If what makes businesses happy is stability, official plans to change the way economic growth is measured may make many finance directors much more miserable.
Prime minister David Cameron has asked the Office for National Statistics (ONS) to create an index of happiness – or ‘wellbeing’ – to supplement the “incomplete” GDP measure of output. The prime minister said while GDP showed whether the economy was growing, it “didn’t show where the growth came from”.
The New Economics Foundation (NEF), a think tank that has long called for the national accounts to include wellbeing, welcomes the move.
“It is an important step forwards,” says Juliet Michaelson, a researcher at the NEF’s Centre for Wellbeing. “Listening to David Cameron, he recognises that having this wellbeing index is not a beancounting exercise and would actually inform policymaking. That’s an absolutely crucial element.”
The job of drawing up what Cameron has called a GWB (General Well Being) index falls to the ONS. According to national statistician Jil Matheson, there is “no shortage” of data that could be used for such an index, but the challenge is to pick ones that resonate. “We could provide thousands of numbers, but that is too many,” she says. The ONS has launched a consultation to garner people’s views.
One mistake is to confuse wellbeing with happiness. Advocates of measuring happiness point to Bhutan, which has had its own gross national happiness index for decades. But it might not be the best comparison as the country has one of the world’s least developed economies.
And the concept is having a tough time gaining credibility in the UK. Diane Coyle, a former Treasury economist and author of the forthcoming book The Economics of Enough attacks the “imbecilic nature” of the happiness debate. She says critics of the current system point to research showing that direct survey measures of happiness do not rise in proportion with GDP per head after a level of around $17,000 a year.
“This has been translated into the received wisdom that higher GDP doesn’t make us happier,” she says.
The problem is that, while GDP can keep rising without limit, measured happiness can only ever reach the top of a simple scale of one to five in a survey. “Happiness isn’t a boundless concept: how could we go beyond euphoria?” Coyle asks.
But she agrees it is important to find new ways of measuring the state of the economy. She highlights three elements: indicators of what people say matter to them; a measure of a nation’s comprehensive wealth, including financial and infrastructure assets; and generational accounts to see what decisions on pensions and welfare imply for future taxpayers.
Tim Jackson, director of the ESRC Research Group on lifestyles, values and environment, says measures must reflect a “meaningful sense of prosperity”. He wants to see it include ecological assets as well as the liabilities of human depletion of natural resources.
“Our measure of the state of those resources should tell us what economic activity we can afford without depleting our natural capital,” he says. “It’s a tricky message given the primacy of this one GDP measure. But I think it’s a really important part of the conversation.”
And even advocates of a wellbeing index acknowledge that bringing new concepts into the national accounts could have long-term impacts for companies’ business models. Michaelson says NEF’s Great Transition programme aims to help companies align profitability with social and environmental outcomes.
“This is an idea we have started to see grab the policy agenda,” she says. “Those businesses that engage with it first and maximise wellbeing in their products and services will be ahead of the curve.”
But will their wellbeing increase?
A poll of UK finance directors has revealed declining economic confidence after Brexit vote
If people really are an organisation's greatest asset, FDs should measure and report the contribution of their people
Professional accountants will play a hugely important role in shaping the new post-Brexit reality. Expert skills, trust and integrity will be absolutely critical
Clydesdale Bank boss Jim Pettigrew appointed chairman of the Scottish Financial Enterprise