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First international conference on Economic De-growth for Ecological Sustainability and Social Equity, Paris, April 18-19th 2008
methodological framework only the quantitatively most
important items in the original index. It is shown that
reducing the number of items in such a way allows for an
easier compilation of the index, while at the same time, the
outcome of the exercise is almost unaffected. There ar
minor differences in absolute terms between per capita
ISEW and SISEW, yet, as the trend over time offers the
only valid ground to draw conclusions with regard to
(changes in) the level of sustainable economic welfare, the
message that the simplified ISEW study conveys is the
same.
A Simplified Index of Sustainable Economic
Welfare for France, 1980-2006
BLEYS Brent
Corresponding author: Brent Bleys, Department for
Mathematics, Operational Research, Statistics and
Information Systems for Management Vrije Universiteit
Brussel, Pleinlaan 2, B-1050 Brussels, Belgium
E-mail: [email protected]
2. A Simplified ISEW for France, 1980-2006
Abstract
Data and Methodology
This paper presents the results of a Simplified Index of
Sustainable Economic Welfare (SISEW) case study for
France. It is shown that the results do not support the
‘threshold hypothesis’ put forward by Max-Neef. The paper
also looks at the policy value of the index.
Building on the methodology put forward by Bleys (2007),
I have calculated the Simplified Index of Sustainable
Economic Welfare for France for the period 1980-2006.
The SISEW is composed of 11 items, which are given in
table 1. The exact methodology used to calculate the
monetary estimates for each item (including data sources)
will be reviewed in this section. The results of the case
study will be presented in section 2.2, while section 2.3
compares them to the results of SISEW case studies in
other countries.
1. Introduction
In ecological economics, the Index of Sustainable
Economic Welfare (ISEW) is often
used to empirically support the ‘threshold hypothesis’ put
forward by Max-Neef (1995). Based on the results of a set
of international ISEW case studies, it is argued that the
economic system has surpassed its optimal scale in most
developed countries. A decrease in per capita ISEW
indicates a declining level of sustainable economic welfare.
From the mid 1970s onwards, such a decrease was found in
most countries for which the index was calculated.
SISEW
The ISEW was developed by Daly and Cobb (1989) as an
alternative measure of economic welfare that compares the
benefits and the costs of economic activities. In doing so, it
draws heavily on the different criticisms that the Gross
Domestic Product (GDP) has attracted over the years when
used as a measure of economic welfare. For instance, the
ISEW includes household labor and welfare losses from
inequalities in the income distribution and accounts for of
the environmental costs of the economic process. For a
detailed description of the ISEW methodology, Cobb and
Cobb (1994) or Jackson et al. (1997) can be consulted.
The Index of Sustainable Economic Welfare is often put
forward as an alternative to GDP. Recently, the index
attracted a lot of interest in several European countries,
either by petitions in favour of alternative measures of wellbeing (Belgium and the Netherlands) or by support from
expert workshops (Germany). Furthermore, both José
Manuel Barroso, President of the European Commission,
and Stavros Dimas, Commissioner for the Environment,
called for the development and further improvement of
indicators that adjust, complement or replace GDP at the
‘Beyond GDP’ conference organised by the European
Commission in November 2007.
+
Private Consumption Expenditures
-
Welfare Losses
Inequalities
+
Value of Household Labor
+
Non-defensive Public Consumption
Expenditures
-
Costs of Commuting
-
Costs of Air Pollution
-
Depletion
of
Energy Resources
-
Costs of Climate Change
-
Costs of Ozone Layer Depletion
+/-
Net Capital Growth
+/-
Change in Net
Investment Position
from
Income
Non-renewable
International
Table 1: The 11 items in the SISEW framework (Bleys,
2007)
Private consumption expenditures are taken directly from
the French national accounts, accessible at the website of
the National Institute for Statistics and Economic Studies1
(INSEE).
Welfare losses from inequalities in the income distribution
are calculated using the Atkinson index, I (with  = 0.8).
The necessary income distribution data (percentage of total
income earned by each population decile) are taken from
However, the compilation of the ISEW requires a large
amount of data on a wide range of topics. Gathering these
data can be a very difficult task that has undoubtedly put off
researchers in the past. Bleys (2007) has come up with a
Simplified ISEW (SISEW), which includes in its
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=
1
http://www.insee.fr/fr/indicateur/cnat_annu/base_2000/
cnat_annu_2000.htm
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First international conference on Economic De-growth for Ecological Sustainability and Social Equity, Paris, April 18-19th 2008
the WIDER World Income Inequality Database 2. The actual
welfare losses of income inequalities are estimated by
multiplying the private consumption expenditures by a
factor of (1 – I).
World Resources Institute5 (WRI). The marginal social cost
estimate used is taken from Fankhauser (1994) and linked
to the cumulative emissions from 1900 onwards in order to
reflect increasing costs associated with rising CO2
concentrations in the atmosphere.
The value of household labor is estimated by applying a
shadow wage rate to time use data. Estimates of the total
time spent on household labor in France for 1986 and 1999
are taken from Dumontier and Pan Ké Shon (1999), while
the SMIC3 hourly wage rate is used to value these amounts
of time. Linear interpolation is used to link both time use
studies, while the average time spent on household labor
per person is kept constant in the periods before 1986 and
after 1999.
Ozone layer depletion is accounted for by valuing
cumulative consumption of ozone depleting substances
(ODS) at a fixed estimated unit cost. Average per capita
ODS consumption for Europe is calculated by combining
data from UNEP’s Geo Data portal with data from the
Alternative Fluorocarbons Environmental Acceptability
Study6 (AFEAS). These averages are then multiplied by the
number of people living in France. The fixed unit cost
applied to the ODS consumption is 53€/kg of CFC
equivalent, the average of the estimates used in Cobb and
Cobb (1994) and Jackson et al. (1997).
Non-defensive public expenditures are calculated as the
difference between effective private consumption and
private consumption expenditures. Effective private
consumption is equal to the actual final consumption of
households and includes goods and services acquired by
transfer from government units and non-profit
organizations. To calculate the effective private
consumption, the value of social transfers in kind receivable
is added to the private consumption expenditures. Data on
effective private consumption is available from the national
accounts of France.
Net capital growth is calculated by taking five-year rolling
averages of the changes in the net capital stock, adjusted for
fluctuations in the number of people employed. Data on
both the net capital stock and the volume of the workforce
are available at the INSEE website.
Finally, the change in the net international investment
position (NIIP) is taken into account, as according to Daly
and Cobb (1989), sustainability requires long-term financial
self-reliance. To smooth out large year-on-year variations, a
five-year rolling average of the changes in NIIP is taken.
Data on the NIIP are available from the International
Financial Statistics (IFS) Yearbooks of the International
Monetary Fund, or through their website 7.
The costs of commuting are estimated by applying a
‘commuting ratio’ to the total private expenditures on
transportation. The latter are obtained from the national
accounts at INSEE, while the former is calculated by
indexing the product of the proportion of the active people
that work outside their residential communities and the
average distance that these people commute. The necessary
data are obtained from Talbot (2001), while a commuting
ratio of 0.2 is taken for 1982 based on data for Belgium
(Bleys, 2006).
Results of the SISEW case study for France
The ISEW is expressed in constant 2000 prices using the
GDP deflator. Figure 1 plots GDP/capita against
SISEW/capita for France for the period 1980-2006 (see
annex). Several conclusions can be drawn from this figure.
First, both lines show a trend over time that is quite similar.
In 18 of the 26 periods, both indicators move in the same
direction, while only in the second half of the 1990s, the
observed path of both indicators differs markedly.
Time series data on the emissions of five differente air
pollutants (SO2, NOX, CO, particulate matter and nonmethane volatile organic compounds) are valued at
estimated fixed marginal social costs rates derived from
Jackson et al (1997) in order to track the costs of air
pollution. Data on emissions are obtained from UNEP’s
Geo Data Portal website4.
Second, the SISEW case study for France does not support
the ‘threshold hypothesis’ of Max-Neef (1995): except for a
significant drop in sustainable economic welfare levels in
the mid 1980s, SISEW/capita indicates improvements in
economic welfare levels for France from 1988 onwards.
The ‘depletion of non-renewable energy resources’ item is
calculated by applying a replacement cost factor to nonrenewable energy consumption data. Non-renewable energy
consumption includes oil, petroleum products, natural gas,
coal and coal products and nuclear energy. Data is taken
from UNEP’s Geo Data Portal. The replacement cost factor
increases over time to reflect an increase in demand for
energy and the associated increasing costs, as described in
Cobb and Cobb (1994).
Finally, SISEW/capita is lower than GDP/capita throughout
the entire period studied. Based on this observation, it
would, however, be wrong to conclude that GDP/capita
overstates the actual level of welfare. The absolute value of
SISEW/capita does not contain much useful information on
the level of welfare, as this value would change items are
added to the methodology of the index. For instance, if the
value of leisure time would be added to the index,
SISEW/capita would undoubtedly surpass GDP/capita. It is
the trend over time of SISEW/capita, and its comparison to
the trend over time of GDP/capita, that offer the most
valuable insights.
Costs of climate change are estimated by applying a
marginal social cost estimate of carbon dioxide emissions
to the cumulative emissions of CO2 since 1900. Carbon
dioxide emissions data are available from the ‘Climate and
Atmosphere’ section of the Earthtrends database at the
2
http://www.wider.unu.edu/research/Database/en_GB/database/
SMIC = Salaire Minimum Interprofessionnel de Croissance,
data available at INSEE
(http://www.insee.fr/fr/indicateur/smic.htm)
4 http://geodata.grid.unep.ch/
3
http://events.it-sudparis.eu/degrowthconference/
5
http://earthtrends.wri.org/searchable_db/index.php?theme=3
http://www.afeas.org/data.php
7 http://www.imfstatistics.org/imf/
6
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First international conference on Economic De-growth for Ecological Sustainability and Social Equity, Paris, April 18-19th 2008
Importance
Average
Positive Items
Looking at the positive items, private consumption
expenditures is obviously the most important one, as it
accounts for more than half of the total value of all positive
items. The two other major items are household labour and
non-defensive public expenditures. All three items have
witnessed similar changes over time. The net capital growth
and changes in the net international investment position
items have lower importances, yet, given the high degree of
variation in their trends over time, these items have had a
significant impact on the overall trend over time of
SISEW/capita.
Evolution
Change
100
Relative
162.6
Private
Consumption
Expenditures
56.4
-2.24
156.0
Value of
Household Labor
23.8
+1.39
172.9
Non-defensive
Public
Expenditures
15.4
+2.1
187.2
Net Capital
Growth8
4.1
-
-
Change in Net
International
0.3
-
-
The negative items show more diverse patterns. Two items
have registered significant drops in their importances: the
welfare losses of income inequalities have increased at a
rate that was far below that of the negative items category
in general, while the costs of air pollution have fallen both
in relative and in absolute terms, over the period studied.
The first observation can be explained by a decrease in
inequalities in the income distribution in France from 1984
onwards, while the second can be linked to a decrease in
emissions of air pollutants.
The item linked to the depletion of non-renewable energy
resources has increased dramatically, both in relative terms
(+22.3%) as in absolute terms (+223.6%). This can be
partly explained by the increase in non-renewable energy
use, yet overall the escalation factor in the replacement cost
has had the biggest impact. While non-renewable energy
use increased by 50% between 1980 and 2006, the
replacement cost estimate increased by 120%. The costs of
climate change have also increased at a higher rate than that
of the negative category in general, resulting in an increase
of its relative importance.
Investment
Position8
Negative Items
100
183.3
Welfare Losses
from Income
Inequalities
20.0
-7.21
123.6
Costs of
Commuting
1.0
+0.5
308.1
Costs of Air
Pollution
11.5
-18.6
37.2
Depletion of Nonrenewable Energy
Resources
39.4
+22.3
323.6
Costs of Climate
Change
16.4
+3.4
227.0
Costs of Ozone
Layer Depletion
11.6
-0.4
176.1
The SISEW for France, Belgium and the Netherlands
The Simplified Index of Sustainable Economic Welfare has
already been compiled for Belgium and the Netherlands
(Bleys, 2007). This section will compare the results of both
studies with the ones from the French case study presented
above. Figure 2 compares the trend over time of
SISEW/capita for the three countries (see annex). Two
elements stand out from this figure.
First, the SISEW/capita level is highest in France,
exceeding levels in Belgium and the Netherlands by over
4,000€/capita on average. The main items responsible for
this difference in absolute terms are non-defensive public
expenditures, depletion of non-renewable energy resources
and costs of climate change. Non-defensive public
expenditures were calculated for France as the difference
between effective private consumption and private
consumption expenditures, whereas in Belgium and the
Netherlands they were based on a categorization of public
expenditures. In the latter, only half of the public
expenditures on health and education were included. The
replacement costs involved in natural capital depletion are
lower in France than in the other countries under
consideration, as the per capita level non-renewable energy
consumption is lowest in France. Carbon dioxide emissions
per head are also lower in France, resulting in lower
estimates of the costs associated with climate change. Part
of this can be explained by the fact that France generates
significantly more energy from nuclear power plants than
the other countries (about 45% in 2005).
Table 2: Analysis of individual items within the SISEW for
France
Table 2 analyses the different SISEW items individually.
Items are classified in two categories: positive and negative
items. The first column of the table lists the different items,
the second looks at their average importances within the
respective classes, the third column indicates the change in
these importances in absolute terms over the period studied,
while the fourt column gives the relative change in the
monetary estimates of the different SISEW items.
8 Both the ‘Net Capital Growth’ item and the ‘Changes in Net
International Investment Position’ item have recorded positive and
negative entries over the period studies. As the positive entries
exceeded the negative ones, they are classified in the ‘positive
items’ category, yet it should be noted that the importances listed
in column 2 understate the actual importances of both items.
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First international conference on Economic De-growth for Ecological Sustainability and Social Equity, Paris, April 18-19th 2008
Next, whereas the trend over time of the per capita SISEW
is fairly similar for France and the Netherlands, Belgium
shows a markedly different pattern, especially in the later
years of the period studied. The SISEW/capita for Belgium
decreased by over 30% in the period 2000-2004. According
to Bleys (2008), this decline is mainly driven by a decrease
in Belgium's net international investment position, which
falls
sustainability, but one of weak sustainability, since the
ISEW framework allows for perfect substitution among
different types of capital.
The methodological criticism on the ISEW is more
fundamental and urges a structural rethinking of the index.
When Lawn (2003) worked out the theoretical framework
of the ISEW, he built on the Fisherian concept of income.
This concept forces one to distinguish between the actual
capital stocks and the flows of services that these capital
stocks deliver. The latter are important to measure the level
of welfare or income currently enjoyed by a nation's
citizens, while the former indicate whether this level can be
sustained in the future. The ISEW should focus on the
flows of services generated within a particular year, while
additional natural capital accounts are needed to keep track
of changes in the ecological sustainability of the level of
welfare enjoyed in a country. Other supplemental accounts
could look at the sustainability of the economic process in
terms of the stock human-made capital and the level of
national self-reliance (financial, food production, natural
resources). The ISEW goes far in being consistent with the
Fisherian income and capital concept, yet a few problems
remain. These need to be addressed when developing an
internationally agreed upon standardized methodology of
the index.
From its 2000 record high of €154,455 million to €90,475
million in 2004. A decline in net capital growth also adds to
the decline of SISEW/capita in 2004.
3. Discussion
This section will analyze the value of the Index of
Sustainable Economic Welfare, and by extension, that of its
simplified version. The criticism that the ISEW has
attracted over the years has undermined both the value of
the index as well as the validity of the ‘threshold
hypothesis’ (Neumayer, 1999 and 2000). The different
critiques can be grouped into two categories:
methodological issues on the one hand and practical issues
on the other. Methodological issues shed doubt on the value
of the entire exercise, while practical issues are concerned
with specific items within the methodology of the ISEW or
with data quality or availability. Many advocates of the
ISEW have replied to these critiques, refuting some of the
issues raised.
Another methodological flaw of the ISEW that is often
emphasized is the high amount of subjectivity that enters its
methodology. The researcher has to decide which items to
incorporate into the methodology of the index and which
valuation methods to employ. When the choices and
assumptions made during the compilation of the index are
not clearly communicated, the risk of misinterpretation of
the results is high. ISEW studies should be clear and
comprehensive so that this risk is minimized.
On the practical level, several valuation methods within the
ISEW methodology have been criticized. Concerns that
minor adjustments to these valuation methods would have a
significant impact on the index and the conclusions drawn
from the ISEW studies, were expressed by many authors.
The two components that have attracted the largest amount
of criticism are non-renewable resource depletion and longterm environmental damage. Another practical issue that is
often put forward are the inconsistenies in the methodology
of the index across the different case studies. In most
countries, the original methodology was adapted in order to
overcome problems with data availability or to pay
attention to country-specific issues. As a result of these
inconsistencies, it is very difficult - if not impossible - to
make cross-country comparisons.
At the moment, the greatest value of the ISEW lies in its
potential as a communication tool. The index is appreciated
as an empirical translation of the criticism on traditional
measure of economic welfare, such as the GDP. As such, it
offers easy-to-understand insights that benefit the current
debates on degrowth and the reorientation of the economic
system. The current value of the ISEW for policy-making is
rather limited. The methodological framework of the index
needs revised in order for the index to gain a broader
acceptability among policy-makers. Furthermore, a
standardized methodology is needed to allow for
international comparisons. Yet, the ISEW can be used as a
guiding principle in the development of a new set of
comprehensive accounts at the national level.
These practical objections to the ISEW can be overcome. It
is possible to think of a consistent ISEW methodology that
is widely agreed upon. This methodology would consist of
a list of items to be included in the index as well as
guidelines on how these items should be valued. It should
be noted here that several individual efforts to improve the
valuations methods of specific items have been undertaken
recently. Examples include Talberth et al. (2007), Forgie
(2007) and Bleys (2008). Furthermore, both the availability
and the quality of data has increased significantly over the
last decade.
4. Conclusion
Reducing the number of items in the methodological
framework of the ISEW by omitting the items that have a
low quantitative importance compared to most others, will
reduce the amount of data needed in the compilation of the
index. For most countries, the trend over time of the
resulting Simplified ISEW (SISEW) is nearly identical to
that of the original ISEW.
On the methodological level, Neumayer (1999) argues that
the authors of the ISEW commit the mistake of
methodological inconsistency in two respects. First, the
ISEW cannot at the same time function as both an indicator
of current welfare and an indicator of sustainability: what
affects current well-being need not affect sustainability and
vice versa. Second, the index is not an indicator of strong
http://events.it-sudparis.eu/degrowthconference/
In this paper, the SISEW is calculated for France for the
period 1980-2006. It is found that, with the exception of a
decrease in de mid 1980s, SISEW/capita rises steadily
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First international conference on Economic De-growth for Ecological Sustainability and Social Equity, Paris, April 18-19th 2008
throughout the entire period studied. These results are not
in line with the findings in most other ISEW studies and do
not support the threshold hypothesis put forward by MaxNeef. Compared to the results of SISEW case studies in
Belgium and the Netherlands, the observed level of
sustainable economic welfare is higher in France. However,
making cross-country comparisons is difficult, as different
data sets were used.
Fankhauser, S. (1994). The Social Cost of Greenhouse Gas
Emissions: an Ex-pected Value Approach. The Energy
Journal, 15(2): 157–184.
Forgie, V. 2007. The Need for ‘Convention’ in
Environmental Valuation. International Journal of
Environment, Workplace and Employment 3(2): 72-90.
Jackson, T., Marks, N., Ralls, J. and Stymne, S. (1997).
Sustainable Ecomonic Welfare in the UK, 1950-1996, New
Economics Foundation, London, UK.
Although both the ISEW and its simplified version
(SISEW) have numerous positive features, the lack of a
consistent and internationally agreed upon methodology is a
major setback. By highlighting the most important items in
the ISEW framework, the SISEW gives an indication about
which items require further research and debate to arrive at
such a standardized methodology.
Lawn, P. (2003). A Theoretical Foundation to Support the
Index of Sustainable Economic Welfare (ISEW), Genuine
Progress Indicator (GPI), and Other Related Indexes.
Ecological Economics, 44(1): 105-118.
Max-Neef, M. (1995). Economic Growth and Quality of
Life: a Threshold Hypothesis. Ecological Economics,
15(2): 115-118.
Some of the methodological criticism on the ISEW urges
for a more structural rethinking of the index. Building on
the current theoretical framework of the index, the ISEW
should be transformed in a flow-oriented measure of
current economic welfare. This would not necessarily
require many adjustements to to current methodology.
Additional stock accounts are needed to track the
sustainability of the current level of welfare. These stock
accounts should include natural capital, human-made
capital and information on national self-reliance.
Neumayer, E. (1999). The ISEW: Not an Index of
Sustainable Economic Welfare. Social Indicators Research,
48(1): 77-101.
Neumayer, E. (2000). On the Methodology of ISEW, GPI
and Related Measures: Some Constructive Suggestions and
Some Doubt on the 'Threshold' Hypothesis. Ecological
Economics, 34(3): 347-361.
The new set of macro-level accounts outlined above is
essential if one wishes to properly monitor the links
between the economy, the environment and the level of
economic welfare. The development of such a set of
accounts is, however, a difficult task. However, the
guidelines on the System of Economic and Environmental
Accounts (SEEA) worked out by the United Nations should
be seen as a first step in the right direction.
Talberth, J., Cobb, C. and Slattery, N. (2007) The Genuine
Progress Indicator 2006. Redefining Progress, Oakland,
CA.
Talbot, J. 2001. Les déplacements domicile-travail. De plus
en plus d’actifs travaillent loin de chez eux. INSEE
Première N° 767 (avril 2001), Institut Nationale de la
Statistique et des Etudes Economiques, Paris.
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10000.0
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