Tuesday, 15. January 2013

A New Way of Assessing our Economies: The Prosperity Quintet

Economic growth is not tantamount to prosperity even though politicians and economists use these terms as synonyms. On a global scale, economists measure economic growth exclusively on the basis of gross domestic product, but in doing so, many other factors that contribute to the welfare and prosperity of a country are ignored. Therefore, more specific alternatives for assessing our economies are needed. So far there has been no indicator of prosperity that has been truly successful. For this reason, social scientist Meinhard Miegel presents five indicators for measuring prosperity, including GDP.

Professor Meinhard Miegel is an expert of the German Bundestag committee Wachstum, Wohlstand und Lebensqualität  (growth, prosperity and quality of life). He is the co-founder of the Denkwerk Zukunft foundation, which aims towards the renewal of Western culture. The motto of this foundation is “the West should serve anew as an example for the future and for other cultures”. Clearly, the foundation aims to find new definitions and measuring instruments for terms like economic growth and prosperity. For many years, Miegel and others have been working on how to measure economic growth while considering quality of life.

Now they have come up with a new approach: the prosperity quintet. In Berlin, on 7 February 2012, Professor Dr. Meinhard Miegel and Stefanie Wahl, the foundation’s managing director, introduced a model consisting of five prosperity indicators.

Miegel and his team have added a debt rate to the four economic and ecological measuring instruments presented in 2010. As before, the prosperity quintet contains per capita GDP as a measuring instrument for a country’s economic performance, the 80/20 ratio (relation of the disposable income of the population’s strongest fifth to the weakest fifth in economic terms), the social exclusion rate (part of the population that feels excluded) and the ecological footprint in relation to the global bio capacity (the domestic consumption of natural resources compared to the ecological capacity of the earth).

By adding the debt rate (total debt in relation to the GDP) as a measuring instrument for future viability, the research group of the Denkwerk Zukunft foundation has expanded their earlier model consisting of four indicators into a prosperity quintet. Its aim is to make even clearer than before what the future will look like if countries continue doing business as usual in order to gain ever greater material wealth.

The founders of the prosperity quintet hope that their model is easy to understand so that it will be widely applied and will eventually replace GDP as the only indicator of prosperity. In fact, there have already been models with alternative indicators that measure prosperity even more precisely, but these models are too complex and difficult to apply. Therefore, the prosperity quintet has very good chances to win out over them.

The five indicators of the prosperity quintet show us quite plainly how much the usual way of doing business exploits our environment, society and future. Moreover, the quintet reveals that the increase of prosperity may soon turn into a decrease of prosperity. Every country of the EU has an ecological footprint that is far higher than ecological capacity. Furthermore, the economic growth of half of the members of the EU is based on making new debts that exceed the Maastricht limit.

If you measure, for example, Germany’s prosperity according to the criteria of the prosperity quintet, you get significantly unfavourable results. Even though the economic power is above average, the 80/20 ratio and the social exclusion rate are below average. An ecological footprint that is far too high and a debt rate that is above average is the price Germany pays for its material prosperity.

In order to increase prosperity in the sense of the quintet, the Denkwerk Zukunft foundation suggests implementing strict budgetary discipline and getting by with what the economy of a country offers. However, it is not clear whether this suggestion means having to continue with deregulation, less state intervention and privatisation or having to refrain from building projects that are both economically and ecologically senseless. We would like to add that the public authorities are also accountable for income levels and income distribution.

The entire memorandum of the prosperity quintet is available on www.wohlstandsquintett.de.

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