Paris School of Economics - L'Agence Française de Développement

The 2010 UNDP report on human development illustrates this approach. It shows more specifically
that multidimensional measures of poverty based on a small number of deprivations lead
to international rankings that may differ substantially from rankings based solely on monetary
poverty — and of course on GDP.
Measuring development through individual subjective satisfaction
Defining a single indicator that aggregates the different dimensions of development presupposes
that “weighting” indices have been fixed for calculating a weighted sum of indicators
corresponding to the various dimensions. However, it is almost impossible to reach a consensus
on what coefficients should be used for this weighting. On the other hand, the subjective
satisfaction indicators can be taken as producing exactly this type of aggregation at the level
of each individual in society. Average individual satisfaction thus implicitly provides a solution
to the problem of aggregating the different dimensions of development.
Considerable work has recently been done on all these data on satisfaction, sometimes also
dubbed “happiness” data. The question is knowing to what extent these data can actually be
used as development measures, and serve cross-country or intertemporal comparisons. More
importantly, the pivotal question is knowing how they correlate with traditional development
indicators.
According to the Easterlin paradox, an unexpected rise in a country’s income per capita
improves subjective satisfaction, but only for a time. In the near-to-mid run, a correlation
between income and satisfaction does indeed exist. But in the long run, people become used
to their new level of income and their satisfaction ends up no higher than it was before their
income rise. It would be useful to know whether this paradox also applies to other aspects of
development and well-being and if it is present in all cross-country comparisons.
Sustainable growth: do we really measure the challenge?
If the project of sustainable growth is to be taken seriously, this poses hefty challenges for
economic science, for our accounting systems and for economic policy choices. After decades of
capitalist accumulation underpinned by the unbridled exploitation of natural resources, it is
now recognised that these may not be infinite, that the stability of our ecological systems,
and by the same count the well-being of future generations, are far from secure. These goods
therefore take on a value. But how can this value be measured seeing that there is no historical
precedent, no corresponding market, no commonly agreed norms to set priorities? What
discount rates should apply? Can environmental goods be substituted for other goods? The
questions are many and the debate continues to swell. At the heart of the sustainable growth
revolution is the challenge of mapping and measuring hitherto largely unexplored terrain. The
definitions of capital, savings, investment and welfare need adjusting to reflect the importance
of intangible capital, natural capital and the uncertainty that threatens the stability of the Earth’s
climate system. This means no less than an overhaul of our entire definition of wealth and thus
our changing national accounts system and statistical machinery, in order to accommodate
these dimensions.
December 2011 / Measure for Measure / How Well Do We Measure Development? / © AFD [ 9 ]