Future trends of Genuine
Progress in Finland
Trends and Future of Sustainable Development
Tampere 9-10 June 2011
Dr. Jukka Hoffrén
Head of Research
Statistics Finland, Statistical R&D unit
e-mail: jukka.hoffren@stat.fi
Contents
GDP as a proxy of welfare, GDP critics
 European Union and Stiglitz commission proposals and
adoption to Finland
 From production measurements to consumer
experienced welfare, ISEW and GPI indicators
 Comparison of Finnish GDP, ISEW and GPI
 Future challenges of welfare measurements

Finnish GDP and it’s critics
Annual GDP calculation were started in mid 1970’s and it
has since then transformed the basis of the society.
 In 1990’s it was noted that the GDP in Finland is increasing
but the welfare of the people is not rising according to
many studies.
 GDP is not designed to measure of welfare, but only of
economic activities state the national accountants. Thus it
is a misleading indicator of wellbeing in current day society.

Development in the European Union
EU: Allocation of funds by using current economic
measures is not efficient. Development of new welfare
measures is a priority in the EU.
 Beyond GDP conference in 2007: New composite
indicators should take into account different aspects of
wellbeing.
 Stiglitz Commission proposals in September 2009.
 In 2009/2010 Eurostat/OECD/INSEE started 3 sponsorship
groups: Beyond GDP, Quality and communication.

Commission on the Measurement of Economic
Performance and Social Progress proposals
Beside GDP measuring economic performance social progress
requires also considering:
 1. Economic welfare: household focus, measures that are
complementary to SNA. Ideal measure includes household
market consumtion, public services, non-market activities,
value of leisure and defensive expenditures.
 2. Non-economic aspects: capabilities and quality of life.
Time use accounts?
 3. Sustainability; global and national sustainability
constraints must be taken into account. Adjusted Net
Savings (ANS) must be positive.
Stiglitz commission measures for Finland
(per capita, real prices, year 2000)
From production measurements to consumer
experienced welfare
In 2009/2010 Eurostat/INSEE started 3 sponsorship
groups: Beyond GDP, Quality and communication.
 GDP monitor economic progress from production
perspective. Direct linkage to welfare is missing. GDP does
not indicate if economic growth benefits the people.
 Consequently we should monitor more closely the actual
welfare received by the people.
 Index of Sustainable Economic Welfare (ISEW) and
Genuine Progress Indicator (GPI) have many benefits as
they are based on private consumption expenditures that
are corrected by positive and negative factors.

ISEW and GPI for Finland
Timeseries for years 1945-2007 in Statistics Finland,
R&D unit during 2000’s
 First calculations of ISEW and GPI for Finland
 ISEW is based on Cobb’s and Daly’s original ideas.
 Finnish GPI Calculation is based on the calculation of
US GPI for years 1960-2006 by Redefining Progress organisation
 Due to data limitations, some parts of the Finnish GPI
differ from the US GPI

GPI indicator

GPI = A + B - C - D + I
A is income weighted private consumption
 B is value of non-market services generating welfare
 C is private defensive cost of natural detoriaration
 D is cost of deteoriation of nature and natural resources
 I is increase in capital and balance of international trade

Development of GDP, ISEW and GPI indicators
in Finland in 1945-2010 (per capita in real prices)
Development of main components of Finnish ISEW
in 1945–2010 (1000 euros per capita in real prices)
Development of main components of Finnish GPI
in 1945–2010 (euros per capita in real prices)
Issues to be reconsidered in welfare measurements
Artificial pricing methods to price societal and environmental
hazards and assets.
 Integration of subjective wellbeing to objective measures.
 Accounting cumulative environmental problems
 Effect of exhaustion of natural resources to welfare.
 Importance of health to welfare
 Private consumption and distribution of income
 Inclusion of human capital and technological progress
 Improving statistical database
 Inclusion of global perspective
 Inclusion of national characteristics

Measurement of welfare in Finland
Mari Kiviniemi’s government platform 22 June 2010 included a
target to start compiling a new welfare indicators for Finland
within couple of next years.
Most probably the establishing and implementation of this
welfare indicator will be included to next governments’ platform .
Regional GPI -applications have been calculated for PäijätHäme, Kainuu and Etelä-Pohjanmaa regions, Lappi, Pohjois- ja
Keski-Pohjanmaa will follow.
Development of GPI in Päijät-Häme, Kainuu
and Etelä-Pohjanmaa
New welfare measure
We need to develop advanced welfare accounting system that
monitors more the development of welfare of individuals.
 In order to be useful for decision-making, new monitoring
system should be relatively simple and transparent.
 Focus on consumers or households; GPI or derivative measure
seems to be the most favoured composite welfare indicator.
 Linkage to welfare state reconsiderations and policies. Urgent
need that new measure should be in use in 2010’s.

Thank you!
jukka.hoffren@stat.fi