Personal perceptions make a difference

In the current economic debate, conventional indicators for prosperity and development are increasingly being questioned. Indicators for subjective well-being can help to get a more comprehensive idea of developmental progress. They also make it easier to assess impacts fast and to draft policies and design interventions geared to specific needs.

By Matthias Grossmann and Maya Schnell

The question how development and prosperity can be measured and assessed has long been debated. One of the core findings of the Commission on the Measurement of Economic Performance and Social Progress, that was assigned by French President Nicolas Sarkozy, was that conventional indicators, such as gross ­national product (GNP), are not ­sufficient measurements of prosperity (Stiglitz et al., 2009). The Commission recommended considering the subjective quality of life an aspect of prosperity too (see Michaelis, D+C/E+Z 2009/12, p. 470 f.), so specific data should complement objective indicators.

To date, objective indicators dominate the statistics on economic and socio-­demographic affairs. The World Bank, for instance, uses some 1000 development indicators in its World Development Indicators Database. In addition, there are several multidimensional indices like the UNDP’s Human Development Index (HDI), or the new Multidimensional Poverty Index (MPI) which compare countries in country rankings. Typically, different indicators reflect different dimensions of development.

But which indicators serve best to assess development and prosperity? Is higher income more important than a pristine environment? And do the indicators really reflect what they are supposed to? Repairing environmental damages, for instance, contributes to economic growth, but it does not achieve anything beyond re-establishing matters as they were before the damages. Does that count as development?

Assessments do not only depend on indicators, but just as much on the quality of the underlying data. This is particularly relevant in developing countries with weak institutional capacities. All too often, they have no dependable data, including historic data, and whatever data there is, was often collated by different methods. Data quality also differs from country to country.

Much-used country rankings such as the HDI, moreover, often paint only relative pictures: changes in ranking do not necessarily signify successful development; they may simply result from other countries gaining or slipping in the rankings.

Putting people first

Subjective indicators are based on insights by behavioural economists and psychologists. Factors such as people’s belonging to certain communities or their attitudes towards life influence their subjective well-being and behaviour. Objective indicators cannot reflect such dimensions. Moreover, subjective well-being is about how people rate the conditions in which they live. That, in turn, influences decisions and behaviour. Research on happiness considers such issues and leads to proposals for improving people’s individual well-being. There are various relevant indicators that reflect people’s emotional assessment of their personal circumstances. Fear and hope are examples. Others refer to people’s cognitive appraisal of their quality of life or their satisfaction concerning a certain event or outcome.

Subjective indicators are increasingly being appreciated in the development debate, reflecting our changing understanding of what “development” means. The old idea of trusteeship has been dropped. We no longer believe in “developed” actors making suggestions to “less developed” actors on what to do and how to do it. Today, ownership matters, and development is considered a cooperative process. These ideas are reflected in procedures that promote participation as well as in the emphasis on national development strategies.

Today, development co­operation is, for the most part, about broad-based participation in defining goals and methods as well as the joint implementation of programmes. Development cooperation is understood as helping others to help themselves, with the individual being the focal point of this process. How individuals perceive development matters accordingly.

Assessing development

Subjective and objective facts complement each other, resulting in a broader picture of development. Studies indicate that members of ethnic minorities, migrants and informal workers often state a lower sense of well-being than members of the ethnic majority or people with steady jobs – even if their incomes are the same. The existence and quality of local networks, including family and neighbours, have an impact on subjective perceptions of poverty (Herrera et al., 2006; Conceição and Bandura, 2008).

Sometimes, subjective assessments, however, run counter to generally accepted opinions of development. Income disparities do not always lead to frustration. In Peru, for instance, people tend to read income disparities as a promise that socio-economic advancement is possible. Elsewhere, that perception is not shared. In Madagascar, social harmony is emphasised so income inequality impacts negatively on subjective well-being. In China, people’s satisfaction with their lives even deteriorated between 1994 and 2005 in spite of per-capita income rising more than two-fold (Kahnemann and Krueger, 2006). Such data show that material factors alone do not fully explain life satisfaction and subjective well-being.

In the best case, subjective indicators give important insights into the needs of individual countries and people. They offer meaningful starting-points for drafting needs-based policies and designing interventions.

Assessing impacts

Measuring and attributing impacts is a challenge for development agencies. Subjective indicators, especially their changes over time, can tell us a lot about the well-being of target groups and their assessment of the impacts of interventions.

Consider the hypothetical case of measuring the effectiveness of the health sector. Doing so will require objective data such as the number of doctors, health expenditure per person and the number of hospitals and clinics. Different sources and methods would need to be tapped. On the other hand, a single question would serve to get a first idea already. For instance, one indicator could be the change in the level of people’s satisfaction with their access to health services. Impacts could then be identified by comparing subjective indicators with indicators for objective change.

Subjective indicators allow for new ways of assessing development. Accordingly, they serve the development of better focussed policies and interventions. Development interventions should also aim to improve individual satisfaction, but not at the cost of others’ well-being. Such trade-offs require a proper supervision of interventions and the development process in general. It is also necessary to understand the issues – and the interventions – that influence individuals’ well-­being and the overall quality of life. An analysis of the interplay between objective and subjective factors would be useful.

Subjective indicators can be readily measured in developing countries as the regular Afrobarometer or Gallup World Poll surveys demonstrate. To be considered strong, reliable evidence, subjective indicators need to meet certain standards. Linguistic and cultural differences need to be taken into account when asking and interpreting questions. A stringent survey-design can prevent such problems. Strong structures and mechanisms for the gathering and interpretation of data in devel­oping countries are equally of key im­portance. Development cooperation can contribute towards establishing the required capacities.

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