and the lack of equal opportunities.
Last year the name of Kuznets, who was awarded the 1971 Nobel Memorial Prize in Economic Sciences, made headlines again, this time on account of French economist Thomas Piketty’s bestseller “Capital in the Twenty-First Century.” It was Kuznets who in the 1950s deduced from income-tax data that economic equality in the U.S. had declined steadily since the 1920s, and devised a rule of thumb according to which inequality decreases as GDP increases. Piketty determined that this rule of thumb stopped being valid in the early 1980s, when inequality in the U.S. returned to the levels of the 1920s’ robber-baron/poor workers, despite the continued rise in GDP over the previous 30 years.
Various “national happiness indexes” that in some cases upend GDP standings – Costa Rica, with a GDP of less than half of Israel’s, is often near the top of such lists, for example – have been introduced as new measures of well-being, but until last year there was no alternative to GDP. Until, that is, a nonprofit organization called the Social Progress Imperative came along and proposed a new index to what it calls “a holistic, 21st century assessment of the health of society – the Social Progress Index.” The organization is headed by Prof. Michael Porter of the Harvard Business School and funded by donations and corporate sponsors.
A wide range of statistical indicators are used in calculating the Social Progress Index, incorporating what the organization calls four key design principles: social and environmental indicators (instead of income and employment), outcomes (rather than inputs or policies), indicators that are relevant to all countries including higher-income ones, and indicators that can be translated into action at all levels – from local and state governments to the regional level.
The index’s creators stress that GDP is not irrelevant, rather that it presents an incomplete picture of a country’s performance. They also stress that their index does not measure national “happiness,” which is based on polls of personal satisfaction, but is solidly grounded in statistics that are grouped into three main categories: basic human needs (nutrition, basic medical care, shelter, personal safety), foundations of well-being (access to knowledge, communications, health, ecosystem sustainability) and opportunity (personal rights, personal freedom, tolerance and access to advanced education).
So, who won? Unsurprisingly, the top three countries for 2015 were Norway, Sweden and Switzerland, followed by Iceland, New Zealand, Canada, Denmark, the Netherlands, Australia and Britain. Despite its high GDP, the U.S. is in just 15th place.
But what’s really interesting is the countries that scored relatively high on social well-being despite their middling or worse performance on classic economic measures. At 87.08 on a scale of 0 to 100, New Zealand barely trailed Norway (88.36) despite a GDP of $33,000 to Norway’s $62,000. Then there’s Jordan: Its score, 63.3, is close to that of Saudi Arabia, whose GDP is five times that of Jordan, while the much wealthier Nigeria is 125 out of 133 on the list, with a score of 43.31.
The devil is in the details
What about us? According to the Social Progress Index, Israel has a way to go before being promoted from the group of Upper Middle Social Progress Countries to the High group. In 40th place overall with a score of 72.6, Israel is below Greece, Cyprus and even Argentina. But it’s at a higher resolution that the results really get useful when it comes to setting policy. So: Israel does pretty well on the Basic Human Needs dimension, with a score of 86.96 (33rd overall), but gets a mediocre 72.99 (48th) on Foundations of Well-being and a terrible 57.85 (49th) on Opportunity. These are the components where Israel needs to up its game quickly, even in comparison to states with similar GDP – most of these won’t surprise anyone: housing, homicide rate, adult literacy rate, primary school enrollment, press freedom, obesity, air pollution, freedom of movement and religion, tolerance for immigrants and discrimination against minorities.
We can, as usual, choose to ignore indexes of this kind, and this index in particular – after all, when all is said and done all it does is summarize and calculate what every Israeli already knows, and rate them against the rest of the world. It can be argued that such indexes do not consider Israel’s existential and security challenges, the ones that presumably force us to set aside and sometimes even cause harm to many personal, economic and social needs of large parts of the population.
But as with the socioeconomic reforms that are currently on the national economic agenda, there isn’t necessarily any connection between the two areas.
If Porter’s Social Progress Index proves one thing, it’s that if the political will is there, it’s possible to improve many social and economic indicators within a given budget and economic capabilities. For example, improvement in the Opportunity category does not necessarily depend on increasing the size of the pie (GDP), rather it’s a matter of introducing reforms that will open the gates of opportunity where they are now closed as a result of economic and political interests. How? By increasing the supply of affordable housing, funding and extending credit to small- and medium-sized businesses, by providing education in high-demand trades and professions, and by providing access to workplaces and means that are shut to anyone without “pull,” who doesn’t belong to the right trade union, the right family, profession or club.