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3 Health in the Context of Sustainable Economic Frameworks This chapter presents the summary of a webinar that featured experts presenting current efforts to measure well-being and inclusive wealth in an effort to improve connections between economic and social development and environmental sustainability. The first presentation, from Kevin Mumford, Purdue University, provided an overview of how a country’s wealth is conventionally measured by its gross domestic product (GDP) and some of the challenges and opportunities in trying to measure wealth beyond that value. The second presentation, from Anantha Duraiappah, United Nations (UN) University, featured a discussion about efforts to measure inclusive wealth and the possibility of including human capital and health in that measure. The third presentation, from Richard Easterlin, University of Southern California, focused on measures of subjective well-being and happiness and how those measures could be valuable for policy makers. The final speaker, R. David Simpson, U.S. Environmental Protection Agency, reflected on these ideas and provided a response. A brief speaker and audience discussion followed the presentations. OPENING John Balbus, senior advisor for public health at the National Institute of Environmental Health Sciences and co-chair of the Global Environmental Health and Sustainable Development Innovation Collaborative, opened the webinar by introducing the topic and its relevance to environmental health. GDP is the most commonly used indicator of the economic health of a country and is often used to gauge standard of living. Of late, there has been interest in using indicators beyond GDP that account for externalities PREPUBLICATION COPY: UNCORRECTED PROOFS 25

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26 INCLUDING HEALTH IN GLOBAL FRAMEWORKS that can affect the sustainability of economic growth, such as indicators that capture environmental impacts or changes in human well-being.1 Economic gain and public health are closely intertwined, said Balbus. Health is both a beneficiary and a prerequisite for sustainable economic development, and as such, a discussion of health in the context of sustain- able economic frameworks will likely need to address the indicators and metrics that can encapsulate these externalities and their economic impact. This discussion may help inform the post-2015 development agenda process as the global community looks for a transformative framework to better link economic, social, and environmental dimensions of sustainable development. GOING BEYOND GDP: OPPORTUNITIES AND CHALLENGES Kevin J. Mumford, Ph.D. Assistant Professor of Economics Purdue University Kevin J. Mumford outlined his presentation as an introduction to national wealth accounting and using GDP to measure economic develop- ment, as well as addressing challenges that arise. National Wealth Accounting Mumford mentioned various ideas that have been proposed for adjusting GDP, including green or sustainable GDP measures. Other efforts to go beyond GDP include social indicators (e.g., life expectancy, unemployment, education, or a composite score like the Human Develop- ment Index) and environmental indicators (e.g., measures of water and air pollution, climate change, or forest cover). In addition, researchers have looked into direct measures of happiness, such as surveys that ask people to evaluate their well-being. 1 GDP measures the production of final goods and services. Among these may be both consumption and investment goods (as well as government goods and services and exports). The distinction between GDP and other measures of economic activity is that that GDP measures gross production without netting out capital depreciation or degradation. PREPUBLICATION COPY: UNCORRECTED PROOFS

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SUSTAINABLE ECONOMIC FRAMEWORKS 27 Benefits One promising approach is national wealth accounting, said Mumford. It is a theoretically rigorous approach rather than an ad hoc adjustment to GDP or combining a set of social indicators with arbitrarily chosen weights; thus, national wealth accounting complements income accounting. Published literature suggests that this measure is a better approach to gauging wealth than income accounting. For example, Dasgupta (2001) demonstrated that potential intergenerational wealth is closely related to the measure of a country’s comprehensive wealth—the former does not decline if and only if the latter also does not decline. National wealth accounting does not require assumptions about optimality, nor does it require forecasts about a country’s future choices, reported Mumford. The direct measure of the productive base is called “comprehensive wealth” (Arrow et al., 2012) or “inclusive wealth” (UNU-IHDP and UNEP, 2012), which is discussed below. To measure a country’s wealth, one would take forms of capital, multiply them by their value or “shadow price,” and sum them. Comprehensive or inclusive wealth assesses more than just financial assets. This measure would include equipment, machinery, forest, fisheries, and even human capital, said Mumford. In this case, sustainability means that a country’s wealth is not declining, in that the increases in wealth show the country has as many opportunities in the future as it would at present time. Challenges Mumford described some of the challenges in wealth accounting. There are three components to wealth that have specific challenges to optimal measurement: reproducible capital, natural capital, and human capital. Reproducible capital—physical assets—is the kind of wealth that is currently measured best. The current national accounts are measuring only investments. To measure reproducible capital, assumptions are made based on 40 years of investment data and a depreciation rate; the stock of reproducible capital can be extrapolated from that. Although directly measuring this would be better, current measures of reproducible capital are done well, said Mumford. Natural capital, which consists of stocks of forests, fisheries, minerals, energy reserves, and similar resources, is also measured fairly well. Mumford noted that there are disagreements about the shadow prices of these resources since they are not actively traded. For example, forests provide services for the population, so the value of the forest is more than simply the value of the wood. Human PREPUBLICATION COPY: UNCORRECTED PROOFS

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28 INCLUDING HEALTH IN GLOBAL FRAMEWORKS capital is more difficult to measure than reproducible or natural capital, stated Mumford. Education and wage data are available, but ultimately the productive base is what needs to be measured—the value of the skills that have been taught, learned, or acquired through experience. Health is even trickier to measure, according to Mumford, because it is part of the productive base but also directly improves well-being through feeling better and enjoying a longer life. Using income on consumption goods and simply feeling better both produce happiness, and well-being is part of a country’s wealth, said Mumford. Appraising health presents a great challenge for including human capital in measures of wealth moving forward. GDP Challenges: Example of Trinidad and Tobago Countries collect large amounts of data to produce GDP statistics, and GDP is narrowly focused on income accounting. The kind of data that might be desired beyond income are not always produced, for reasons such as a low demand and difficulty in collection. Income accounting may not be sufficient for answering many important economic questions. Mumford pointed out that growth in GDP does not necessarily indicate growth in well-being or denote that an economy is on a sustain-able path. As an example, Mumford discussed Trinidad and Tobago, a small country comprised of two islands off the cost of South America in the Caribbean. In total, there are approximately 1.2 million people living in Trinidad and Tobago, and until just recently the country has enjoyed very high rates of GDP growth (8 percent annually) in the past 25 years. In addition, there is a large amount of international business and a stable financial system in Trinidad and Tobago. In 2011, the Organization for Economic Co-operation and Development (OECD) moved Trinidad and Tobago from developing to developed country status, and the country’s average per capita GDP has climbed higher and more rapidly than the world’s average, indicating that this country is quickly developing. This number can be misleading, however, Mumford stated, because the GDP growth has been primarily due to extraction of natural resources, which means, essentially, that Trinidad and Tobago is exporting its wealth out of the country. Trinidad and Tobago has 0.2 percent of the world’s natural gas reserves, and produces 1.3 percent of the world’s current natural gas supply, a significant amount for a small island nation. Natural gas is extracted at a rapid rate, along with oil and other minerals. PREPUBLICATION COPY: UNCORRECTED PROOFS

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SUSTAINABLE ECONOMIC FRAMEWORKS 29 Mumford added that the average worker in Trinidad and Tobago spends an average of 4 hours per day commuting, which indicates heavy traffic. On average, people in Trinidad and Tobago receive 11.9 years of schooling, a lower figure than people in Latin America and the Caribbean (where the average is 13.7 years of schooling), despite Trinidad and Tobago’s higher average GDP per capita. This suggests that Trinidad and Tobago may have problems that are masked by its rapid GDP growth. Income Invested Compared to Income Consumed Mumford continued by considering whether income growth, such as the growth from export of natural resources in Trinidad and Tobago, is sustainable. From an economist’s point of view, extracting resources is not necessarily a negative activity for the country, but it could depend on whether the income from these extracted resources is being consumed or invested. Investments in infrastructure, equipment, machinery, and education will yield future income, and from an economic point of view could engender sustainable income by building a productive base. Other kinds of investments include allowing a forest to grow or letting a fishery restock. On the other hand, if income is used immediately for pure consumption and does not yield future income, it will not create a sustainable path, said Mumford. To illustrate the point that GDP does not provide a full picture of a country’s wealth, Mumford provided the example of a firm looking to invest in a company. If only the income statements (annual revenues and expenses) are available for the evaluation, the balance sheets that display the depreciation or degradation of the various forms of assets would be missing, and the firm would not be able to distinguish between a company that is selling off its assets from one that is healthy and actually selling the goods it produces. At the country level, efforts have been focused on GDP or GDP adjustments because such measurements are established and easy, but GDP tells a limited story. PREPUBLICATION COPY: UNCORRECTED PROOFS

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30 INCLUDING HEALTH IN GLOBAL FRAMEWORKS INCLUSIVE WEALTH: INCORPORATION OF HEALTH INFORMATION Anantha Duraiappah, Ph.D. Executive Director, International Human Dimensions Programme (IHDP) United Nations University The focus of Anantha Duraiappah’s presentation spans three phases of work on inclusive wealth: (1) the 2012 Inclusive Wealth Report (IWR) released by IHDP, (2) preliminary results from current efforts to measure inclusive wealth, and (3) challenges associated with developing the 2014 IWR report focusing on human capital and health. Overview of Inclusive Wealth Duraiappah noted that the three main points that define inclusive wealth as a measure beyond GDP are that it is a new way to measure progress, a comprehensive approach to health and well-being, and a focus on the sustainability of human well-being. Many suggestions have been made to develop a list of sustainable development goals (SDGs) when the Millennium Development Goals (MDGs) reach their target date in 2015, but it is unclear into what framework these goals would fit. Duraiappah stated that wealth provides the conceptual framework for measuring well-being, and, regarding the focus on sustainability, inclusive wealth measures seek to look into the future as well as at a particular point in time. Duraiappah presented inclusive wealth as a framework with three propositions that underlie the entire premise. The first proposition is that well-being is defined as the discounted flow of present and future generations’ consumption flows. In this proposition, consumption flow is not limited to just material consumption, but also to issues like the utility of having an aesthetically pleasing landscape. The focus of inclusive wealth is able to move from the constraints of well-being, which is difficult to monitor and context-specific, to the determinants of well- being, which comprise the productive base. The second proposition states that the discounted flow of consumption is dependent on the capital assets, the productive base, of the economy. The productive base is comprised of the three capital bases described above by Mumford PREPUBLICATION COPY: UNCORRECTED PROOFS

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SUSTAINABLE ECONOMIC FRAMEWORKS 31 (reproducible, natural, and human capital). The two with the most impact on wealth are natural and human capital. The third proposition, which is a definition, is that well-being increases as long as the change in the social value of a capital asset base is positive. “Social values” refer loosely to the shadow or social prices of externalities, which tie the inclusive wealth framework to theoretical economics to strengthen it, but also mean that research is required to appraise the values not reflected in market prices. From these propositions, it is clear that inclusive wealth focuses on change rather than absolute amounts, said Duraiappah. Results from the 2012 Inclusive Wealth Report Duraiappah moved on to present results from the 2012 IWR, which showed changes in inclusive wealth from 1990 to 2008. The 20 countries analyzed in the report comprise approximately 75 percent of the global GDP and 60 percent of the global population. As such, they are major producers and drivers of worldwide change. In the report, most of these countries are defined initially as sustainable, i.e., the change in their productive bases has been positive. Nineteen years later, this value becomes negative, and approximately 25 percent of the countries become unsustainable on a per capita basis. This indicates that the productive base is not growing at the rate needed to maintain the increasing population, said Duraiappah. In most countries, human capital has increased over time, in some countries more than others (such as Brazil and Germany) (see Figure 3-1). Human capital stems primarily from education in this diagram and does not include health. In Figure 3-1, natural capital is added to show that almost every country experienced a decline during this time period in natural capital, which includes renewable and non-renewable sources. Finally, in Figure 3-1, the added lines indicate the change in inclusive wealth in these countries. In this graph, China has one of the largest changes in inclusive wealth, which is due to its buildup of produced and human capital and a drawdown on natural capital, said Duraiappah. Duraiappah noted that although health was not included in the human capital computations, it was discussed in preparation for the 2012 IWR. In 2008, the inclusive wealth index (IWI), or productive base, of Germany’s economy totaled more than $19 trillion. In contrast, the value for health capital is significantly greater, more than $411 trillion. This trend was the same for Ecuador. Durappaiah stated that health was kept out of the analysis because that value would be exceedingly dominant, PREPUBLICATION COPY: UNCORRECTED PROOFS

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32 INCLUDING HEALTH IN GLOBAL FRAMEWORKS FIGURE 3-1 Annual average growth in manufactured, human, and natural capital and the inclusive wealth index (IWI). SOURCE: Adapted from UNU-IHDP and UNEP, 2012. Reprinted with permission from Cambridge University Press. and it was unclear if the methodology to calculate the amount was correct. Recent journal articles have discussed this issue, and the initial response indicates that the number may be correct because health is of a high value to people. Despite the high value for health, trends show that change over time has been slight for health, whereas changes in other forms of capital have been significant. For example, Germany saw an almost 40 percent increase in human capital between 1990 and 2008; for health, this increase was less than 10 percent. Duraiappah emphasized that human capital is primarily education, and health is measured by longevity, specifically, the function of an individual’s longevity in terms of the marginal value in living an extra year. Whether this is the right shadow value to measure health capital is undetermined. Current Efforts to Measure Inclusive Wealth and the 2014 IWR Duraiappah revisited the three main components of health: the utility of simply being healthy, the productivity that comes from being healthy, PREPUBLICATION COPY: UNCORRECTED PROOFS

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SUSTAINABLE ECONOMIC FRAMEWORKS 33 and the value of living an extra year. The large values for health capital are computed without taking into consideration the first two components, indicating that health is still undervalued. For the 2014 IWR, the focus will be on two components of human capital: education and health. Duraiappah summarized some of the challenges encountered in measuring health. First, health’s value outweighs all other forms of capital by a factor of 20 or more, as demonstrated by the German economy. The next challenge is determining whether the value of a statistical life is the right approach for a shadow or social price. In addition, as mentioned before, only one component of health is captured, and current estimates leave out the utility and productive nature of being healthy. Finally, there are interdependencies among other forms of capital and health. As an example, Duraiappah used pollution, which significantly impacts health. Theoretically, this should be captured through the shadow price, but in reality it is a difficult undertaking, requiring a computation of the impact of pollution on health and subtracting it directly from the estimate of the productive base. These are challenges that will also be present in developing the 2014 IWR. HAPPINESS AND PUBLIC POLICY Richard Easterlin, Ph.D. Professor of Economics University of Southern California One area of interest for going beyond GDP and other economic measures is subjective well-being, said Richard Easterlin. Subjective well-being is measured through a nationally representative survey that asks participants how they would rate their happiness, satisfaction with life, and standing on a best-to-worst scale. One example of a subjective well-being measure is happiness. In the U.S. General Social Survey, participants are asked, “Taken all together, how would you say things are these days? Would you say that you are very happy, pretty happy, or not too happy?” Similarly, life satisfaction is measured by the World Values Survey using the question “All things considered, how satisfied are you with your life as a whole these days?” Easterlin stated that there is always a question as to whether the measures of subjective well-being are meaningful. In a report commissioned by President Nicolas Sarkozy of France in 2009, 25 PREPUBLICATION COPY: UNCORRECTED PROOFS

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34 INCLUDING HEALTH IN GLOBAL FRAMEWORKS leading economists agreed that “research has shown that it is possible to collect meaningful and reliable data on subjective as well as objective well-being. . . . The types of questions that have proved their value within small-scale and unofficial surveys should be included in larger- scale surveys undertaken by official statistical offices” (Stiglitz et al., 2009). Official actions have been taken by the OECD and the United Nations to promote the collection and publication of subjective well-being measures. From Easterlin’s viewpoint, the meaningfulness of data is indicated by what people say when asked about what makes them happy; the responses of most people around the world are similar. In a 1965 survey of 12 countries, participants were asked an open- ended question to determine their concerns about factors affecting their happiness. Overall, the three most prominent factors were living level,2 family, and health (77, 50, and 34 percent of respondents, respectively, indicated concerns) (Cantril, 1965). A high percentage of respondents did not consider broader social matters such as social equity, international relations, and domestic policy to be very important to their personal happiness. The factors that take up the most time in a person’s life dominate people’s responses about subjective well-being and personal happiness, said Easterlin. Measures of subjective well-being have a few advantages over indicators like GDP or the Human Development Index, according to Easterlin. Subjective well-being measures can focus directly on a person’s feelings about his or her life, rather than relying on indicators that are externally constructed by social scientists or statisticians. They can also be comprehensive and cover a wide range of concerns that impact self- reported well-being, including health and work satisfaction, which are traditionally omitted from measures like GDP. In addition, it can be easier for the population to identify with measures of happiness. Easterlin pointed out that subjective well-being may not be the best measure of well-being, since it does not generally reflect potentially important factors like political or civil rights. However, he argued, it is better than the alternatives that are currently in use. 2 Living level was defined as the quantity of goods consumed by the average person (Cantril, 1965). PREPUBLICATION COPY: UNCORRECTED PROOFS

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SUSTAINABLE ECONOMIC FRAMEWORKS 35 Policy Implications of Using Subjective Well-Being Measures Easterlin moved on to discuss the policy implications of using subjective well-being measures. Evidence shows that economic growth does not in itself increase subjective well-being. Longitudinally, rapid economic growth does not impact subjective well-being; however, there is an observed positive, short-term relationship between GDP growth and subjective well-being. Countries with high rates of economic growth do not seem to have more rapid sustainable well-being growth to accompany that trend, said Easterlin. As GDP growth rates increase, financial satisfaction changes insignificantly, with little to no correlation. Similarly, there is no observed relationship in China, for example, between economic growth and improvement in life satisfaction in recent years (Easterlin et al., 2012). Thus, the potential policy conclusion that economic growth leads to greater sustainable well-being is not true, according to the evidence presented. There are policies that can increase a person’s subjective well-being, however. Easterlin stated that there is evidence indicating that full employment and safety-net policies may increase subjective well-being. A comparison of European countries with similar per capita GDPs revealed that subjective well-being is greater in countries with more supportive and extensive social policies. Moreover, subjective well-being is negatively impacted in countries that have transitioned from socialism to capitalism, abandoning employment and safety net policies. For the purpose of this comparison, Easterlin compared “welfare states” (Denmark, Finland, and Sweden) with “semi-welfare states” (Austria, France, Germany, and the United Kingdom) in terms of the generosity of public policies (unemployment, sickness, pension, and overall benefits). Easterlin observed that welfare states with more generous benefits also experienced higher reported values of satisfaction in work, health, family life, and overall well-being than the semi-welfare states, despite similar GDP per capita. In countries transitioning from socialism to capitalism, such as China, Easterlin’s analysis demonstrated that unemployment rates and self-reported life satisfaction are inversely related. Easterlin’s final example comes from Costa Rica, which has the highest life satisfaction of any country, according to a Gallup World Poll Survey (Helliwell et al., 2012). Costa Rica has an extensive history of social development through generous policies, including an emphasis on literacy and health care, and Easterlin points to this as the cause of high personal satisfaction. While satisfaction is high, Costa Rica has just one- PREPUBLICATION COPY: UNCORRECTED PROOFS

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36 INCLUDING HEALTH IN GLOBAL FRAMEWORKS fourth of the United States’ GDP per capita, substantiating Easterlin’s argument that economic growth in itself does not increase subjective well-being. SYNTHESIS AND RESPONSE R. David Simpson, Ph.D. Director, Ecosystem Economic Studies National Center for Environmental Economics U.S. Environmental Protection Agency R. David Simpson began his presentation by taking a brief, lighthearted turn toward two economics jokes to demonstrate the difficulty of performing accurate national accounting (see Box 2-1). BOX 2-1 Two Economics Jokes Economics Joke #1 Albert Einstein was traveling across the Atlantic in the 1930s. Einstein was, of course, a Nobel Prize recipient and world famous, but there was such a demand for transport that even he had to share a cabin with three other people as he came over on the ocean liner from Germany. Anticipating a long trip, he went to the first cabin mate and said, “Tell me, sir, what is your IQ?” The first cabin mate said, “My IQ is 170.” Einstein said, “That’s wonderful. We can talk about the prospects for a unified field theory explaining all natural phenomena.” Einstein went to the second cabin mate and said, “Sir, what is your IQ?” The second cabin mate said “140.” Einstein said, “That’s great. We can talk about the prospects for world peace in nuclear technology.” Einstein went to the third cabin mate and said, “And tell me, sir, what is your IQ?” The third cabin mate said, “70.” Einstein scratches his head for a second, thinks about it, and says, “What’s your projection for GDP?” Economics Joke #2 Three people go on a camping trip. They have a can of beans, but they have brought nothing along with which to open it. The first person is a physicist, and she suggests that they get a large rock and open the can by smashing it with the rock. The economist in the group says, “That’s the dumbest thing I’ve ever heard. You’re going to ruin the food if you do that.” The second person is an engineer. He says, “Let’s build a fire and put the can of food on the fire. The pressure will build up inside, and the can will explode.” The PREPUBLICATION COPY: UNCORRECTED PROOFS

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SUSTAINABLE ECONOMIC FRAMEWORKS 37 economist says, “That is just as dumb as the first suggestion. If the can explodes, the food gets out, but it’s all over the place and we’re never going to be able to eat it.” The other two are exasperated, and they say to the economist, “Okay, you’re so smart. What’s your suggestion?” To which the economist replies, “Assume a can opener.” Simpson related these jokes to the actual practice of national accounting—much of what is calculated makes assumptions, like the can opener, and interpreting these numbers requires caution. Economists begin with the supposition that people’s objective is to achieve things we want, a notion that has roots in the beginnings of economics. Success is measured by the amounts of things that we presume we want to eventually have. Economists discuss this in terms of a person’s utility obtained from what they consume, said Simpson. Consumption can be defined broadly, and does not necessarily mean that things are destroyed during consumption, but includes things that we can enjoy repeatedly, such as forests. Accounting is typically concerned with changes in totals from year to year, or from one time period to another. Measuring well-being would require measuring the utility derived from the things that are consumed and enjoyed. The change in utility from year to year would be additional happiness. Simpson revisited the economic principle that states that the ratio of marginal utilities is equal to the ratio of prices, and from that relationship, one could say that the change in well-being from year to year is a change in the amounts of things we consume from year to year, weighted by the price that we pay for it. The observed market price would typically be the value to consumers. However, this is measurement on a gross basis, not a net basis, stated Simpson. Only consumption is considered, not capital investment. Capital investment is the consumption that people forego in order to afford more consumption later. The worth of this capital investment would need to be determined. In economic theory, investment is typically assumed to be worth the value of things that could have been purchased instead of putting aside money to invest or save. The procedures followed in national accounting do follow this logic in how things are added up, said Simpson. There are measurement challenges when considering changes in the quality of things we consume. Market goods like cars and computers undergo product evolution. For example, cars today are safer and more PREPUBLICATION COPY: UNCORRECTED PROOFS

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38 INCLUDING HEALTH IN GLOBAL FRAMEWORKS economical than cars produced in the 1950s. It is an even greater challenge to make qualitative adjustments when considering nonmarket goods like the environment, crime, and health. These are the types of things that would provide a more complete picture of how a country is doing, said Simpson, but are not currently measured. This challenge revolves primarily around the fact that most of these things are public goods. For example, improved environmental quality benefits everyone. Because the provision of public goods is not compensated, such prices are not reflected in the market value of goods. Typically, when economists discuss the value of public goods or valuing year-to-year changes in quality, they refer to the willingness to pay an imputed, or shadow, price, said Simpson. Flows, stocks, and anomalies also factor in to national accounting. Consumption is a flow, so environmental effects can often be captured in flows—for example, the effects of the Deepwater Horizon were reflected in flows of services like fishing and tourism. What isn’t captured, stated Simpson, are the changes in natural capital, e.g., from stocks of fish that aren’t caught in the future. According to Simpson, accounting is not always complete and can seem counterintuitive. For example, the way that accounts are currently calculated, GDP increases if more health services are consumed due to pollution. Instead, Simpson suggested that the accounts should be offset by willingness to pay to avoid being sick. Environmental accounts may omit resource depletion, household production, illegal or “off the book” activities, production in the public sector, education, and health. Another problem brought up by Simpson is equity concerns. Millions of dollars can be spent either to buy a yacht or to buy vaccines for impoverished children in a developing country. Although the money is arguably better spent on the vaccines, accounting may not capture that long-term good. It may be impossible to include the price of everything in national accounts, said Simpson, and there is debate about to how much effort should be devoted to capturing as much as possible. Simpson advised that while economists attempt to determine prices for things not traded in markets, their values should be taken with a grain of salt, and observers should recognize that techniques for these determinations will improve over time. PREPUBLICATION COPY: UNCORRECTED PROOFS

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SUSTAINABLE ECONOMIC FRAMEWORKS 39 DISCUSSION A brief discussion among the speakers and participants followed the presentations. Their remarks are summarized in this section. Assessing Tradeoffs Associated with Subjective Well-Being The first question, addressed to Easterlin, was how tradeoffs between the different components that make up subjective well-being get captured for developing policy or allocating resources. Easterlin responded by using China as an example. Income in China increased fourfold in the past 20 years, but there was no impact on life satisfaction, demonstrating that income increases alone do not help subjective well-being. Jobs, however, allow people to support a family and take care of their health. Easterlin reiterated that welfare states with extensive social programs exhibit higher overall well-being. He said he could only speculate so far as to say that policies that deal with concerns like health and family do more for well-being than policies that just promote economic growth. Incorporating the True Cost of Goods and Resources A second question from the audience asked how the true cost of goods (e.g., the cost of production, extraction, or waste handling) could be incorporated into indicators like GDP or subjective well-being. Simpson responded that there are a variety of ways that economists try to put values on non-market goods. For instance, longevity has increased over the past century. To measure the value of that increase in longevity, economists use a technique called the “value of a statistical life,” which is typically inferred from the risks people are willing to take (e.g., living in dangerous places). Simpson pointed out that there could be controversy in assigning a dollar value like $6 million to a statistical life, which is the value of the probability that someone will die early, and the estimate would not be precise, which is why it’s so difficult. Mumford addressed a follow-up question about how the cost of depletion of long-term resources is reflected in an indicator like GDP or another index of economic growth derived from negative impacts. He reminded the audience that GDP is simply the measure of income and that it may not be right to adjust GDP in a way that counts some incomes less than others if it produces an added cost to society. Mumford said that PREPUBLICATION COPY: UNCORRECTED PROOFS

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40 INCLUDING HEALTH IN GLOBAL FRAMEWORKS a more realistic way to look at the issue is to recognize the flow of income and the simultaneous depletion of capital stock. For example, the cost of harming wetlands is not a cost that comes from income flow, rather, it is harming capital stock that could have provided future valuable services. Mumford said that although modified measures of GDP could be useful, it is unclear if it is worthwhile to devote much effort to them. He suggested instead incorporating costs into a broader wealth measure. Prospects for Wealth and Well-Being Measures in International Settings Moderator John Balbus asked a follow-up question: If GDP is limited and wealth measures are better suited to incorporate these externalities, what are the prospects for more reliance on a wealth measure in international settings, in conjunction with or in distinction to GDP? Balbus continued by asking if these wealth measures are already being included, and if there is any known opposition to them. Simpson replied that there is a lot of interest in including different wealth and well-being factors and that progress has been made on several fronts. He noted that in the case of Mumford’s wetland example, in order to regard that as a depletion of capital, the wetland’s services would need to be quantified. The wetland could serve as a waterfowl nesting habitat, a water purification source, or a tool in flood protection. That would create three difficult nonmarket valuation exercises, and, following that, the appropriate discount rate to convert these values or yearly values into the net present value of the lost asset would need to be determined. Simpson stated that incorporating those factors into national accounts would be the right thing to do, although it would be very difficult and require many assumptions. Duraiappah added that one possible way forward is to determine not a point estimate of values, but rather an upper and lower bound based on the best information we have. The band would be the difference in stock changes over time. Duraiappah stated that this would possibly be helpful for policy makers. Mumford added that the focus on GDP is due in part to the more solid methodology for measuring GDP, and the fact that measurement for income is more exact and precise than for wealth. He also pointed out that measuring wealth alone would likely not be sufficient and that GDP would still be useful for answering certain questions related to income. PREPUBLICATION COPY: UNCORRECTED PROOFS

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SUSTAINABLE ECONOMIC FRAMEWORKS 41 He expressed hope that both types of measures would be used and mentioned that only recently has there been a strong demand for using wealth accounting frameworks to evaluate sustainability. Past efforts include the United Nations’ IWR and the World Bank’s efforts to measure net savings. Unconditional Citizen Income and Impact on Well-Being Balbus shared a comment from the webinar audience. The audience member stated that from the webinar presentations, we can understand how the cost of education and health can generate well-being and happiness, in the same way that they can be included in the budget and addressed in public policy within a health-in-all-polices framework. Balbus asked for the speakers’ opinions about an unconditional citizen income and its impact on personal and social well-being. Simpson responded by stating that there is a longstanding and irresolvable controversy referred to as the tradeoff between equity and efficiency—it would be ideal if the least advantaged members of society were assured a minimal level of well-being, but if we don’t allow for some prospects of inequality, then the incentives for creation of wealth are reduced. Duraiappah added that unconditional citizen income could be conceptualized as unconditional access to instrumental freedoms, rather than restricted income base, which would make a distinction between one’s access to opportunities versus endowments. He mentioned that work from Amartya Sen, the 1998 Nobel Prize winner in economics, is a resource for this idea. Sen’s work separates freedom into five different instrumental categories (economic facilities, political freedoms, protective security, social opportunities, and transparency guarantees) (Sen, 1999). REFERENCES Arrow, K. J., P. Dasgupta, L. H. Goulder, K. J. Mumford, and K. Oleson. 2012. Sustainability and the measurement of wealth. Environment and Development Economics 3:317-353. Cantril, H. 1965. The pattern of human concerns. Vol. 4. Cambridge, UK: Cambridge University Press. Dasgupta, P. 2001. Human well-being and the natural environment. New York: Oxford University Press. PREPUBLICATION COPY: UNCORRECTED PROOFS

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42 INCLUDING HEALTH IN GLOBAL FRAMEWORKS Easterlin, R. A., L. A. McVey, M. Switek, O. Sawangfa, and J. S. Zweig. 2010. The happiness–income paradox revisited. Proceedings of the National Academy of Sciences of the United States of America 107(52):22463-22468. Easterlin, R. A., R. Morgan, M. Switek, and F. Wang. 2012. China’s life satisfaction, 1990–2010. Proceedings of the National Academy of Sciences of the United States of America 109(25):9775-9780. Helliwell, J., R. Layard, and J. Sachs. 2012. World happiness report. New York: The Earth Institute, Columbia University. Sen, A. 1999. Development as freedom. New York: Knopf. Stiglitz, J. E., A. Sen, and J. Fitoussi. 2009. Report by the Commission on the Measurement of Economic Performance and Social Progress. Available at http://www.stiglitz-sen-fitoussi.fr/documents/rapport_anglais.pdf (accessed September 9, 2013). UNU-IHDP and UNEP (United Nations University—International Human Dimensions Programme and United Nations Environment Programme). 2012. Inclusive wealth report 2012: Measuring progress toward sustainability. Cambridge, UK: Cambridge University Press. PREPUBLICATION COPY: UNCORRECTED PROOFS