New 'Scorecards' for Measuring Prosperity

EVERYWHERE in the world economies are quickly changing. So measuring their performance is getting harder. The speed-up is leaving most statisticians in the dust as new social goals, new categories of products and services, and new views of wealth and progress raise new questions about what to measure. Efforts to catch up are beginning. For example:* The chairman of President Bush's Council of Economic Advisors, Michael Boskin, has called for an additional $36 million to modernize United States government statistics. Sen. Paul Sarbanes, chairman of the Joint Economic Committee, noted that Gross National Product (GNP) data misled US policymakers last fall by underestimating the severity of the current recession. * Recently, the Inter-Action Council (a group of 35 former heads of state) met in London to assess the economic transformations occurring in Eastern Europe and the Soviet Union. It specifically called for better indicators of development than today's GNP (a crude measure based on per-capita production). * The 1991 Human Development Index (HDI) from the United Nations Development Program has progressed to include new indicators measuring environmental damage and human freedom. Its original focus was life expectancy, literacy, infant mortality, and ratios between civilian and military budgets. The HDI is now a precision policy tool for governments to actually identify waste and improve their efficiency and performance. The goals of education, health, and democratic participation are clearly more decisive in positioning a country for progress in the 1990s than simple GNP-growth. * The upcoming second Economic Summit of the Group of 15 heads of developing countries has already commissioned several studies on ways to correct errors in GNP and construct broader indices. This ferment, embracing a small group of statistical experts and politicians and the United Nations Development Program, has not yet spread to other UN agencies or to the World Bank. Barriers to the adoption of more realistic measures of human progress are legion: (1) economic theories still grounded in static notions of equilibrium which cannot embrace change; (2) the reluctance of many governments to be held accountable for their performance; (3) the inclination of statisticians to stick with the old categories and measuring known quantities rather than deciding what ought to be measured under new conditions. For example, today's unprecedented trend toward democratization clearly needs measuring. The HDI includes a Human Freedom Index which has been found to correlate with prosperity. The HDI also looks at the way this prosperity is shared (which GNP obscures) and finds Brazil, Nepal, and Ivory Coast with the widest gaps between rich and poor. The HDI even cheekily offers a rule of thumb for measuring government inefficiency: public spending exceeding 25 to 35 percent of GNP with less than 2 percent of GNP go ing to human priority concerns. OTHER losers in the HDI score card are those with large military versus civilian budgets for education and health. The US spends $37 on the military for every dollar spent on these two civilian needs, while Britain's ratio is 45 to 1, and the Arab states stand at 166 to 1. Such figures were not listed for Israel, but for comparison, Israel has 191 military personnel for every 100 teachers. Such focused "scorecards" can pinpoint areas for policy action, such as the urgent need to head off a new Mideast ar ms race. Another aspect of the HDI is poverty, not only that of the 1 billion people in the developing countries, but also the 100 million poor in the market democracies of the industrial countries of North America and West Europe and an additional 100 million below the poverty line in East Europe and the USSR. As the Inter-Action Council report noted, the transitions of the Eastern European countries cannot be understood from the often obsolete perspectives of economic theory: as simply transitions from communis m to capitalism and the free market. They are social, political, and cultural transformations to new mixtures of markets and regulations. The 1991 HDI includes some environmental indicators, such as inventories of radioactive wastes (Britain leads with 1,279 kilograms per hectare of land, with Bulgaria and France runners-up). Canada and the US lead the world in industrial air pollutants (78 and 64 kilograms per 100 people respectively), with Australia (40 kg) and Britain (37 kg) running up. The air quality winner among industrial countries was Portugal (only 12 kg). None of these new indicators of human development and quality-of-life have yet displaced GNP, but politicians in many countries - including Germany, France, Britain, Denmark, the Netherlands, Sweden, and Venezuela - are calling for their introduction. US statistics badly need re-tooling, as Michael Boskin rightly shows. Yet Mr. Boskin himself, along with Budget Director Richard Darman and White House chief of staff John Sununu are themselves part of the old guard of traditional economics. They may actually slow down the full range of changes needed to re-focus our policies for the 21st century.