THE STATE

Will the Annual Economic Report Change How We Measure Prosperity? Short Cut Recap

Will this year's Annual Economic Report, with its attempt to measure prosperity more broadly, change German economic policy? We talked about this in our New Economy Short Cut with Philipp Steinberg, Nicola Brandt and Maja Göpel.

BY

MAREN BUCHHOLTZ & SONJA HENNEN

PUBLISHED

21. FEBRUARY 2022

READING TIME

4 MIN

The whole discussion as re-live

In its recently published Annual Economic Report, the German government is making a new attempt to no longer measure prosperity solely in terms of Gross Domestic Product. How is that supposed to work? And is Germany catching up with the countries that have been leading the way for years? How relevant will the new concept be for policymakers in practice?

Philipp Steinberg has been working for some time to advance the idea of an expanded measure of well-being and was instrumental in adding a chapter on alternative indicators to the Annual Economic Report. Nicola Brandt has been working on the prosperity issue at the OECD for a long time. For the Forum, she and her colleague Lara Fleischer wrote a study in which the two experts compare internationally where governments are already working on new prosperity indicators and reports and what lessons can be learned from them – also for Germany. Maja Göpel has long called for a change in the way wealth is measured as a necessary building block of a sustainable transformation and, as part of a group of prominent business leaders and professors, has helped to develop a “Compass for Germany” to this end.

The main takeaways

Philipp Steinberg began by presenting the motivation for the innovations to the Annual Economic Report (German: Jahreswirtschaftsbericht, JWB): Planetary limits require the decoupling of growth and resource consumption. Therefore, he said, it was time for a reorientation of economic policy in the sense of a social-ecological market economy. In developing the expanded measure of prosperity in this year’s JWB, he referred to the German Sustainability Strategy (DNS) and the debate on a suitable measure of sustainable growth initiated more than a decade ago by the Stiglitz-Sen-Fitoussi Commission, among others.

A pragmatic approach was followed: in addition to GDP as the core variable, other, previously neglected but socially relevant variables are now brought into focus (so-called “mainstreaming”). To this end, five areas are defined in the JWB: I Growth, income and employment; II Environmental and climate protection; III Education, research and innovation; IV Social affairs, demography and integration; and V Public finances and equal living conditions.

Both Nicola Brandt and Maja Göpel welcomed the fact that most of the existing sustainability indicators had been taken up from the DNS. However, they noted that, in the area of biodiversity, there were some indicators missing. In her comment, Nicola Brandt suggested that an international comparison would be useful for some indicators, such as the gender wage gap.

Experience from other OECD countries shows that a continuation of the extended measurement of prosperity is important for continuity. Germany could achieve this by expanding the Stability and Growth Act accordingly. In addition, an independent body could monitor progress and strengthen public accountability and citizen dialogue, as Scotland and Wales have shown with the so-called “future generations commissioners”. Last but not least, New Zealand impressively demonstrates that a cross-departmental sustainability strategy (so-called “wellbeing budget”) can achieve good results. It would be worth considering whether the Federal Chancellery could take the lead in implementing the new initiative of the Federal Ministry for Economic Affairs and Climate (BMWK).

Maja Göpel also raised the question of “political architecture”. The experience of the (already existing) sustainability strategy had to be taken into account – it had not been able to develop sufficient political impact because it had not been implemented across ministries. Therefore, more alliances across ministries are desirable, so that the extended measurement of prosperity in the JWB becomes an orientation for budget planning in the future.

GDP & beyond

Maja Göpel expressed the view that a correction of GDP is urgently needed to reflect the economic consequences of climatic and ecological tipping points. Tom Krebs explained a proposal for a socio-ecological GDP. Philipp Steinberg was open to these considerations, but at the same time stressed the difficulties of aggregating many indicators that are sometimes difficult to measure in monetary terms. The JWB indicators have so far served more to illustrate the status quo and are not provided with targets. In this context, Nicola Brandt pointed to the possibility that independent research institutes (such as the so-called “what-works-wellbeing” research centres in the UK) could play a role in assessing the impact of planned policy measures on the new well-being indicators.

For further content on the topic, also see our New Economy Interview

ABOUT THE STATE

KNOWLEDGE BASE

For decades, there was a consensus that reducing the role of the state and cutting public debt would generate wealth. This contributed to a chronic underinvestment in education and public infrastructure. New research focuses on establishing when and how governments need to intervene to better contribute to long-term prosperity and to stabilize rather than aggravate economic fluctuations.

ARTICLE OVERVIEW