Election '97: Why quality of life is poor cousin to economic growth

Rising pollution, inequality, crime and social tension are the explanations for a dramatic reduction in economic well-being in Britain since 1980, and again since 1992, according to an updated index of sustainable economic welfare to be published this week.

The index, published by the New Economics Foundation and Friends of the Earth, is a widely used measure of the economy that overcomes some of the disadvantages of gross domestic product (GDP), the conventional indicator of an economy's growth. The new figures mark its first update for five years.

The two groups are calling on political parties to switch the focus of their economic policies from growth per se to the quality of life. The new indicator adjusts official growth figures for changes to a variety of quality- of-life measures.

GDP adds together all forms of economic activity whether these enhance well-being or not, and takes no account of the depletion of resources or any kind of loss of assets.

So, for example, a hurricane which destroys several houses will boost GDP because of all the reconstruction work that follows it.

"Much of what it adds in fact serves to reduce the quality of life. It is as if economists have not yet learned to subtract," comments the forthcoming New Economics Foundation paper.

Although GDP per capita has increased by about one-third in real terms since 1979, the alternative index has declined by nearly one-fifth during the same period. It has fallen by 1.3 per cent a year on average since John Major became Prime Minister.

The most contentious adjustment the index of sustainable economic welfare (ISEW) makes to GDP is a deduction for income inequality. This is the aspect of the alternative indicator which some economists think involves too great a value judgement.

As a result of this criticism of the index when it was first published, the update takes a more cautious approach. The downward adjustment for growing inequality is smaller than it was last time.

However, the paper defends the need to reduce measured well-being as a result of inequality. "A wide range of studies ... now reveal correlations between trends related to conventional economic growth, such as the inequality of earnings (now at its widest this century) and social problems such as emotional stress, ill-health and the erosion of trust."

It also points to rising violent crime rates, youth delinquency, divorce and family break-up as economically costly results of inequality.

Another big adjustment between GDP and the alternative indicator is a correction for environmental degradation. The need for this type of adjustment in principle is almost universally accepted among economists.

The ISEW takes account of the depletion of non-renewable resources such as North Sea oil. The annual cost of the depletion of oil reserves has amounted to more than pounds 50bn a year for the past five years, or about five times the bill for unemployment. It also makes a deduction linked to carbon dioxide emissions as an indicator of the United Kingdom's contribution to global warming, and for other pollution costs.

A third set of adjustments concern what the researchers describe as "defensive expenditures". These are items that are added to GDP but actually reflect reductions in the quality of life.

Examples include health spending on treatment of asthma due to pollution - asthma has become the third-biggest cause of hospital admissions after heart disease and strokes; spending on security measures because of rising crime; and the cost of car accidents.

The paper accepts that its procedures involve value judgements but points out that excluding them is equally judgemental.

The quality of life, it concludes, "Does not easily reduce to quantitative assessment, single perspectives or policy prescriptions.

"Yet if there is to be life beyond growth, economists and politicians need to embrace this complexity."

8 More Isn't Always Better; information available from New Economics Foundation, 1st Floor, Vine Court, 112 Whitechapel Road, London E1 1JE.

The politics of well-being

Average Average

Administration GDP ISEW

growth growth

Winston Churchill Cons 1951-55 2.8% 1.4%

Anthony Eden Cons 1955-57 1.0% 2.7%

Harold Macmillan Cons 1957-63 2.2% 1.5%

Alec Douglas-Home Cons 1963-64 4.1% 1.8%

Harold Wilson Labour 1964-70 2.1% 1.3%

Edward Heath Cons 1970-74 2.3% 5.1%

Harold Wilson Lab 1974-76 1.0% 3.2%

James Callaghan Lab 1976-79 2.7% -1.4%

Margaret Thatcher Cons 1979-90 2.0% -1.0%

John Major Cons 1990-96 1.1% -1.3%