Foundations of Well-being: Iceland ranks fourth on the Social Progress Index
“Iceland has the fifteenth highest gross domestic product (GDP) per capita in the world, and has been remarkably successful at translating economic growth into desirable social benefits for its citizens,” Michael Green, the executive director of the Social Progress Imperative, points out. In the 2015 Social Progress Index (SPI), which measures how well societies meet the basic human needs of their citizens while providing opportunities and laying the foundations for long-term well-being, Iceland ranked fourth among 133 countries. “Societies are not all equally successful at doing this,” he adds.
Models of human development that only look at economic growth are simply inadequate, Green says. The US is an excellent example. With the fifth highest GDP per capita, the US ranks only sixteenth in the Social Progress Index.
Avoiding “empty” economic growth
We sat down with Michael Green when he was in Reykjavík to prepare an international conference, “Social Progress – What works?” which will held in Harpa, Reykjavík, on April 28. The conference, which brings together prominent business leaders and economists, will explore several success stories, including Iceland, to understand how some countries and regions are more successful at achieving social progress and how these successes can be replicated elsewhere.
Green explains that the first step is to shift our focus away from narrow measures of economic output. “We can have ‘empty’ economic growth, which does not necessarily lead to progress. We have seen numerous cases of countries having significant economic growth, without it really translating into social goods or progress for people.” The problem lies with the wrong priorities.
Today the overriding goal of economic policy and debate are increases in gross domestic product, a measure of the total value of all goods and services produced in an economy. “As a tool to help guide economic policy, GDP has done a lot of good, improving people’s lives, but it has become clear it is not enough.”
Measuring as the first step to revolution
We have not been setting ourselves the correct objectives, Green argues. “We have focused too much on the short term. We need to start taking a longer-term view,” investing in long-term prosperity and social viability. This, he argues, requires a “revolution in how we use capital.” Crucially, we must recognize that “spending on social goods is not just a cost, but also an investment in growth and future prosperity.”
Green argues that we need “a fundamental revolution in our priorities. But, if GDP is not enough, what else do we need?” The Social Progress Index offers the best alternative. By providing a robust measure of social progress, it is the first step in re-focusing economic policy. “It is intended as a revolution. By changing how we measure the performance of economies, we can change how we do things.”
An alternative to GDP
“Measurement is fundamental to the paradigm shift we need,” Green explains. “When GDP was introduced, as a tool for economic policy makers during the Great Depression, it helped propel such a paradigm shift. It helped shift the focus away from ‘sound finance,’ which had preoccupied policy makers under the gold standard, to a focus on full employment and growth, which became the primary focus of economic policies in the postwar years.”
Barry Eichengreen, one of the most prominent economic historians of our time, has argued that the “golden fetters” of economic policies associated with the gold standard drove policy makers to sacrifice economic growth on the altar of sound fiscal policy. Massive unemployment and economic misery were seen as a reasonable price to pay for adherence to the rules of the gold standard system.
“Providing a reliable measure of total economic output, which had not existed prior to 1932 when Simon Kuznets introduced the measure in a report to US Congress, was an important step in re-orienting economic policy” to meet real needs, create full employment and growth, Green argues. But while a focus on economic growth made sense in a world characterized by underutilized resources and relative scarcity, it makes less sense today.
Turning spending into results
The Social Progress Index ranks 133 countries and 271 regions and cities from Europe to Latin America on multiple dimensions of social and environmental performance in three main categories: Basic human needs, defined as nutrition, water and sanitation, shelter and personal safety; foundations of well-being, which the index measures as basic education, access to information, health and wellness, and ecosystem sustainability; and finally, opportunity, which is defined as personal rights and freedom of choice, freedom from discrimination, and access to higher education.
Several other indexes have tried to go beyond GDP. The Human Development Index, created by the Indian economist Amartya Sen, is one example. None of these alternatives, Green argues, achieve what the SPI does. The main difference lies in the fact that the SPI uses no economic indicators or measures that are already components of GDP: “All other attempts to construct alternative indexes mix up social and economic indicators. The SPI includes no economic indicators and it only looks at measurable outcomes, aggregating these to a single score.”
Many alternative indexes look at input measures, such as spending on health care, the number of doctors, or laws passed, instead of measuring output and the actual provision of actual social goods, like public health or safety.
“Countries are not equally successful in turning such spending into positive social goods,” Green points out. The US, which spends more per capita on health care than almost any other nation (17.1% of GDP in 2013, according to the World Bank), but performs very poorly when it comes to public health, is a good example. In comparison, Iceland spends 9.1% of its GDP on health care, and has significantly higher health and wellness, scoring an 80.96 in this component of the SPI, compared to 68.66 for the US.
Why does Iceland rank high?
Iceland certainly seems to have been successful in turning economic growth into social goods. A comparison to a peer group of countries with a similar GDP per capita shows that Iceland does as well or significantly better than what we might expect. Iceland scores high (95 out of a 100 possible) in meeting basic human needs. Here a major strength is the high level of personal safety, which includes both crime and the perceived level of crime, which can affect the quality of life just as much as actual crime. A low level of traffic deaths is also an important factor.
Iceland’s main strength, however, is in the foundations of well-being category. Access to basic knowledge is very high in Iceland, and so is access to information. Iceland has more internet users than any other country: 98% of Icelanders are online, according to a recent study. Iceland also scores high on wellness and health, although obesity is a problem, as in many other developed countries. Finally, Iceland does extremely well on tolerance and inclusion. “There are a number of areas where Iceland has a lot to teach other countries,” Green argues.
Reykjavík as the “Davos of Social Progress”
The conference that will be held in Harpa at the end of April will provide an opportunity to identify these lessons. But Green hopes it will do something more. Iceland, he believes, could provide the ideal location to refocus our attention on producing social goods and long-term prosperity, rather than simply generating higher GDP figures, or growth for its own sake.
The conference would in time become an annual event. These meetings would then become an alternative, or a counterweight to the annual meetings in Davos, Switzerland, where the world’s most senior policy makers and economists meet to debate economic policy. “Davos is the global capital for international policy discussions on economic competition. Reykjavík could become the global capital focusing on social progress.”
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