How are we feeling today? Better than yesterday? Healthier? More sprightly? Welcome to the world of wellbeing economics. It’s not those dry, miserable GDP statistics we should be pondering. There’s a new measure of our general state that the Scottish Government intends to bring to the fore.
Finance Secretary Derek Mackay has promised to produce an assessment of how his forthcoming budget will contribute to wellbeing in Scotland. “A welcome if not straightforward task,” remarked Fraser of Allander Director Professor Graeme Roy in the Institute’s latest quarterly economic commentary last week, before adding waspishly, “particularly if it is to avoid being simply a PR exercise”. Heaven forfend.
Now there’s much to be said for measures that track wider aspects of our life condition than the conventional tool of Gross Domestic Product. This measure has prevailed internationally since the Second World War. But in recent years pressure has grown for other metrics to measure a country’s status – such as life expectancy, education levels and standards, health and social care.
As for GDP, it is increasingly seen as a faulty measure, taking no account of sustainability or durability (oil extraction, for example, and de-forestation activity), while government programmes, including health care provision, are generally under-represented.
This gave rise to the development of a Human Development Index, first published in 1990, which knocked the US down into 10th place while other economies, such as Sri Lanka, Vietnam and China, came to the fore.
But this too ran into problems of definition. What should be included, and how should more nebulous concepts of wellbeing be measured – particularly when applied across economies with different levels of population and wealth and at different stages of economic development?
Before long, economic measurement came to be seen, not as a single indicator but as a dashboard of different measures. Others sought to capture “national happiness”, an outgrowth of behavioural economics which sought to include all manner of social and psychological factors – many worthy of consideration but notoriously difficult to measure.
Analysts also struggled with a paradox. The results of national happiness polls did not correlate all that well with per capita income: rich people were generally happier than poor people in the same country, but richer countries weren’t necessarily happier than poorer ones. And beyond a certain level, rises in income over time failed to increase happiness.
Meanwhile other researchers sought to draw a distinction between happiness surveys that asked people to evaluate how satisfied they were with their lives and ones that focused on emotional states at specific times. The first quality is closely linked to income, the second is not.
So this is a complex and developing field of measurement. Wet towels and Kool-Aid may be much in demand for the beleaguered number-crunchers in the Finance Secretary’s office – as if conventional GDP numbers and forecasts were not daunting enough.
For the underlying performance of the UK and Scottish economies continues to be a concern. Growth returned to the UK economy in Q3 2019, but more recent figures published last week show growth now flatlining at best. Scottish GDP data released last week showed growth of just 0.3 per cent in the third quarter – a rebound from the contraction in the April-June period, but the pace of growth was slower than in 2018.
Fraser of Allander has trimmed its forecast slightly for 2019 to 0.9 per cent, but assuming “no deal” is kept off the agenda and a UK-EU trade deal is agreed by December next year – big ifs – it predicts growth of 1.3 per cent next year and 1.4 per cent in 2021.
Will the UK government be able to negotiate a comprehensive trade agreement? What frictions could exist? And how might all this impact upon businesses here in Scotland? “The experience of the last three and a half years,” FoA concludes, “suggests that it may not be smooth sailing. Yes, one element of recent uncertainty has been removed, but much still remains.”
However, help, it adds, may come in the form of significant Barnett consequentials from new UK government spending commitments – “a welcome offset given that the Scottish Budget may face further difficult income tax reconciliations next year”.
And there are glimmers of light beginning to emerge from the Stygian gloom of recent years. The UK economy’s return to expansion in the third quarter was modestly stronger than previously reported, with GDP growth revised up to 0.4 per cent quarter-on-quarter and 1.1 per cent year-on-year from the previously reported 1 per cent year-on-year.
But it’s no straight upward curve immediately ahead. The UK economy may have suffered a relapse in the fourth quarter as heightened domestic political, economic and Brexit uncertainties have taken their toll. The EY Item Club foresees growth of just 0.1 per cent quarter-on-quarter at best in the October to December period, with growth at just 1.3 per cent over 2019 – the weakest since 2009.
Back home, when it comes to boosting wellbeing economics in Scotland, Holyrood could help by a re-think on controversial proposed changes to non-domestic rates allowing councils to set the poundage rate. Opposition is growing, and has now spread to the Association of Convenience Stores & Scottish Grocers Federation, CBI, Scottish Tourism Alliance (who call it “dangerous”), Booksellers Association and Scottish Land & Estates in addition to the Scottish Retail Consortium.
If the aim is to demoralise business and denude Scotland’s town centres and high streets even further, there could hardly be a better way to go about it.