Wellbeing's role in government policy

  • Hon James Shaw
Finance Statistics

Kia ora everyone, and welcome back to Parliament for the third day of the Third International Conference on Wellbeing & Public Policy.

It’s my privilege to speak to you as Minister of Statistics and Associate Minister of Finance, and discuss the role of wellbeing in the Government’s policy platform.

I’d like to thank the organisers, Victoria University of Wellington, the Treasury and the International Journal of Wellbeing, for hosting this conference.

I’d also like to acknowledge the academics and other people who have travelled not just from overseas, but from around New Zealand.

I want to thank all of you for being part of this opportunity to progress wellbeing research, and encourage you to engage directly in the different consultations going on at the moment.

I know there is a lot happening across Government right now. Most of it is aimed at wellbeing itself, in some direct or very indirect way or another.

Today I’m going to talk about the opportunity for improving how we measure outcomes for New Zealanders by focusing on wellbeing.

So, bringing it back to all the activity going on across Government right now—which is trying to improve wellbeing in some way—I want to lay down a challenge to researchers and academics interested in using wellbeing research to incorporate it into policy making.

GDP and Wellbeing Ambitions

The Prime Minister’s 100 day plan speech outlined our shared ambition. To quote her directly:

“We want New Zealand to be the first place in the world where our Budget is not presented simply under the umbrella of pure economic measures, and often inadequate ones at that, but one that demonstrates the overall wellbeing of our country and its people”.

We have also said that we will provide new leadership for how New Zealand is governed.

Our vision is therefore to be a compassionate Government that measures itself by how well it improves the wellbeing of people—all people.

One of my Ministerial responsibilities includes the development of sustainable development indicators.

I think it is worth noting that this work sits in my Finance portfolio delegation, rather than Statistics.

It reflects that my particular interest is to add to GDP and all the fiscal indicators that capture costs in policy making. 

While the fiscals will remain an important marker of economic activity, used in isolation they miss important elements of why we work for better outcomes: to improve wellbeing. 

GDP, and more importantly, the economic indicators that make it up, tells us a lot about what moves, or what enters the ‘measured sectors’ that were previously unmeasured (or untaxed).

But GDP isn’t a proxy for wellbeing, nor for ‘utility’ or capability.

GDP is repeatedly criticized for being a poor indicator of social welfare and for leading governments astray in their assessment of economic policies.

GDP statistics measure current economic activity in terms of through-put.

But they ignore wealth variation, international income flows, household production of services, destruction of the natural environment, and many other determinants of wellbeing.

They don’t take account of the quality of social relationships, economic security and personal safety, health, and longevity.

The past two decades have witnessed an explosion in the number of alternative indicators and a surge of initiatives from important institutions such as the OECD, the United Nations Development Programme and the EU.

In addition, research work such as the Planetary Boundaries, has brought the importance of environmental sustainability and ecological limits to the forefront of economic discussions.

Living Standards Framework

Being one of the Finance Ministers under this Government has exposed me to Treasury advice.

The Treasury, lead economic advisor to the Government, is developing a Living Standards Framework that puts current wellbeing and the four capitals (human, social, financial, and natural capital) at the heart of their operations.

A key focus of the Living Standards Framework is the sustainability of the four capitals. 

Treasury considers the Living Standards Framework can help improve the delivery of its core functions of providing economic and fiscal advice. 

As Treasury embeds the Living Standards Framework into its functions, it is expected that future wellbeing and the sustainability of the four capitals will be the cornerstone of all its advice.

It has released a series of papers for consultation proposing a Wellbeing Dashboard and exploring the use of a capital stock economic framework through their Living Standards Framework.

These are incredibly well-researched pieces of work and I encourage you to explore them.

I, for one, am interested in whether Treasury thinks we can trade off those capitals. Can we compensate reductions in natural capital with increases in financial capital?

Johan Rockstrom’s work on Planetary Boundaries, and Kate Rowarth’s book on ‘Donut Economics’, are pretty clear that while at the margin this is possible, there are limits.

I think it is crucial that we are aware of those limits when trying to think about wellbeing, because future wellbeing depends on the sustainability of the capitals. If substitutability between capitals becomes limited, we need to know in advance.

The Treasury’s aim is to organise indicators of overall progress against international benchmarks, and to identify areas where NZ is relatively weak and might want to prioritise action. 

Later this year, the Treasury will publish a Living Standards Dashboard for the first time.

It will indicate:

  • The current wellbeing of New Zealanders
  • The distribution of wellbeing across the population, and
  • The direction of future wellbeing through indicators around the “four capitals”.

The Dashboard should capture this information—borrowing from integrated reporting and balanced scorecard approaches in business—and indicate where we might have problems, providing a ‘warning light’ about things we need to start paying more attention to.

This should support better policy advice that employs a common language around outcomes across a number of policy domains and affected population groups.

The emphasis will continue to be on demonstrating that initiatives will deliver particular objectives in a cost-effective way.

However, we want those initiatives to be anchored in an overarching wellbeing approach so that we know our priorities are right.

I think this is a better approach than only exploring costs, and only committing to the short term.  I also think that a capabilities approach to outcomes is a useful addition to understanding what impact we are aiming for.

The Government wants to know what different approaches might mean over the medium and long term.

We need to a take a longer-term view to make a difference. This is the essence of sustainability. It is the recognition that citizens’ wellbeing has both distributional and generational drivers, which share overlapping responsibilities to each other.

This wider context underpinning individual initiatives will enable us to take the more comprehensive approach the Government is seeking.

The Treasury considers the Living Standards Framework – and I quote –

…is the means to draw together the measurement of the variety of outcomes from government expenditure so they are consistent across the whole range of economic, social and environmental policies, and consistent with the intentions of expenditure.

Now if you can discern the meaning of that you probably work for the Treasury.

But for some of the Treasury’s critics, it can be even harder to understand.

Some of those critics argue that Treasury should stick to its knitting and just monitor the fiscals.

What is clear, is that there are questions about how to define and measure intangible forms of capital—particularly if we are going to use this information to guide choices.

How would you quantify these benefits?

How would you quantify something that has no monetary value associated with it, e.g. aesthetic value of trees?

How does current preference relate to future preference?

How do you mathematically express future wellbeing?

All of these are valid questions and highlight the difficulty in quantifying ecosystems and their services. 

However, I maintain that to fully understand the contribution of natural capital to future wellbeing, work should be progressed to quantify that where possible.

My first day at my first job at Price Waterhouse many years ago, the first thing I learnt was what gets measured gets managed.

This is glib, but I want to be clear: wellbeing analysis does not replace rigour. It does not replace cost-benefit analysis. If anything, it requires more rigorous cost-benefit analysis.

To date, most of the NZ environmental reporting has focused on the stock and state of natural resources. 

Limited information is currently available on ecosystem services.

 As work on identifying measures and collecting data regarding the ecosystem services continues, it will provide more depth and breadth.

The availability of more granular and regionally distributed ecosystem services data, will also enable the identification of risks and opportunities.

Another gap that has been identified as part of the development of the Living Standards Dashboard, is cultural services (e.g. ethical, inspirational and educational) that the various ecosystem assets provide.

Not only is it a data issue, but more research is required to determine the appropriate measures for cultural services in NZ.

We must acknowledge the importance of Te Ao Maori (the Maori world view) to who we are as a country.

Indicators Aotearoa NZ (or Ngā Tūtohu Aotearoa)

The fact the Prime Minister gave me the privilege to hold responsibility for the Statistics portfolio reflects that I don’t want to throw the measurement baby out with the GDP bathwater.

Treasury is working with StatsNZ to build a broad measurement framework to measure wellbeing, called Indicators Aotearoa New Zealand, or Ngā Tūtohu Aotearoa.

Some of you may ask what the relationship is between the Treasury’s Living Standards Framework and Stats NZ’s Indicators Aoteara.

The way that I think of it is Indicators Aotearoa is data and the Living Standards framework is information.

Stats NZ provides a pool of data from which Treasury and others make their analysis and interpretations and turn it into information.

Their approach, which you will hear more about later today, builds on the Conference of European Statisticians Recommendations on Measuring Sustainable Development.

This means shining a light on how New Zealand is tracking in a way that moves beyond narrow economic measures, and provides an independent picture of progress through a wellbeing and sustainable development lens.

Importantly for wellbeing, I want the Government to be able to show New Zealanders how different population groups are faring.

My intention is for StatsNZ to develop its systems and collection methods to provide an independent, authoritative, and – importantly - a comprehensive set of environmental, social, and economic sustainability indicators.

We are also looking at StatsNZ’s mandate to move beyond collecting and publishing statistics, to being a data steward for the whole public sector.

This would involve setting standards for how data is held and used and supporting agencies in how they use information to advise the Government.

But most important, at this stage, is ensuring we establish the systems to capture information about what New Zealanders value. The indicators will therefore be selected through an inclusive process.

We’re asking New Zealanders to tell Stats NZ what indicators they’d like tracked as part of Indicators Aotearoa.

Stats NZ is running public consultation on ‘what matters’;  presenting to representatives from community organisations, business groups, local government and social service providers – speaking in their places of work, community meetings, and in events such as this one today.

Following the end of public consultation, Stats NZ will be running a series of data workshops with subject matter experts to identify possible indicators which could tell the wellbeing story of New Zealand.

The workshops will culminate in a technical data event in December that brings together the findings of the public consultation and the data workshops.

The aim of the event is to agree a suite of approximately 100 economic, social, cultural and environmental indicators.

So please encourage your friends, whanau, colleagues and organisations to have their say by visiting stats.govt.nz.

We would like as much input as possible during the rest of the consultation phase - which runs to September the 30th.

How IANZ will be used

So far, we have had lots of feedback.

Officials are working across government to ensure the different pieces of the Government’s Wellbeing work are joined up.

Most immediately, the Indicators Aotearoa work will be used by the Treasury to produce its Wellbeing Dashboard.

It will inform our international reporting commitments: like Voluntary National Reporting of the Sustainable Development Goals in July next year, and Human Rights Reporting.

 It will support sector and domain reporting (like the Ministry for Social Development’s Social Report);

Importantly, together with proposed changes to the Public Finance Act, it will enable public and policy researchers to hold the government to account.

The indicators should be driven, in part, by principles of what is best for accountability and state sector performance and efficiency.

Understanding the state and direction of change of higher level wellbeing outcomes (the macro) is something that will need to emerge over time.

Audiences like this one need to engage with the data, information, analysis, and advice that the Government makes available.

The degree of control by the state sector on immediate outcome indicators is not always obvious, as most outcomes are complex and only observed over the long-term.

Wellbeing research will be most effective if it is used to inform various policy frameworks—not just flagship products like the Child Wellbeing Strategy (being led by DPMC).

Therefore it is crucial to improve the research, monitoring, evaluation, and review functions of policy and regulatory agencies.

This includes how agencies design their performance reporting and monitoring frameworks to focus on improving wellbeing.

It also includes how agencies report on the performance of policies and services and outcomes for population sub-groups.

The Living Standards Framework won’t replace agency advice, or dictate how they frame-up problems.

Agencies will be able to contribute to that high-level Treasury macro analysis with specific data and more nuanced analysis.

But it will be just as important for agencies to specify the particular dynamics contributing to performance, and then identify and implement interventions to address them.

Embedding wellbeing thinking: Reviewing the architecture

In June, Cabinet endorsed the Stats NZ and Treasury projects as well as the development of state sector reforms to support current and future wellbeing.

I believe that New Zealand has an incredible opportunity to be one of the first countries in the world to transition to a truly sustainable economy and to show the rest of the world how it’s done.

This Government wants to make this focus on wellbeing enduring.  To do that, we plan to amend the Public Finance Act to require reporting on wellbeing. 

This proposal is part of a wider package of reforms to the State Sector, which include changes to the Public Finance Act and to the State Sector Act.

Together, those changes will reinforce our commitment to putting wellbeing at the heart of our policies, and better enabling public sector work that improves the intergenerational wellbeing of New Zealanders.

This week the Honourable Chris Hipkins announced consultation on changes to update the State Sector Act, the most significant public sector reform in New Zealand in thirty years.

Our aim is a public sector that operates as one joined-up system capable of tackling the complex challenges of our time.

And, as Grant Robertson outlined on Wednesday, we are going to consult on Public Finance Act changes, to ensure that our Budget process also embeds wellbeing.

He will shortly be releasing a discussion document about how we do this.

We both agree that the public service and governments alike should have responsibility for reporting on wellbeing as part of our core financial processes.

The Challenge: Using Wellbeing analysis in policy

All this work is partly about using more data and evidence to inform policy. Monitoring and reporting (and Budget-level prioritisation of resources) needs to be complemented with a wide ranging shift in the way that agencies operate in order to focus on wellbeing.

Combining a broader set of indicators and generating advice about trade-offs are big challenges. This is why the Treasury has engaged widely on the Living Standard Framework with academics.

However, the harder part is making more and better information useful to the political process and the constitutional context in which officials’ advice operates.

In other words, my read is that academics have thought deeply about the conceptual issues of wellbeing, but less so about how to apply these issues to guide policy.

My view is that being serious about wellbeing requires a commitment to evaluation, and using evidence not just in new policy ideas, but old zombie ideas.

Testing, such as through Randomised Control Trials (RCTs), and committing to use evaluation to inform ongoing political mandates, is required for this to work.

The problem is, of course, it is a brave Minister who commits to a process that might expose their great policy idea as having failed.

But we need to face up to this risk, if we’re going to improve the quality and services government delivers.

As I have said, this requires a closer look at some Government objectives that are currently described qualitatively.

It requires enabling better collaboration to address complex issues.

The consultation on State Sector Reform is an opportunity to arrange the massive ship of state in a way that enables better collaboration.

But we also need to be clear about accountabilities and what fulfilling them looks like.

Section 32 of the State Sector Act currently requires agency Chief Executives to take a stewardship approach to the legislation they are responsible for.

Just as the budget process focuses too narrowly on new marginal spending and simply rolls over the bulk of existing spending without even raising an eyebrow, our policy agencies take a ‘set-and-forget’ approach, without incorporating evaluation, research, monitoring, and - importantly - reviewing of their stewardship responsibilities.

So, my challenge is to revisit policy decisions, demand good analysis by agencies, and engage in the evaluation process.

Wrap up

As Grant Robertson said on Wednesday, we want to be a country that is prosperous, but cares about who shares in that prosperity, how we look after our land and our water, how we make our people healthier, more secure, more skilled and more reflective, and where we connect our communities.

Thank you again for being here, especially those who have travelled. I wish you the very best for a fruitful third day of the conference.