CLICK THE SPONSORS' LOGOS FOR THE LATEST SPECIALS !HALE-IAW PART 5: WEIGHTING THE INDEX & ENGAGING THE PUBLIC Home Index O'view Glossary Part 1 Part 2 Part 3 Part 4 Part 5 References Appendix on Method Acknowledgements Boxes - 10 Figures - 11 Tables - 18 Disclaimer Copyright PART FIVE: WEIGHTING THE INDEX & ENGAGING THE PUBLIC 13. Weighting the index
a Alternative weightings, contributions to improving
the index and engaging the public
b Possiblities for the Future
13. Weighting the index
The results produced by a composite index are heavily influenced by how its
constituent parts are aggregated together.
Using GDP as a starting point to weighting our index is not to embrace the
crude cynicism of money values.
Rather we have done so because of the complete lack of any other coherent
place to start.
Indeed, the only real alternative we have seen seems to involve a cascade of
arbitrary decisions that amount to little more than a shrug of the shoulders
and a resigned decision to ‘split the difference’ and plump for some kind of
improvised equality among domains of wellbeing at every turn (which itself
ends in paradox as each sub-domain is itself dominated by this hankering
to split the difference among different measures – see Box 3 ).
Even the SSF Commission, which spent some time setting out its concerns
with arbitrary weightings and aggregations, ultimately dodged the question,
recommending that statistical agencies invest in a number of scalar measures
to allow them to answer different questions.
For example, these could supplement average progress measures such as
the HDI with other measures that tracked the relative importance of domains
to individuals (such as the U-index and equivalent income approaches).
It is easy to offer examples that make a mockery of any weightings chosen.
For some people one weighting will be vastly more important than others.
Weighting the importance of health from nine per cent to 18 per cent of the
index will clearly underestimate its importance to a gravely ill person.
Likewise rating the quality of governance at some even lower figure would
underestimate its importance to someone whose livelihood was ruined by
poor governance.
But, as compelling as they are, individual examples like this do not illustrate
the inadequacy of the weightings chosen, so much as illustrate the nature of
the index itself as a single index that must meet everyone’s needs as best
it can.
Seen in this light, it does not seem so far-fetched to say that the relative
importance some aspect of national wellbeing might be approximated by
the weight it is accorded in national decisions to spend economic resources
on it with individual decisions and the collective decisions of governments
each playing a role in the ultimate allocation of resources.
And, of course, one can also adjust the weightings to reflect ad hoc
considerations – which is indeed what we have done in proposing calibrations
for this index.
a Alternative weightings, contributions to improving the index and engaging
the public
Whatever we have to say in this report, some others will have different ideas.
Thus, though part of the exercise has been to come up with a unique set of
weights by which to generate a single index, that is no reason that others might
not profitably – for themselves or for others – propose different weightings.
Especially given modern technology, it is a relatively easy matter to give users
of the index the ability to vary the weightings as they see fit, as has been done
with the recent OECD Better Life Index .
This could also assist in engaging the public in the exercise.
One could take things further.
As well as allowing individual website visitors to vary the weightings, one might
encourage public deliberation on the weightings.
And one might do it not just via blogs and online engagement, but also in
consensus conferences in which particular community members, experts and
representatives of community groups might deliberate together.(53 )
The task of weighting the index would be instructive for school or university
assignments helping participants to explore the intellectual challenge and
conceptual and ethical dilemmas of constructing such an index.
This could lead them to explore and understand their own values – and the
values of the community in so doing.
There are ways that the index could be extended.
One might conduct outreach to universities to get advanced undergraduate or
postgraduate students to propose improvements to our methodology.
If for instance Fairfax would like to put up a prize of (say) $2,000 to the
undergraduate student proposing the best improvement to the construction
and maintenance of the index, Lateral Economics would be happy to make
an equal contribution in kind – for instance by promoting the prize within
universities and schools and reading entries and judging the winners of the
prize.
It would also be worthwhile to develop by similar means a more detailed and
considered inventory of causes of avoidable suffering that might form part
of an index of Gross National Suffering, which itself might play a role in
the nation’s life in assisting that struggle by which, in Denis Healey’s
memorable words quoting Kolakowski, we go about “eroding by inches the
conditions which produce avoidable suffering”.
(53)
The ANDI project is intending to conduct detailed consultation processes with Australians to determine which aspects of wellbeing
are most important to us, and use these to choose indicators and weight them accordingly.
The new state planning approach in various states such as South Australia tends to take this approach with heavy consultation
with the community on the targets to be met, but there is no explicit reduction of the targets into a single composite target.
These weightings produce the index, which is tracked in the chart below
from June 2005 until June 2010.
Figure 10:HALE Index of Wellbeing
As will be seen, the HALE Index of Wellbeing is more volatile than either GDP
or NNI.
This reflects three factors:
1 the volatility of some of its constituents (particularly human capital
and to a lesser extent unemployment and underemployment);
2 the lower frequency of important updates in the raw data; and
3 some of the more volatile constituents are large, particularly the
elements of human capital.
Over the five year period plotted above, the main driver of the HALE Index’s
deviations from NNI from which it is built, is the growth of human capital.
This is not surprising since our methodology suggests that this is the biggest
aspect of our wellbeing that NNI fails to capture.
The period charted in Figure 10 begins, with an unusually low human capital
contribution from schooling at the beginning of the period.
This artificially depresses the 2005 HALE Index and similarly exaggerates the
growth in human capital over the period.
Nevertheless the proportion of tertiary qualified people in the workforce rises,
particularly in the middle of the period and this is a major factor in driving the
surge from below NNI to a figure that almost matches GDP in the middle of
the period.
Put another way, the surge in human capital over this period adds almost
as much capital to our economy as the depreciation of the physical capital
stock of plant and equipment, which is the principal difference between
NNI and GDP except where there are strong movements in the terms of trade.
Thereafter the HALE Index broadly tracks NNI though at a higher level
reflecting continuing higher growth of human capital.
Because it is built on NNI, the HALE Index captures the terms of trade
‘whipsaw’ at the time of the GFC and in fact accentuates it slightly
because the HALE Index responds more to changes in unemployment
and underemployment than NNI or GDP.
Table 18:The HALE Index of Wellbeing 2005 and 2010 .
b Possibilities for the future
We would like to develop and extend the HALE Index of Wellbeing in the future.
Areas that we hope to improve include:
1 The parameterisation of the relationship between income distribution
and welfare;
2 Better understanding the relationship between the quality of
employment and life satisfaction;
3 Accounting for co-morbidities between wellbeing variables, such as the
increased prevalence of obesity and mental illness among people who
are also unemployed or with low incomes;
4 Extending the calibration of factors like child development and social
capital to a larger share of the population than those who are at risk.
5 The issues discussed in the Appendix on Method on page 82.
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