Italy has long prided itself for its quality of life and with good reason. The country may be only just recovering from a long economic crisis, but its citizens are healthier and live longer than those of most other countries in the world. It is, perhaps, no coincidence then that the Italian government is pioneering the use of welfare indicators in its budget process.
As of this year, the finance ministry will produce official forecasts for 12 indicators, ranging from income inequality to CO2 emissions to obesity. It is the first country to do so in the EU and the G7.
Measuring ‘la dolce vita’ is a complex task, but one other countries should consider too. Growth will remain the main indicator to judge a country’s economic success because of its conciseness.
However, to the extent they can, it is hard to see why governments should not monitor the broader impact their policies have on the wellbeing of citizens.
The push to go beyond GDP as a measure of welfare dates back at least to former US presidential candidate Robert Kennedy.
“The gross national product does not allow for the health of our children, the quality of their education or the joy of their play,” said Kennedy in a speech in 1968.
Since then, economists have produced a long list of reports on wellbeing.
The most famous was probably one by the Stiglitz-Sen-Fitoussi Commission set up by the French government in 2008. Yet, so far this paperwork has produced little action: Governments still base their economic policy-making primarily on the basis of GDP.
There are very good reasons for continuing to do so. The choice of other welfare indicators is arbitrary and may be imprecise. In Italy, one of the biggest drivers of inequality is the gap between the young, whose incomes have fallen the most during the crisis, and the elderly and yet this is not included in the range of selected measures.
There is also an issue of weighting: How will the Italian government decide which of the 12 indicators it has chosen is the most important? Finally, forecasting some variables such as ‘predatory crime’ is bound to pose headaches.
Yet, this does not mean the principle is wrong. There may be cases when a government is willing to press ahead with a policy even if it reduces short-term growth because it produces benefits in terms of broader welfare.
This new framework gives politicians the ability to make their case in a formal way. Needless to say, the government’s forecasts must make sense. The rest of the EU should watch Italy’s experiment and be ready to copy it if it works out.