Wellbeing and Indexes
JOHN McLAREN AND HOW NOT TO MEASURE WELLBEING
THIS week the FM gave a speech at The Wealth of Nations 2.0 conference explaining why governments should seek to maximise wellbeing rather than GDP. The Scottish Government already has a strategy for doing this. So, it was an odd coincidence that most of the anti-independence press carried a story on the same day to report that Scotland recently “fell five places in an index of social and economic wellbeing in developed countries”.
Naturally, this SNP BAD story was taken as gospel, including by the BBC. But anyone looking deeper into the alleged fall in Scottish wellbeing would soon smell a very big rat indeed.
This bogus story is based on something called The Scottish Trends Index of Social and Economic Wellbeing, which sounds very official or at least academic. According to this measure Scotland has been relegated to the bottom half of 32 Organisation for Economic Co-operation and Development (OECD) economies foe overall wellbeing of its citizens.
But hang on a bit. The so-called Index of Social and Economic Wellbeing is not an official publication. Rather it is the work of self-employed and self-styled “political economist” John McLaren. Mr McLaren is certainly political.
Originally McLaren was a civil servant at both H.M. Treasury (1985-1988) and at the Scottish Office (1989-1998). Then he graduated to working fulltime for the Labour Party during election of the new Scottish Parliament in 1999. The transformation from civil servant to spad was seamless.
With the election of the first (Labour) administration, Subsequently McLaren became Special Adviser to First Minister Donald Dewar. After Dewar’s untimely death, he went on to be Special Advisor to FM Henry McLeish. Just in time for the 2007 Holyrood election, Mr McLaren was back working directly for Scottish Labour doing campaign work.
With the advent of the SNP government, McLaren sought pastures new. He joined the new Centre for Public Policy for Regions – a think tank attached to Glasgow University which was set up with a healthy grant from Gordon Brown’s Treasury. Now McLaren runs his own private consultancy.
A FLAWED INDEX
Just how reliable is Mr McLaren’s wellbeing index, which brings his consultancy business a lot of free publicity? For starters, the McLaren index is composed of only four measured components: GDP per capita, school attainment at 15 only, life expectancy, and employment rate. In contrast, most recognised indices combine far more elements to create a rounded picture.
For instance, the official OECD Better Life Index combines 11 key components: housing, income, jobs, community, education, environment, civic engagement, health, life satisfaction, safety, and work-life balance. For each individual component, the OECD Index also measures a variety of sub-components. This means the OECD measures changes in nearly 30 individual factors. Another respected official study is the European Quality of Life Survey, which is published every four years. This tracks 262 data points, not four.
McLaren justifies using only four benchmarks by saying they are “the most essential”. But surely housing is essential? Surely the environment is essential? McLaren’s choice of benchmarks is crude and lacks statistical significance.
But perhaps the daftest part of John McLaren’s index is the statistical weight he gives to GDP. Surely point of constructing a wider wellbeing index is to get away from the notion that GDP is the proper measure of national welfare. In the small print, McLaren explains his conclusion that Scotland is dropping in the OECD welfare rankings because… er, low oil prices have reduced GDP growth compared to other countries. So, McLaren falls into precisely the trap a wellbeing index is designed to let us escape.
How does McLaren actually calculate his index numbers? He takes national scores and benchmarks them against the worst and best performers among the countries under study. If, say, life expectancy varies between 76 and 80 for all countries, he takes 76 as the base line and measures who scored above that. Which means his index is not measuring absolute wellbeing. Instead, it measures performance against other countries. Result: Scotland could have an excellent absolute score but if another country rises faster, then Scotland appears to fall in wellbeing. This is a very dubious methodology, especially when using so few indicators.
But there is a lot more to question in McLaren’s so-called wellbeing index. For instance, the implicit claim that he is benchmarking wellbeing across the whole OECD. On closer inspection it appears that McLaren has deliberately dropped a number of OECD member states from his index. They are Chile, Israel, Ireland, Latvia, Luxembourg, Mexico and Turkey. His explanation is that “their inclusion overly distorts the results”. Which appears to suggest that Mr McLaren knows what results he wants to get before he gets them. As a result, McLaren can argue that Scotland has dropped into the “bottom half of OECD nations”. Of course, he has deliberately excluded the lowest scoring OECD nations to achieve this outcome.
And what of McLaren’s final conclusion that Scottish wellbeing is falling? His outcome table shows that Scotland’s score fell by a microscopic 0.05 (out of a possible 4) in the period 2006 to 2018. This is not statistically significant, and McLaren is a good enough economist to know it.
We should also note that only three of the 32 countries on his index register ostensible falls in wellbeing – the others are Finland and Greece. It defies common sense to believe that rich, communitarian Finland has seen reduced wellbeing between 2006 and 2018. Or that Scotland mirrors the catastrophic economic and social collapse in Greece. Unless you are a dyed-in-the-wool Unionist.