How’s Life?

This article was first published in Korean by DongA Magazine.

In November, the OECD published its most recent report on a short but fundamental question: How’s Life? Income is an important, but not the only factor in determining the answer. The OECD reflects this by going beyond the focus on GDP, that has for long been dominating economic debates, with a “Better Life Index” which also accounts for health, social connections, personal security, environmental quality and further criteria.

The recognition that human well-being is multi-dimensional and thus cannot be measured by GDP alone is gaining ground worldwide. Growing endorsement of indicators such as the Human Development Index, the Social Progress Index, and the Sustainable Development Goals Index are a case in point.

Well-being is also context-specific. While people across the globe have significant overlap in defining its components, they differ in the importance they attach to each of them. The relative weights of income, health, social connections and other factors in personal well-being change across space and time. The OECD Better Life Index acknowledges this by allowing its users to customize the underlying weightings and thus come up with an indicator that may be better aligned with their views.

Such differences in priorities notwithstanding, a comprehensive measure of well-being is key to sound policymaking. It is critical to compare policy alternatives beyond their impact on GDP. It is at the core of determining how to deal with trade-offs between different goals. And it provides the foundation to explore whether a country is on a sustainable path by fostering well-being today and tomorrow, here and elsewhere.

Economic policy is a fundamental leverage point in this context. Whether governments align their fiscal, monetary and trade policies with a comprehensive definition of well-being has significant ramifications for the sustainability of its development. Today, misalignments abound. The fact that countries worldwide offer billions of dollars in tax credits that are often ineffective in reaching their goals, and frequently trigger negative social and environmental side effects, is a sobering example. The decision by central banks to inject trillions of dollars into financial markets without a debate on the distributive consequences of these interventions, as well as the lack of attention that was paid in the last decades to those losing out from trade liberalization provide further illustration.

Sustainable policies foster well-being now while at the same time building up and sustaining resources to improve people’s lives tomorrow. They also ensure that progress is widely shared within an economy. And they reflect the goal to advance national prosperity without reducing the ability of other countries to raise their own living standards.

Policy coherence is critical in this regard. Well-being is affected through all policy fields and thus needs to be integrated as an overarching policy goal across the board. Whether one zooms in on economic policy, education policy, energy policy, foreign policy, or any other policy area, a broad definition of prosperity must be the guiding star. Comprehensive assessments of policy alternatives and their impact on well-being should steer debates. And regular reporting on measures beyond GDP should be the yardstick for accountability.

Furthermore, seizing synergies and dealing with trade-offs between different goals, segments of society according to criteria such as age, gender, and region, as well as across generations is key. The positive relation between education and income, the negative impact of inequality on personal security, and the need to protect natural resources for future generations are cases in point. International coordination, e.g. in the field of taxation and trade, is an important pillar to reduce unwanted spillover effects between countries.

Over the last decades much has been achieved to raise prosperity and living standards across the globe. Between 2000 and 2015, the world’s average Human Development Index increased by 12%. 113 out of 128 ranked countries increased their score on the Social Progress Index over the last three years. In the OECD, compared to 2005, most countries today have higher average household incomes, average life expectancy has increased by nearly two years and more people say they feel safe when walking alone at night.

At the same time, much remains to be done. The Sustainable Development Goals identify significant global gaps in meeting basic needs. Ecological Footprint data highlight that more than 80% of the world’s population live in countries that use more ecological resources and services than nature can regenerate. Job insecurity in the OECD has risen by a third during the last decade, average life satisfaction is lower and the share of people who feel supported by friends and family has gone down by 3 percentage points. Moreover, inequality remains well above levels in the mid-1980s – pointing to the fact that averages may often be a poor indicator for well-being across the population.

To address these challenges, policies need to be aligned with a comprehensive notion of prosperity. They need to move beyond GDP. And they need to be coherent across all policy fields to create a sustainable path on which life is good for a growing number of people – today and tomorrow, here and elsewhere.