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The Index of Sustainable Economic Welfare (ISEW) is an
economic An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with th ...
indicator intended to replace the
gross domestic product Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is of ...
(GDP), which is the main macroeconomic indicator of System of National Accounts (SNA). Rather than simply adding together all expenditures like the GDP,
consumer spending Consumer spending is the total money spent on final goods and services by individuals and households. There are two components of consumer spending: induced consumption (which is affected by the level of income) and autonomous consumption (which ...
is balanced by such factors as
income distribution In economics, income distribution covers how a country's total GDP is distributed amongst its population. Economic theory and economic policy have long seen income and its distribution as a central concern. Unequal distribution of income causes ec ...
and cost associated with pollution and other unsustainable costs. The calculation excludes defence expenditures and considers a wider range of harmful effects of economic growth. It is similar to the genuine progress indicator (GPI). The Index of Sustainable Economic Welfare (ISEW) is roughly defined by the following formula: ''ISEW'' = ''personal consumption''
+ ''public non-defensive expenditures''
- ''private defensive expenditures''
+ ''capital formation''
+ ''services from domestic labour''
- ''costs of
environmental degradation Environmental degradation is the deterioration of the environment through depletion of resources such as quality of air, water and soil; the destruction of ecosystems; habitat destruction; the extinction of wildlife; and pollution. It is defin ...
''
- ''depreciation of
natural capital Natural capital is the world's stock of natural resources, which includes geology, soils, air, water and all living organisms. Some natural capital assets provide people with free goods and services, often called ecosystem services. All of t ...
''


History

GDP is misleading as an indicator or even as a proxy of the welfare of a nation, let alone as a measure of people's well-being, although the makers of economic policy commonly think to the contrary. This problem already became apparent in practical economic policies in most industrialised countries in the early 1970s. The most famous examples of this development are the MEW index developed by
William Nordhaus William Dawbney Nordhaus (born May 31, 1941) is an American economist, a Sterling Professor of Economics at Yale University, best known for his work in economic modeling and climate change, and one of the 2 recipients of the 2018 Nobel Memoria ...
and
James Tobin James Tobin (March 5, 1918 – March 11, 2002) was an American economist who served on the Council of Economic Advisers and consulted with the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He ...
in their
Measure of Economic Welfare The Index of Sustainable Economic Welfare (ISEW) is an economic indicator intended to replace the gross domestic product (GDP), which is the main macroeconomic indicator of System of National Accounts (SNA). Rather than simply adding together al ...
(MEW) in 1972, the Japanese Net National Welfare (NNW) indicator in 1973, the Economic Aspects of Welfare index (EAW) index of Zolatas in 1981, the ISEW indicator of Daly and Cobb in 1989 and the UN's human development index (HDI) in 1990. They are all based on neoclassical welfare economics and use as the starting point the System of National Accounts (SNA). The basic idea behind all these approaches is the inclusion of nonmarket commodities, positive and negative, to yield an aggregated macroindicator in monetary terms. The EAW index, applied to the United States for the period from 1950 to 1977, showed that the economic aspects of social welfare are a diminishing function of economic growth in industrially mature, affluent societies. The percentage increases in social welfare over time are smaller than the corresponding increases in the GDP, and are diminishing. When the elasticity of the EAW/GDP ratio reaches zero, economic welfare will have attained its maximum value. Beyond that point any further increase in the GDP would lead to an absolute decline in economic welfare. The ISEW was originally developed in 1989 by leading ecological economist and steady-state theorist
Herman Daly Herman Edward Daly (July 21, 1938 – October 28, 2022) was an American Ecological economics, ecological and Georgism#Georgism and environmental economics, Georgist economist and professor at the University of Maryland School of Public Policy, S ...
and theologian
John B. Cobb John Boswell Cobb, Jr. (born 9 February 1925) is an American theologian, philosopher, and environmentalist. Cobb is often regarded as the preeminent scholar in the field of process philosophy and process theology, the school of thought associ ...
, but later they went on to add several other "costs" to the definition of ISEW. This later work resulted in yet another macroeconomic indicator Genuine Progress Indicator (GPI): see
sustainability measurement Sustainability measurement are tools and methods that attempt to measure the degree of sustainability of processes, products, services, businesses and so forth. Sustainability is difficult to quantify, perhaps even immeasurable. The metrics used to ...
. The GPI is an extension of ISEW that stresses genuine and real progress of the society and seeks especially to monitor welfare and the ecological sustainability of the economy. The ISEW and GPI summarise economic welfare by means of a single figure according to the same logic by which GDP summarises economic output into a single figure. Beside economic issues, social and environmental issues in monetary terms are included in the calculation.


Trend of ISEW in the United States

The calculation of the ISEW in the United States from 1950 to 1986 was done by Cobb and Daly in 1989. The results reveal that the increase in economic welfare of an average American has stabilised after the 1970s although the economy, measured by GDP, has continued to grow. According to Cobb and Daly's calculations the external effects of production and the inequity of income distribution are the main reasons for this development in which an increase in production does not necessarily lead to an increase in welfare.


Other countries and regions to calculate ISEW

Besides the USA there have been at least seven other countries or regions which have compiled the ISEW, namely the UK (Jackson & Marks 1994), Germany (Diefenbacher 1994), The Netherlands (Rosenberg & Oegema 1995), Austria (Stockhammer et al. 1995), British Columbia (Gustavson & Lonergan 1994), Sweden (Jackson & Stymne 1996), Chile (Castaneda 1999), Finland (Hoffrén 2001), Poland (Gil & Śleszyński 2003), Belgium (Bleys, 2008), Flanders (Bleys & Van der Slycken, 2019) and China (Zhu et al., 2021).


Progress of the Finnish ISEW

The calculation of the ISEW for Finland has been done by Dr. Jukka Hoffrén at Statistics Finland in 200

Today the time period covered is extended to years from 1945 to 2010. According to the results, sustainable economic welfare rose steadily in the 1970s and early 1980s, but has since declined and stabilised. One of the underlying reasons for this development was effective income distribution which apportioned evenly the welfare derived from increased production. In the mid-1980s income disparities started to grow again, flows of capital (investments) abroad increased and environmental hazards escalated, resulting in a decline in the weighted personal consumption. Major contributors to Finnish ISEW in 2000 (FIM billion, rp) Weighted personal consumption + 467.8 Household work + 82.8 Other positive contributions + 21.7 Long-term environmental damage - 228.0 Environmental deterioration - 192,5 ---- ISEW + 151,8


See also


Indices

*
Bhutan GNH Index Gross National Happiness (GNH), sometimes called Gross Domestic Happiness (GDH), is a philosophy that guides the government of Bhutan. It includes an index which is used to measure the collective happiness and well-being of a population. Gross Nat ...
*
Broad measures of economic progress Although for many decades, it was customary to focus on GDP and other measures of national income, there has been growing interest in developing broad measures of economic well-being. National and international approaches include thBeyond GDPprog ...
*
Disability-adjusted life year The disability-adjusted life year (DALY) is a measure of overall disease burden, expressed as the number of years lost due to ill-health, disability or early death. It was developed in the 1990s as a way of comparing the overall health and life ex ...
*
Full cost accounting Environmental full-cost accounting (EFCA) is a method of cost accounting that traces direct costs and allocates indirect costs by collecting and presenting information about the possible environmental, social and economical costs and benefits or a ...
*
Green national product The green national product is an economic metric that seeks to include environmental features such as environmental degradation and resource depletion with a country's national product. Criticism of gross national product The gross national ...
*
Green gross domestic product The green gross domestic product (green GDP or GGDP) is an index of economic growth with the environmental consequences of that growth factored into a country's conventional GDP. Green GDP monetizes the loss of biodiversity, and accounts for costs ...
(Green GDP) *
Gender-related Development Index The Gender Development Index (GDI) is an index designed to measure gender equality. GDI, together with the Gender Empowerment Measure (GEM), was introduced in 1995 in the Human Development Report written by the United Nations Development Progr ...
* Genuine Progress Indicator (GPI) *
Global Peace Index Global Peace Index (GPI) is a report produced by the Institute for Economics & Peace (IEP) which measures the relative position of nations' and regions' peacefulness. The GPI ranks 163 independent states and territories (collectively accountin ...
*
Gross National Happiness Gross National Happiness (GNH), sometimes called Gross Domestic Happiness (GDH), is a philosophy that guides the government of Bhutan. It includes an index which is used to measure the collective happiness and well-being of a population. Gross Na ...
*
Gross National Well-being Gross National Well-being/Wellness (GNW) or Happiness (GNH) a socioeconomic development and measurement framework. The GNW/GNH Index consists of seven dimensions: economic, environmental, physical, mental, work, social, and political. Most wel ...
(GNW) *
Happiness economics The economics of happiness or happiness economics is the theoretical, qualitative and quantitative study of happiness and quality of life, including positive and negative affects, well-being, life satisfaction and related concepts – typicall ...
*
Happy Planet Index The Happy Planet Index (HPI) is an index of human well-being and environmental impact that was introduced by the New Economics Foundation in 2006. Each country's HPI value is a function of its average subjective life satisfaction, life expecta ...
(HPI) *
Human Development Index The Human Development Index (HDI) is a statistic composite index of life expectancy, education (mean years of schooling completed and expected years of schooling upon entering the education system), and per capita income indicators, w ...
(HDI) *
Legatum Prosperity Index The Legatum Prosperity Index is an annual ranking developed by the Legatum Institute, an independent educational charity founded and part-funded by the private investment firm Legatum. The ranking is based on a variety of factors including wealth, ...
*
Leisure satisfaction "Leisure refers to activities that a person voluntarily engages in when they are free from any work, social or familial responsibilities."Joudrey, A. D., & Wallace, J.E. (2009) Leisure as a Coping Resource: A Test of the Job Demand-Control-Support M ...
* Living planet index *
Millennium Development Goals The Millennium Development Goals (MDGs) were eight international development goals for the year 2015 that had been established following the Millennium Summit of the United Nations in 2000, following the adoption of the United Nations Millenn ...
(MDGs) *
Money-rich, time-poor __NOTOC__ Money-rich, time-poor, is an expression used to describe groups of people who have relatively little leisure time despite having a high disposable income through well-paid employment. Time poverty has also been coined as a noun for the ...
*
OECD Better Life Index The OECD Better Life Index, created in May 2011 by the Organisation for Economic Co-operation and Development, is an initiative pioneering the development of economic indicators which better capture multiple dimensions of economic and social progre ...
BLI * Subjective life satisfaction *
Where-to-be-born Index The Economist Intelligence Unit’s where-to-be-born index (previously called the quality-of-life index, abbreviated QLI) attempts to measure which country will provide the best opportunities for a healthy, safe and prosperous life in the years a ...
*
Wikiprogress Wikiprogress is a defunct online platform for sharing information on the measurement of social, economic and environmental progress. It is thought to facilitate sharing on ideas, initiatives and knowledge on "measuring the progress of societies". ...
*
World Happiness Report The World Happiness Report is a publication that contains articles and rankings of national happiness, based on respondent ratings of their own lives, which the report also correlates with various (quality of) life factors. As of March 2022, Fi ...
(WHR) *
World Values Survey The World Values Survey (WVS) is a global research project that explores people's values and beliefs, how they change over time, and what social and political impact they have. Since 1981 a worldwide network of social scientists have conducte ...
(WVS)


Other

*
Economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...
*
Democracy Ranking The Democracy Ranking is an index compiled by the Association for Development and Advancement of the Democracy Award, an Austria-based non-partisan organization. Democracy Ranking produces an annual global ranking of liberal democracies. The appl ...
*
Demographic economics Demographic economics or population economics is the application of economic analysis to demography, the study of human populations, including size, growth, density, distribution, and vital statistics. Aspects Aspects of the subject include * m ...
*
Economic development In the economics study of the public sector, economic and social development is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals and ...
*
Ethics of care The ethics of care (alternatively care ethics or EoC) is a normative ethical theory that holds that moral action centers on interpersonal relationships and care or benevolence as a virtue. EoC is one of a cluster of normative ethical theories t ...
*
Human Development and Capability Association The Human Development and Capability Association (HDCA) was launched in September 2004 at the Fourth Capability Conference in Pavia, Italy. It was founded to promote research from many disciplines on key problems including poverty, justice, well-be ...
*
Human Poverty Index The Human Poverty Index (HPI) was an indication of the poverty of community in a country, developed by the United Nations to complement the Human Development Index (HDI) and was first reported as part of the Human Deprivation Report in 1997. It i ...
*
Progress (history) Progress is the movement towards a refined, improved, or otherwise desired state. In the context of progressivism, it refers to the proposition that advancements in technology, science, and social organization have resulted, and by extension w ...
* Progressive utilization theory *
Post-materialism In sociology, postmaterialism is the transformation of individual values from materialist, physical, and economic to new individual values of autonomy and self-expression. The term was popularized by the political scientist Ronald Inglehart in ...
*
Psychometrics Psychometrics is a field of study within psychology concerned with the theory and technique of measurement. Psychometrics generally refers to specialized fields within psychology and education devoted to testing, measurement, assessment, and ...
*
International Association for Feminist Economics The International Association for Feminist Economics (IAFFE) is a non-profit international association dedicated to raising awareness and inquiry of feminist economics. It has approximately six hundred members in sixty-four countries. The associat ...
*
International development International development or global development is a broad concept denoting the idea that societies and countries have differing levels of economic or human development on an international scale. It is the basis for international classificatio ...
*
Sustainable development Sustainable development is an organizing principle for meeting human development goals while also sustaining the ability of natural systems to provide the natural resources and ecosystem services on which the economy and society depend. The ...
*
System of National Accounts The System of National Accounts (often abbreviated as SNA; formerly the United Nations System of National Accounts or UNSNA) is an international standard system of national accounts, the first international standard being published in 1953. Handb ...
*
Welfare economics Welfare economics is a branch of economics that uses microeconomic techniques to evaluate well-being (welfare) at the aggregate (economy-wide) level. Attempting to apply the principles of welfare economics gives rise to the field of public ec ...


References

{{Reflist * Bleys, B. (2008). Proposed changes in the Index of Sustainable Economic Welfare: An application to Belgium. Ecological Economics, 64, 741-751. * Bleys, B., & Van der Slycken, J. (2019). De Index voor Duurzame Economische Welvaart (ISEW) voor Vlaanderen, 1990-2017. Studie uitgevoerd in opdracht van de Vlaamse Milieumaatschappij, MIRA, MIRA/2019/04, Universiteit Gent. Web: https://biblio.ugent.be/publication/8641018/file/8641020 * Daly, H. & Cobb, J. (1989), For the Common Good. Beacon Press, Boston. * Delang, C.O. and Yu, Y.H. (2015)
Measuring Welfare beyond Economics: The Genuine Progress of Hong Kong and Singapore
'' London: Routledge, 256 pages * Diefenbacher, H. (1994), "The Index of Sustainable Economic Welfare in Germany", in C. Cobb & J. Cobb (eds.), ''The Green National Product'', University of Americas Press * Gil, S. & Śleszyński J. (2003), "An Index of Sustainable Economic Welfare for Poland", ''Sustainable Development'', Vol. 11, No. 1, 2003, (47-55). * Hamilton C. (1999) "The Genuine Progress Indicator: methodological developments and results form Australia", ''Ecological Economics'', vol. 30, pp. 13–28 * Hoffrén J. (2001)
Measuring the Eco-efficiency of Welfare Generation in a National Economy. The Case of Finland
" Statistics Finland. Research Reports 233. Helsinki. pp. 107–109. * Jackson, T., Marks, N., Ralls, S., Strymne, S (1997) "An index of sustainable economic welfare for the UK 1950-1996", Centre for Environmental Strategy, University of Surrey, Guildford * Jackson, T. Marks, N. (2002) "Measuring Progress",
New Economics Foundation The New Economics Foundation (NEF) is a British think-tank that promotes "social, economic and environmental justice". NEF was founded in 1986 by the leaders of The Other Economic Summit (TOES) with the aim of working for a "new model of wealth ...
and
Friends of the Earth Friends of the Earth International (FoEI) is an international network of environmental organizations in 73 countries. The organization was founded in 1969 in San Francisco by David Brower, Donald Aitken and Gary Soucie after Brower's split wi ...
, London * Jackson, T., McBride, N., Marks N., Abdallah, S. (2006-2007)"Measuring Regional Progress: Developing a Regional Index of Sustainable Economic Well-being for the English Regions",
new economics foundation The New Economics Foundation (NEF) is a British think-tank that promotes "social, economic and environmental justice". NEF was founded in 1986 by the leaders of The Other Economic Summit (TOES) with the aim of working for a "new model of wealth ...
, London * Nordhaus, W. and Tobin, J. (1972) Is growth obsolete?. Columbia University Press, New York * Zhu, X., Liu, Y., & Fang, X. (2021). Revisiting the Sustainable Economic Welfare Growth in China: Provincial Assessment Based on the ISEW. Social Indicators Research, 1-28. Ecological economics Economics of sustainability Sustainability metrics and indices