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Indicators of economic and social progress: an assessment and an alternative

Natoli, Riccardo (2008) Indicators of economic and social progress: an assessment and an alternative. PhD thesis, Victoria University.

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Abstract

Measures of progress serve as a crucial link between the economy and the nation’s policymaking establishment. Given that the idea of efficient allocation of resources is such a powerful influence in economics, a progress measure needs to account for most aspects of progress so it can serve as a basis for decisions to improve resource allocation. The use of the term progress encompasses notions of economic and social progress. However, the conceptualisation of progress is fraught with difficulties, misconceptions and contradictions. Primarily, the contested nature of the concept leads to a general lack of agreement on a number of issues, such as adopting an appropriate conceptual framework and methodological approach. Over time, the term progress has adapted to reflect needs. So has its measurement. Recently, the desirability of a narrowly defined economic growth as the panacea for achieving progress has been questioned. Despite containing conceptual limitations, GDP’s use of money and production for its evaluation and demarcation purposes has given it an ease of comparability and desirability that many economists and policymakers yearn for. These limitations however have led researchers to develop alternative progress measures, which although are more difficult to build, possess greater intuitive appeal. Hence, a review is conducted here on the current main progress measurements. The review sets out to identify aspects of income and non-income generating activity as well as to omit factors that generate income but do not contribute to the progress of a nation. Consequently, the relationship between market-based growth and progress is questioned in this thesis; a relationship, which the present research asserts, fails to consider a number of important costs. These costs incorporate social, economic and environmental aspects. However, these costs can be included in progress measures through the abandonment of a single standardised system of accounts and the adoption of a comprehensive interdisciplinary approach. Subsequently, the present research proposes a framework that integrates conceptually distinct theories comprising resources and capabilities, social and institutional arrangements, environmental systems and intellectual capital. This approach is appropriate for measuring multiple and different dimensions of progress. Additionally, the proposed progress index will incorporate the strengths while rectifying the limitations of the reviewed approaches. The progress index is designed to not only incorporate empirical applications, but to detect the meaningful underlying dimensions contributing to national progress to provide guidance in articulating policies for optimal use of resources. Furthermore, the measure is a non-monetary one. The use of market prices to capture aspects of progress tends to inaccurately reflect the real costs and benefits they provide, and ensures that the concerns in question (human, environmental, social, etc.) become part of a narrow debate where the economic bottom line is paramount, and where major impacts are omitted. Additionally, it has the capacity to ignore indirect costs that would lead to undesirable policy initiatives. Challenges such as climate change, health and wellbeing have brought to the fore the growing chasm between the concerns of public policy and those of its citizens. Hence, a need arises for a progress measure to reflect society’s core values. Consequently, the proposed non-monetary progress index employs a weighting technique based on public opinion. That is because market-based evaluations of progress components are inefficient since it is incapable of, amongst other things, accurately reflecting public concern. Hence, the use of a public opinion poll was justified. The proposed index is assessed on two levels: from a single summary point of view and from a multiple dimension view. The aggregation method used to arrive at the single summary statistic is via the Condorcet method, while the dimensional assessment is evaluated via a z-score standardisation technique. Both approaches are appropriate and justifiable. The progress index is applied to three countries that are representative of different clusters. They are Australia (mid-industrialised nation), Mexico (emerging economy), and the US (highly industrialised nation). These selected countries provide an opportunity to highlight any divergences that may exist in their perceived economic strength. The results showed Australia as consistently having the highest levels of progress, closely followed by Mexico. Interestingly, the comparative results of the US and Mexico illustrated that it is possible to achieve high levels of progress without an excessive reliance on high levels of production and income. A sensitivity analysis was then conducted which exposed the progress index to a number of “what-if” scenarios. The main variables were selected under three different approaches: dynamic changes (coefficient of variation), empirical (literature review) and policy based. The sensitivity analysis resulted in altering some of the initial rankings.

Item Type: Thesis (PhD thesis)
Uncontrolled Keywords: progress index, social progress, economic progress, Australia, Mexico, United States
Subjects: Faculty/School/Research Centre/Department > School of Economics and Finance
RFCD Classification > 340000 Economics
Depositing User: Ms Lyn Wade
Date Deposited: 20 Oct 2008 02:43
Last Modified: 23 May 2013 16:40
URI: http://vuir.vu.edu.au/id/eprint/1418
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