How useful is the Treasury’s Living Standards Framework?
By Prue Hyman
It’s exciting that a department as dry as Treasury is increasingly keen for policies to be based on how they affect people’s standards of living, or wellbeing, rather than just gross national product and its rate of growth. Treasury’s Living Standards Framework (LSF) has been around since 2011, but is now being developed further – I wonder here whether it is as promising as it sounds.
What’s it all about? It doesn’t get much attention in the media, although Gabriel Makhlouf, Secretary to the Treasury, was recently interviewed on National Radio (available at http://www.radionz.co.nz/national/programmes/sunday/audio/2018635582/measuring-what-makes-life-worthwhile).
Building on feminists’ work
He claimed that it would be groundbreaking if NZ actually used the approach to inform policy work. There is certainly a long way to go to make it possible – though it builds on the work of feminist economists who barely get a mention in the discussions.
Rather than just using gross national product, an over simple measure of all the activity in the economy or all the money income generated, they are attempting to evaluate a range of different frameworks for measuring current wellbeing using four types of capital.
The four types are natural, social, human, and financial/physical capital. It sounds like gobbledegoop but that’s a bit unfair! What are these four types of capital? The fourth is what we usually mean by capital but the others need explanation.
Natural capital refers to all aspects of the natural environment, with its overall value rightly assessed from estimating the value people derive from using and from not using it – leaving much of it pristine is vital.
Human capital is defined as “an individual’s skills, knowledge, mental and physical health that enable them to participate fully in work, study, recreation, and in society more broadly”. But it is usually measured by the incomes earned by each qualification type over a lifetime.
This is money valuation with all its biases, assuming that wage rates are a reasonable measure of the value of the work and qualifications a proxy for overall skill level.
Teaching and nursing often underpaid
The Treasury paper admits that this is problematic as professions such as teaching and nursing ‘are often cited as being underpaid’ (care over the phrasing very clear!).
Social capital refers to “the social connections, attitudes and norms that contribute to societal wellbeing by promoting coordination and collaboration between people and groups in society”. The difficulties of measurement in this area make the mind boggle.
The Treasury’s approach is framed using these four types of capital as a way of organising and measuring indicators of long-term wellbeing.
During 2018 they intend to develop a dashboard of indicators suitable for understanding intergenerational wellbeing in New Zealand and use the framework in the 2019 budget.
Three discussion papers
They’ve recently issued three discussion papers each (rather coyly?) entitled ‘The Start of a Conversation on the Value of New Zealand’s Human (and Natural and Social) Capital’ plus one on wellbeing frameworks. They’re on the Treasury website and they’re keen to get comments.
It all sounds wonderful, but how would it work to form policy in practice?
I worry about it because there is no specific mention of WHOSE living standards we are talking about.
There is nothing about distribution of income and resources, gender issues or the problems with market valuation when the supposedly more market approach of the last decades has led to widening inequality and poverty crises.
‘Best of all worlds’?
Treasury may be trying to get the best of all worlds – appearing to take account of the many critiques of gross national product while still maintaining their ‘rigorous’ approach and failing to develop indicators which truly respond to the concerns long raised by feminist and other heterodox economists.
They DO mention taking account of Treaty of Waitangi obligations and values, and other aspects of New Zealand’s unique diversity, but how they will do this is yet to be seen. Keep an eye on its development!