11 Mar 2018

Measuring what makes life worthwhile

From Sunday Morning, 8:37 am on 11 March 2018

Wellbeing, health and the opportunity to live a life you value may not sound much like traditional economics, but it’s being put at the heart of what Treasury does.

Gabriel Makhlouf

Gabriel Makhlouf Photo: supplied

The government’s lead advisor on economic and financial policy is developing a ‘living standards framework’.

Secretary to the Treasury Gabriel Makhlouf says putting a living standards measure into policy making will be “world leading”.

But it’s not a gross national happiness index - an idea made famous by the kingdom of Bhutan.

The term happiness is “a bit too subjective,” Makhlouf says. “What we’re trying to is something that is pretty rigorous.”  The Treasury is developing measurable indicators.

Traditional economic measures, such as gross domestic product (GDP), productivity and economic growth remain fundamentally important, he says, but they’re not the whole picture.

“We think economics is ultimately about improving people’s living standards …You can’t just rely on GDP as the measure to focus on.”

US senator Robert F Kennedy pointed out 50 years ago that GDP traditionally measures everything except those things that make life worthwhile.

“He wasn’t the first person to say that,” Makhlouf says. “Lots of people have been looking to make a difference in terms of measurement and understanding. The OECD has developed a wellbeing index. But nobody has tried to take that and apply it to policy-making, which is what we’re trying to do.”

The living standards framework takes into account environmental resources, individual and community assets, ‘social capital’ - which includes cultural norms and how people interact – and human capital, such as people’s health, and their skills and qualifications.

By living standards, the Treasury means more than income; it’s people having greater opportunities, capabilities and incentives to live a life that they value, and that they face fewer obstacles to achieving their goals.

“Ultimately a lot of this is about people, how you grow their skills and improve their lives,” Makhlouf says.

And policies have to take into account “the culture of a particular community”.

“You can’t just take some of the theories or papers that have been written about, say, a very , very big economy like  United States and assume it’s relevant here.”

The Treaty of Waitangi and Māori world view is a feature of the framework, he says.

Makhlouf says there are some “immutable” facts of economics – “you can’t spend money you don’t have, ultimately” but much of what we do is about choices.

“There’s no money tree … the government decides what it’s going to prioritise.”

The living standards measure is trying to help the government make choices based on an understanding of the tradeoffs - and explain it clearly to the public.

“Take the [TPP] trade agreement that’s just been signed. We have a good sense of what impact that could have on GDP but we’d like to think in future we’ll have a much richer sense … [of the] impact on long term-living standards.”

Applying the wellbeing concepts to decision-making would be “world-leading,” he says. “It would certainly add to New Zealand’s prestige as country that’s forward-thinking.”

By the end of year the first set of indicators will be developed and the government intends to produce its 2019 budget based on a well-being framework.

But it’s a work in progress, Makhlouf says. “We’re not pretending that we’ve got all the answers today and we want people to help us develop them.”

Information on the living standards discussion papers is on the Treasury website and people can write or email their views, or go to public forums being organised over the year.