A new book extends the challenge of how to have a decent society for all. We can do better.

From the 1930s when GDP was first systematically measured, economists knew that it was not a good measure of wellbeing. (That people keep rediscovering this tells you something about how far the conventional wisdom can get behind the research frontier.) GDP’s use has persisted because it is a useful measure for its original purpose of monitoring the economy, like thinking about the level of unemployment or a global financial crisis. Moreover, it is measurable and so is operational. It has not been easy to find a better alternative approach to measuring welfare.

Underpinning GDP is a utilitarian account of wellbeing – that more consumption is better. In the 1860s John Stuart Mill, whose father and godfather were founders of the utilitarian philosophy, set about providing a rigorous account of the notion. He found a fatal flaw because utilitarianism assumes that all pleasures were of the same quality, to be compared on the same scale.

Mill wrote ‘[i]t is better to be a human dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied. And if the fool, or the pig, are of a different opinion, it is because they only know their own side of the question. The other party to the comparison knows both sides.’ Yet a happy pig contributes more to GDP than a philosopher supping vegan soup.

Much economic policy is targeted on making us happy pigs. The Rogernomes were besotted with the approach. Perhaps the worst case was the tertiary education changes set out in the 1989 Report on Post-Compulsory Education and Training (the Hawke Report). Now you know why our universities are run by high status, highly paid porkers.

But what is the alternative? In 1985, economist and philosopher Amartya Sen proposed a philosophy in which wellbeing is to be understood in terms of people's ‘capabilities’, that is, their real opportunities to do and be what they have reason to value. The notion is captured in the Fraser-Beeby principle of educational purpose first articulated in 1939:

The government’s objective, broadly expressed, is that every person, whatever her or his level of academic ability, whether he or she be rich or poor, whether he or she live in country or town, has a right, as a citizen, to a free education of the kind for which he or she is best fitted and to the fullest extent of her or his power.

Capability is wider than just an economic notion. For instance, our struggling with transgender issues is an example of giving those persons the capability of them being able to realise themselves.

But it can be central to economics too. For instance, a conventional concern in child poverty is that there may be insufficient resources to enable a child to access quality nutrition, education and health care. The capability approach recognises that without them, he or she is likely to have limitations on their opportunity for personal development. Once we shortened our ambitions to the phrase ‘equality of opportunity’. Today it and the Fraser-Beeby objective have long been forgotten or ignored in our public policy.

(While I was writing this column, a UNICEF report was released pointing out that ‘New Zealand has one of the most unequal education systems in the [rich] world’, ranking us 33 out of 38. I should have been uplifted by further evidence for the sentiment of the – already written – previous paragraph. In fact I was deeply sad, particularly as so little attention was paid to the finding.)

Over the years I have found little interest in the relevance of the capabilities approach to public policy. The conventional wisdom is locked into crude utilitarianism, distant from any intellectual frontier.

So the recent book Wellbeing Economics: The Capabilities Approach to Prosperity by Paul Dalziel, Caroline Saunders (of Lincoln University) and Joe Saunders (of Leeds University) is a welcome addition to our public debate. (It is an open access book: you can download it for free.)

Their analysis is founded on the idea that wellbeing capabilities depend on access to seven types of 'capitals'. The rigorous economic notion of capital is analytically tricky, so better to avoid it. Just think of the seven as groups of attributes which persist through time and are used to generate wellbeing.

The text then establishes 24 propositions of wellbeing economics. That is too many to be reported here but they are grouped into eight sets of three: foundations; persons and human capital; households, families and cultural capital; civil society and social capital; local government and natural capital; global community and diplomatic capital.

The New Zealand Treasury’s Living Standards Framework uses a related approach of four capitals: natural; human; social; financial/physical.

Exactly what all this means in detail is unclear. The great advantage of the utilitarian approach is not only that it is well-established but that it is simple enough for even a neoliberal to understand. Moreover, as far as I can see, most of us – perhaps Sen aside – carry over a lot of the utilitarian framework (which may explain the use of the term ‘capital’). Nor is this new paradigm much help if one is trying to explain the level of unemployment or what happens during a global financial crisis.

As frequently happens at this stage in a paradigmatic development, everything is a bit muddled with a whole lot of crosscutting ideas which make it difficult to see the wood from the trees.

The Minister of Finance has announced the 2019 budget will be framed by the Treasury’s four capitals. It will be interesting to see what happens. Everyone will dutifully report lists of things. But will they be able to identify any analytic underpinnings, perhaps of the sort implied in the propositions in the book? Will we be able to measure them?

It is easy in such circumstances for the conventional wisdom to retreat to the bunker of past. There the pigs can happily grunt away, without comprehending any philosophical challenges. Meanwhile, those outside the sty suffer from unrealised personal development.

Comments (4)

by Andrew Miller on November 01, 2018
Andrew Miller

Thanks for writing this, I've been quite evangelical over the years about Sen's (and Martha Nussbaum) capability approach.

You're right that in regards to developed countries there does't appear ot have much interest in applying these ideas to public policy up till now. Of course, it's had far more traction in the development sector, which is broadly what Sen created it for. Sen's ideas have had a profoundly positive impact on shaping development programmes, particuarly in the 25-30years, and I've always been fascinated to see what it's application to developed countries would look like.

I do note yours is the second recent piece to reference Sen & capabilities. There was a piece by Max Rasbrooke for The Spinoff that did as well.

Porkers aside, given that Sen is broadly a man of the left it is intersting as to why the western left have until recently seemed quite resistant to his approach. I think one reasons is it isn't inherently anti capitalist, infact Sen often talks about the importance of markets. I suspect if you utter the phrase 'neo liberalism' to him, he'd look at you blankly and ask you to explain what the hell you meant.

Whilst you're right that the capibility approch wouldn't necessarily assist with say a GFC, the thinking that under pins can. Sen is a huge admired of Adam Smith (He loves to paraphase Shakespeare, and say Smith has had 'smallness thrust upon him') and from gets the importance of multiple institutions and that free markets need to sit within a roader set of public institutions. He also constantly talks about the importance of public discussion and broadening the information base for decision making. The challenge to a narrow utilitarian approach to public welfare can aso be used to challenge other apsects of economic thinking. 

by Brian Easton on November 02, 2018
Brian Easton

Sen is extremely widely read in both the Eastern and Western classics, but Adam Smith may have a special place in his heart. His wife is the eminent intellectual historian Emma Rohschild who has written a stunnig book on Smith (which she dedicated to Sen). Not incidentally, her account of The Wealth of Nations is rather different from the conventional wisdom's.   

I first wrote about capabilities a couple of decades ago. I recall raising it at a seminar around that time and meeting complete incomprehension. A decade earlier I had proposed to the Royal Commission on Social Policy to invite Sen to advise them. They did not. 

 

 

by Andrew Miller on November 07, 2018
Andrew Miller

I hadn't realised that Emma Rothschild had written on Smith, I'll defnitely seek that out. Sen's enthusiasm for him got me reading both The Theory of Moral Sentiments & Wealth of Nations.

Sen's point about the narrowness of Smith's loudest admirers is well known, the first sentence of TOMS being a case in point, as well as the Invisible Hand quote and the context of the 'Butcher, baker..' passage. Sen's point about how limited a view of human action so called 'rational choice theorists' are, is pretty obvious once you've read it. It's also obvious it's a view Smith shared as well, despite people fondness for mis-using the 'invisible hand' phrase.

I'd also argue the Libertarians fondness for quoting Smith's brilliant passage 'The Man of system' is misguided. If you read the passage in full (including the first half), it seems obvious Smith would be no more keen on their dreams of a night watchman state than he would of central planning.

On the point of the Capabilities approach, one criticism that i think has some validity and may explain the reluctance to adopt it is how information heavy it is. It requires a really broad range of data, which could be potentially costly and time consuming. It is in some ways understandable that we constantly fall back on measurements that may be limited by are relatively speaking straifgt forward.

by Andrew Miller on November 07, 2018
Andrew Miller

I hadn't realised that Emma Rothschild had written on Smith, I'll defnitely seek that out. Sen's enthusiasm for him got me reading both The Theory of Moral Sentiments & Wealth of Nations.

Sen's point about the narrowness of Smith's loudest admirers is well known, the first sentence of TOMS being a case in point, as well as the Invisible Hand quote and the context of the 'Butcher, baker..' passage. Sen's point about how limited a view of human action so called 'rational choice theorists' are, is pretty obvious once you've read it. It's also obvious it's a view Smith shared as well, despite people fondness for mis-using the 'invisible hand' phrase.

I'd also argue the Libertarians fondness for quoting Smith's brilliant passage 'The Man of system' is misguided. If you read the passage in full (including the first half), it seems obvious Smith would be no more keen on their dreams of a night watchman state than he would of central planning.

On the point of the Capabilities approach, one criticism that i think has some validity and may explain the reluctance to adopt it is how information heavy it is. It requires a really broad range of data, which could be potentially costly and time consuming. It is in some ways understandable that we constantly fall back on measurements that may be limited by are relatively speaking straifgt forward.

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