New Perspectives

In Economics and Finance

The Shift to Wellbeing in Economic Policy

Public policy in many countries is grappling with difficult issues of how to expand wellbeing in the face of global problems such as persistent geographies of poverty and increasing risks from climate change. Palgrave Macmillan have recognised this with the launch of a new series Wellbeing in Politics and Policy. The second volume in the series is an Open Access Palgrave Pivot written by Paul Dalziel, Caroline Saunders and Joe Saunders, Wellbeing Economics: The Capabilities Approach to Prosperity. The lead author of the book talks about the shift to wellbeing in economic policy.

On 25 November 2010, then Prime Minister David Cameron launched the United Kingdom’s Measuring National Wellbeing Programme. In that very speech, however, Cameron emphasised his view that’growth is the essential foundation of all our aspirations’. In pursuit of economic growth, his government introduced a broad programme of austerity measures that caused immediate and enduring harm on the wellbeing of large numbers of British citizens.

That contradiction is an example of difficulties faced by governments around the world. There is almost universal recognition that public policy should aspire to improve the wellbeing of people and of communities, but policy priorities continue to focus on promoting economic growth, even when this results in widening income distributions or contributes to global climate change. Is it possible to shift economic policy so that it addresses wellbeing more effectively?

The capabilities approach to prosperity argues that this is indeed possible. The first step is to recognise the efforts made by people to expand their own capabilities for living the kinds of lives they value, and have reason to value. This is an idea introduced by Amartya Sen as the foundation of authentic development. These efforts include the choices people make to form families and households, and their collaborations in the diverse institutions of civil society. As David Teece argues in his influential capability theory of the firm, participation in the market economy can also expand capabilities.

Policy advisors must understand these actions of citizens before they can devise effective policies for supporting wellbeing. There are important differences depending on the level of government. Local government is in a better position to co-design with local residents policies to improve wellbeing capabilities. National governments can benefit from economies of scale and access to knowledge in designing and implementing policies. Global problems require collaboration among global institutions, including international non-governmental organisations, multinational corporations and intergovernmental organisations.

A feature of wellbeing economics is its emphasis on investment in different types of capital needed to support current and future wellbeing. This is a feature of the wellbeing framework created by the Organisation for Economic Co‑operation and Development (OECD). The OECD framework focuses on four types of capital: human capital, economic capital, natural capital and social capital. These are all very important, but my co-authors and I identify three other types of capital that we argue are also essential for wellbeing: cultural capital, knowledge capital and diplomatic capital.

Our analysis of wellbeing economics develops 24 Propositions, beginning with a claim that the primary purpose of economics is to contribute to enhanced wellbeing of persons. Governments are grappling with serious wellbeing issues, but it is no longer credible to assume that economic growth by itself will solve these issues. Indeed, current patterns of production are contributing to urgent problems, including global climate change. The wellbeing economics framework is a tool for guiding better economic policy that will help persons lead the kinds of lives they value, and have reason to value.

Paul Dalziel is Professor of Economics at Lincoln University in New Zealand. He has published 7 books and more than 100 refereed papers on his research, which focuses on economic and social policy.

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