REVIEW OF ECONOMIC PERSPECTIVES – NÁRODOHOSPODÁŘSKÝ OBZOR
VOL. 15, ISSUE 1, 2015, pp. 71–88, DOI: 10.1515/revecp-2015-0012
Well-being in the Czech Republic in an Aggregate
Perspective1
Kamila Fialová, Pavel Štika2
Abstract: The article assesses well-being in the Czech Republic compared to other
Visegrad countries (Slovakia, Hungary, Poland) and neighbouring Germany and Austria.
By employing various approaches designed by several international organisations it
takes an aggregate perspective to assess both the current well-being and its sustainability
into the future. All employed indicators that relate to current well-being evaluate the
well-being in the Czech Republic as moderate among the OECD countries. The results
indicate that the position in well-being rankings improves with the growing number of
dimensions or subjective factors included in the well-being measure, mainly due to the
reduction in relative importance of income dimension and higher emphasis on the multidimensionality
and complexity of well-being. In the case of sustainability, large differences
can be identified in evaluation stemming from Happy Planet Index and Sustainable
Society Index perspective. Although both of them agree on unfavourable situation as
regards environmental sustainability in the Czech Republic, different accent on economic
area alters the final result substantially. The analysis shows that for any well-being
assessment, the choice of indicators is crucial and a large portion of caution is necessary
when interpreting these.
Key words: well-being, sustainability, subjective life satisfaction, comparative studies
JEL Classification: I31, Q56, P52
Introduction
Well-being, life satisfaction and happiness of people have drawn increasing attention of
researchers across various social and behavioral sciences. Well-being is hard to define
and measure as it covers many aspects of people’s lives. For many decades, well-being
has been evaluated mainly based on economic factors, with the Gross Domestic Product
(GDP) as the main metric for gauging the quality of people’s lives. The past two decades
brought many serious discussions which doubted the use of GDP as the main metrics
for well-being considerations. Relevancy of such discussions magnified in light of
the adverse economic developments which followed the financial crisis.
1
Work on this paper was supported by grant no. P404/11/1521 ‘Well-being and Satisfaction of
Households in CEE Countries: Linking Objective and Subjective Indicators’ from the Czech
Science Foundation.
2
Kamila Fialová, Institute of Sociology of the Academy of Sciences of the Czech Republic:
kamila.fialova@soc.cas.cz; Pavel Štika: stika.pavel@gmail.com
REVIEW OF ECONOMIC PERSPECTIVES
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Many initiatives assess quality of human lives from a number of perspectives, the economic
being only one of them. Among these initiatives, the most influential has recently
been the work of the Commission on the Measurement of Economic Performance and
Social Progress, as summed up in the 2008’s report (Stiglitz, Sen, Fitoussi, 2008), the
2009 EU Communication called GDP and Beyond (EC, 2009) and the follow-up action,
and the OECD Better Life Initiative launched in 2011. In addition, numerous national
initiatives arose, which brought the issue closer to the national policy-makers (for an
overview see OECD, 2013). Recently, Hák and Janoušková (2013) address utilisation of
well-being, or “beyond-GDP” indicators in the Czech Republic. The authors point out
that although the term has not been widely promoted or consistently used in the Czech
Republic several initiatives to assess well-being in an aggregate perspective overreaching
the GDP-based approach already took place here.
This article attempts to take an aggregate perspective on human well-being in the Czech
Republic, linking both its subjective and objective dimensions and covering economic,
environmental, personal, and social domains. While mainly building on the approach set
by OECD Better Life Initiative, we also compare it with several other both objective
and subjective well-being indicators which come from different sources. We also take a
closer look at the issue of future sustainability of current well-being. We compare existing
well-being measures and show that these are critically dependent on the underlying
framework covering the choice of suitable indicators or methodological background.
Our research focuses on the Czech Republic, and compares the situation here to situations
in the remaining Visegrad countries, Hungary, Poland and Slovakia, which share
similar socio-cultural, economical and historical background. Moreover, Western European
patterns are represented by the neighbouring Germany and Austria. We try to
identify specific patterns of development of well-being and the role of its various determinants
across different dimensions.
The empirical research on well-being in the Czech Republic has been rather scarce so
far. The country has mainly been studied as one of the transitive countries without any
special focus on the particular Czech case (see for instance Bartolini et al., 2012, or
Easterlin, 2009; for a comprehensive overview of the existing literature see Selezneva,
2011). Only two domestic studies focused on the situation in the Czech Republic: Hamplová
(2004) analysed life satisfaction of individuals and its relationship with the main
socio-demographic characteristics of individuals. Sirovátka and Saxonberg (2011) examined
inequalities in happiness, its determinants and the role of a welfare state. A
recent study by Večerník and Mysíková compares subjective life satisfaction in the
Czech Republic to the one in Central Europe (Večerník and Mysíková, 2014a), respectively
in the entire European Union (Večerník and Mysíková, 2014b). Yet, research
offering an aggregate picture of well-being in the Czech Republic under different perspectives
has not been carried out. In our paper, we try to fill this gap in the literature.
The article is structured as follows: The following chapter deals with methodological
issues of measuring well-being, describes the reasons behind the recent reluctance of
using GDP as a well-being metric, and discusses alternative approaches. The third part
assesses the well-being in the Czech Republic compared to other countries based on
Human Development Index and subjective Life Satisfaction indicator. The fourth chapter
presents the OECD approach to well-being measurement established in Better Life
Volume 15, Issue 1, 2015
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Initiative, as described in How’s Life? Measuring Well-Being dashboard and summed
up in Your Better Life Index, and compares it to previous indices. The fifth chapter takes
a closer look at future sustainability of current well-being in the Czech Republic and
other countries. The sixth, and final chapter concludes.
Measuring Well-being: Methodological Issues
The discussions concerning validity of the traditional GDP-based system for measuring
human well-being are as old as the system itself. This approach has been widely doubted
for several reasons. Firstly, GDP reflects the economic dimension only; it does not
capture a large variety of individual and social determinants of actual well-being. These
cover mainly factors that cannot be traded on market, such as happiness, health status,
family relations, or personal security. Yet, the GDP-based approach suffers from many
shortcomings even in the economic dimension (as summarized in OECD, 2011).
The first limitation stems from the very definition of this metric: Since GDP refers to
value of goods and services produced over given time in a given country, it completely
excludes the residents’ income from production abroad and, on the contrary, it covers
domestic income of non-residents. Moreover, it does not reflect the consumption of
capital goods and therefore overestimates the level of consumption. Furthermore, the
aggregate number does not show the distribution of goods and services among the inhabitants,
and thus fails to capture the degree of (in)equality in a country. GDP also
does not reflect the sustainability of economic development and does not cover the
value of non-market services. Finally, some goods and services may increase the GDP
while reducing the level of individual well-being.
The relation between income and well-being was subject to large discussions which
followed the seminal work of Easterlin (1974). The author showed that while poor people
tend to be less happy than rich people in the same country, the development of average
income and happiness in the country are only very weakly related (for details on the
follow-up discussions see Štika, 2009; or Di Tella and MacCulloch, 2006). The majority
of current researchers agree that the wealthier a state, the lesser the significance of income
as the driver of well-being. Moreover, many important drivers of well-being are
not at all, or only mildly related to income (e.g. health, social contact).
Still, GDP, and more specifically, its per capita metric and real development in time,
remain the main indicators used to assess or compare well-being of countries and their
citizens. The main reason behind the popularity of this metric is probably its simplicity:
to assess the welfare of people only a single headline indicator is observed. However,
this simplicity also reflects the main disadvantages: Simplified and reduced information.
Yet, well-being is a multidimensional phenomenon with many determinants.
According to Boarini et al. (2013), the multidimensionality of well-being can be addressed
in three different ways. First, a summary dashboard of more indicators covering
various dimensions can be constructed. Second, a concise picture can also be reached by
calculating a single composite indicator aggregating the physical indicators across different
dimensions. The third, and the least widely used way means calculating an aggregate
monetary equivalent of well-being. All these approaches have their advantages and
limitations. While summary dashboard allows for examining the different aspects of
REVIEW OF ECONOMIC PERSPECTIVES
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well-being and their development in time, lack of simplicity is its main disadvantage.
Contrary to that, simplicity is the main advantage of composite indicators, but their
validity is critically conditioned by soundness of many assumptions that enable their
aggregation. As well-being is a multidimensional phenomenon, any attempt for its
quantification by aggregation necessarily includes a weighting scheme which would
describe the relative importance attached to each of the well-being dimensions by each
individual or society.
No clear consensus can be found in existing literature on the issue of weighting. Decanq
et al. (2013) calculate and compare various weighting schemes on a recent dataset for
Flanders, and conclude that the resulting well-being of different population sub-groups
crucially depends on the weighting scheme applied. In contrast, OECD (2011) finds
little difference in total outcomes under different weighting schemes. Boarini et al.
(2013) show that in practice people’s choices come close to equal weights. This result is
similar to that of Hagerty and Land (2007), who conclude that equal weights may often
be the best approximation of consensual weights. To complicate the situation even more,
the set of weights may differ across different societies and cultures. Nevertheless,
Boarini et al. (2013) show that the composite index might be robust to changing set of
weights applied, because due to the correlation of used indicators of well-being cultural
differences can be overcome.
In recent economic research, human well-being is often viewed from the subjective
point of view and measured by an individual’s response to a survey question like, “All
things considered, how satisfied are you with your life as a whole these days?”3
The
questions on subjective well-being are usually measured on a scale from 4 to 11 points.4
The new stream of economic research based on subjective data was largely enabled by
increasingly available broad and comparable datasets. Still, several objections exist
against such an approach (summarised for instance by MacKerron, 2011), raising the
issue of potential differences in understanding and interpreting the survey questions, or
differences in individual subjective grading scales. These may reflect in both random
and non-random variation, the latter of which may present a serious obstacle to an empirical
analysis. Another potential objection relates to cultural differences in values and
norms which complicate any international comparison based on subjective data (Fleche
et al., 2012). Nonetheless, subjective measures have been commonly applied in other
scientific disciplines and compelling evidence exist that these have the power to predict
human behaviour in a meaningful way: When tested against a variety of indirect indicators
of well-being, the expected relationships were mostly confirmed (Fleche et al.,
2012).
3
The question comes from the World Values Survey.
4
Subjective well-being comprises several concepts. On the one hand, there are evaluative
measures in the form of reflection made by a respondent, and on the other hand, measures of
affect, which relate to the respondent’s emotional state in a given moment. While life satisfaction
is the most common of evaluative measures, happiness is the most commonly used measure of
affect.
Volume 15, Issue 1, 2015
75
Human Development Index and Subjective Well-being Indicators
A large variety of alternative measures of well-being has been designed to overcome
limitations of GDP approach. While some of them represent synthetic indicators relating
to overall well-being situation, others relate to subjective level only.
Human Development Index (HDI), introduced by United Nations Development Programme
(UNDP)5
in 1990, was among the first synthetic well-being metrics designed to
overcome the GDP-related issues. It combines information from three dimensions: “A
long and healthy life” (measured by life expectancy at birth), “Education” (measured by
mean and expected years of schooling), and “Decent standard of living” (measured by
Gross National Income per capita, PPP US$). This composite indicator reaches values
from 0 to 1, where 0 is the worst. HDI is published annually and covers most countries
of the world. The development of HDI in the examined countries is depicted in Figure 1.
Figure 1 Human Development Index, 2000-2012
Source: UNDP
Among the six examined countries, the Czech Republic with a moderate HDI value is
close to Austria, and the difference in their levels do not seem to narrow. HDI reaches
the highest value in Germany, while Poland lies on the opposite side of the spectrum,
closely followed by Hungary and Slovakia. HDI was on the rise in 2000-2012. Between
2000 and 2005, HDI increased by 5% in the Czech Republic and experienced the highest
growth among the six countries. The pace of growth tended to slow down after 2005:
between 2006 and 2008 Slovakia exhibited the fastest HDI pick-up of annual average
0.8%, compared to 0.4% in the Czech Republic. Despite significant GDP downturn in
2009, the economic recession after the financial crisis resulted in a decline of HDI in
5
For the Czech Republic the data is only available for 2000 and from 2005 on.
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REVIEW OF ECONOMIC PERSPECTIVES
76
two countries only: In the Czech Republic and Hungary. Slovak HDI stagnated in 2009,
and a continuing growth of HDI could be observed in Poland, Germany, and Austria.
Both poor performance of the Czech economy and weak growth of outcomes under
educational and health HDI dimensions after 2009 translated into negligible increase in
HDI from 2010 to 2012. Average annual growth reached 0.1% only, which represents
the worst result in the group of the countries examined (in contrast, Austria, Poland, and
Slovakia all recorded 0.3% average annual HDI growth).
A detailed picture on the development of individual HDI components in the Czech Republic
is offered in Figure 2. The income component reaches the relatively lowest value,
and as a reflection of unfavourable economic developments shows no solid growth after
2008. Similarly, education shows an uneven development without any clear trend after
2005. The only improving dimension is the health component, steadily increasing
throughout the period.
Figure 2 Human Development Index Components in the Czech Republic, 2000-2012
Source: UNDP
A new well-being measure was introduced by UNDP in 2010: the Inequality-adjusted
HDI (IHDI). In this indicator, the original HDI is adjusted for inequalities in distribution
of outcomes in each of the three dimensions. For no inequality, HDI and IHDI are equal,
while growing inequality reduces the value of HDI. The difference in these two indices
represents the loss in potential human development due to inequality.
Table 1 shows values of IHDI compared to HDI, and the main drivers of differences
between these two indices. The data indicate that inequality existing in OECD countries
may have a large effect on well-being: 12.5% of the total HDI value was subtracted due
to inequality in all OECD countries. Among the examined countries, the difference
between HDI and IHDI is the lowest in the Czech Republic, where its IHDI value approaches
that of Germany and especially Austria. The relatively low degree of inequali-
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Volume 15, Issue 1, 2015
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ty is apparent for all the three HDI dimensions covering education, income, and health
in the Czech Republic. Although relatively low when compared to other countries, inequalities
in income dispersion in the Czech Republic are significantly higher than disparities
in health and education, similarly to other examined countries.
Table 1 HDI and Inequality-Adjusted HDI, 2012
HDI IHDI
Loss due to
inequality in
education (%)
Loss due to
inequality in
income (%)
Loss due to
inequality in life
expectancy (%)
Overall
percentage
loss (%)
Austria 0.90 0.84 2.5 12.7 4.2 6.6
Czech Republic 0.87 0.83 1.3 10.7 3.9 5.4
Germany 0.92 0.86 1.8 14.5 4.0 6.9
Hungary 0.83 0.77 4.1 12.2 5.7 7.4
Poland 0.82 0.74 6.3 17.1 5.8 9.9
Slovakia 0.84 0.79 1.5 11.3 5.7 6.3
OECD 0.89 0.78 9.6 21.3 6.0 12.5
Source: UNDP
With an increasing interest of researchers in examining well-being rose the amount of
data sources offering information on subjective well-being of people. For the Czech
Republic, several relevant sources may be utilised, see Večerník (2012). In our article
we compare the aggregate indices with Gallup World Poll data on subjective life satisfaction
as presented by OECD (2013, 2011, and 2009).
Table 2 sketches the situation in subjective well-being in the six examined countries in
years 2006, 2010, and 2012 (unfortunately, longer time series are not available). The
highest mean life satisfaction (LS) is in Austria and Germany with a subtle increasing
trend. The Czech Republic shows a moderate level of LS among the examined countries,
and is close to that of Slovakia. The data show no increasing trend that would indicate a
convergence towards western-European standard represented by Austria or Germany. A
modest decline in LS was recorded in the Czech Republic and Poland in 2010 with a
subsequent pick-up in 2012. In contrast, life satisfaction registered a huge downfall in
Hungary in 2010; no signs of improvement were recorded two years later. Slovakia
shows a very different picture; LS in this country rose between 2006 and 2010 but
slightly corrected this growth in 2012.
According to OECD (2013), financial crisis was reflected in deterioration of subjective
life satisfaction in OECD countries, with higher unemployment as the main channel
through which the adverse macroeconomic circumstances translated into subjective LS.
LS fell in 2009, increased in 2010 with recovery of economic activity, but then declined
again in OECD countries in 2011. Detailed data for the Czech Republic are not available
but the situation in 2010 and 2012 indicates a similar development.
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Table 2 Life Satisfaction (Cantril Ladder, mean value) in 2006, 2010, and 2012
2006 2010 2012
Austria 7.1 7.3 7.4
Czech Republic 6.4 6.2 6.3
Germany 6.6 6.7 6.7
Hungary 5.2 4.7 4.7
Poland 5.9 5.8 5.9
Slovakia 5.2 6.1 5.9
Note: The Cantril Ladder is measured on a scale from 0 to 10.
Source: Gallup World Poll in: OECD (2013)
Well-being in OECD Perspective
As a part of its Better Life Initiative, OECD designed a framework aiming to overcome
limitations of approaches which are based on GDP. To understand people’s well-being,
it builds upon three pillars: material living conditions, quality of life, and sustainability.
This approach draws on the framework proposed by the Commission on the Measurement
of Economic Performance and Social Progress (Stiglitz, Sen and Fitoussi, 2008)
and is closely related to the large quantity of literature on this topic. Full methodology is
described in OECD (2011 and 2013).
OECD extends the number of observed indicators to better capture individual dimensions,
both in objective and subjective perspective.6
The focus is put on the outcomes
rather than drivers of well-being (e.g. health care status vs. health care expenditure).
Such approach takes into account not only well-being today but also the one in the future,
as it is influenced by our today’s actions, and finally it considers distribution of
well-being across individuals, which is where large discrepancies may exist.
The Better Life Initiative has two main outcomes: The first one is represented by the
How’s Life? Measuring Well-Being (OECD, 2011 and 2013) publication, a summary
dashboard reporting on quality of current well-being in eleven broad domains. Wellbeing
is measured in terms of outcomes achieved in the domains reflecting material
living conditions: Housing, Income, Jobs; and in the domains relating to quality of life:
Community, Education, Environment, Governance, Health, Safety, Work-Life Balance,
and Life Satisfaction. Each of the domains is measured by several indicators. The second
outcome is Your Better Life index, which is a composite interactive indicator combined
from these eleven dimensions.
6
The approach is building on results of existing literature, best practices for measuring well-being,
recommendations from the Stiglitz-Sen-Fitoussi Report, as well as on consultations with international
experts and with national statistical offices.
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79
Dashboard results
Summary OECD dashboard covers twenty-five headline indicators gathered along the
aforementioned eleven well-being dimensions. For each of the indicators, value and also
position among all OECD states is given. An aggregated score is available for each of
the dimensions (after normalisation and averaging of the values of the indicators covered),
enabling comparison of a country’s performance across dimensions and across
countries.
Generally, the main drivers of overall well-being performance (as summarized in the
Better Life Index, see later) are health status and subjective well-being, followed by
civic engagement and governance, jobs and earnings and education and skills. On the
contrary, work-life balance, social connections and personal security seem to matter less
for the overall picture. This corresponds to the results of other empirical research on this
topic (see e.g. Fleche et al., 2012).
Figure 3 presents an overview of the six examined countries in performance in the eleven
well-being dimension in 2010/2011. Among the OECD member states, the Czech
Republic ranks among the countries with moderate overall well-being performance.
Poland and Slovakia also belong to this group and, perhaps surprisingly, so does Germany.
Austria can be found among the countries with high overall well-being performance,
while Hungary placed on the opposite side of the spectrum, among countries
with low overall well-being performance.
Figure 3 Well-being Performance Across 11 OECD Dimensions, 2010/2011
Note: Figures show normalized performance which is calculated as simple average of the headline
indicators included in each dimension. These values are then normalized with the ratio-scale
transformation to re-express values in a 0-10 scale.
Source: OECD
In an aggregate perspective, the six examined countries did not show large differences
in scores for education, safety and work-life balance. On the contrary, major variation
appeared in income and life satisfaction. The two Western-European countries show
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higher degree of homogeneity in scores across the eleven dimensions: The variation
coefficient reached 16% for Austria and 21% for Germany. The scores significantly
vary in Hungary (variation coefficient at 56%), and partially also Poland and Slovakia
(41% and 40%, respectively). A slight variation of scores was noted in the Czech Republic
(33%). As OECD (2013) points out, larger homogeneity across the dimensions is
generally connected with a higher overall well-being score, as we will also show later.
The Czech Republic ranks close to the average in most of the well-being dimensions.
The highest scores were observed in education, environment, safety and work-life balance.
In contrast, lowest scores were reached in housing, income and civic engagement.
Here, the Czech Republic performed similarly to Slovakia. Three exceptions may be
identified in dimensions jobs, education and life satisfaction, where the Czech Republic
significantly outperforms Slovakia. Poland scores better in community and civic engagement,
while the Czech Republic shows better results in environment and life satisfaction.
Furthermore, the Czech Republic more or less significantly outperforms Hungary
in all but two of the examined areas: work-life balance and community. Compared to
Germany, the Czech Republic scores worse in all aspects, the exception being civic
engagement and safety. And similarly, when compared to Austria, the Czech Republic
scored worse in all aspects except for education.
The OECD results partly contrast with the previously cited HDI data. The Czech Republic
reaches the highest scores in OECD education dimension for educational attainment
measured as a proportion of adults aged 25-64 who have earned the equivalent of
a high-school degree (92% compared to the OECD average of 74%). In contrast, the
HDI educational index points to the relatively unbalanced performance of Czech educational
system when measured by mean and expected years of schooling. Apparently, the
choice of indicator matters significantly. On the other hand, both approaches agree on
the relatively poor performance in the income dimension.
Your Better Life Index
The second outcome of the OECD Better Life Initiative is Your Better Life Index. It
aggregates the scores from the above-defined eleven well-being dimensions into one
synthetic comprehensive indicator. As already mentioned, the aggregation is critically
dependent on the set of weights ascribed to each of the dimension. Figure 4 displays the
comparison of index with a different set of weights applied. The figure shows that Your
Better Life Index (YBLI) takes very similar values for two set of weights: Weights
attributed by real users of the OECD Your Better Life Index web application and
weights ascribing the same importance to each of the eleven well-being dimensions.
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Figure 4 Your Better Life Index With A Different Set of Weights Applied, 2011
Note: Three different sets of weights were applied to Your Better Life Index: “Equality on domains”
refers to equal weight given to material living conditions and quality of life (i.e. 1/6 to the
three dimensions under material living conditions and 1/16 to the eight dimensions under quality
of life), “Equality on dimensions” refers to equal weight given to each dimension (e.g. 1/11),
“Weights attributed by the users” refer to the average of weights given by real users of the "Your
Better Life Index" so far.
Source: Boarini et al. (2011) In: OECD (2013)
According to YBLI with equal weights on dimensions, the Czech Republic ranked 22nd
among the thirty-four OECD countries and in the overall well-being scored above all
the three remaining Visegrad countries with Poland on the 25th
, Slovakia 28th
, and Hungary
on the 29th
place. As follows from their generally better performance in particular
dimensions, Austria and Germany performed better than the Czech Republic and ranked
14th
and 16th
, respectively. Unfortunately, due to lack of historical data, YBLI does not
allow for tracking the development in time. For this purpose, other indicators of wellbeing
have to be used.
Comparison of indicators
As all the above-listed well-being indicators (Your Better Life Index, Human Development
Index, Inequality-Adjusted Human Development Index and Life Satisfaction)
build upon different methodological background and focus on different well-being dimensions,
it is impossible to compare them directly. Yet, indirect comparison of rankings
of a group of countries according to various indicators is possible. Employing different
measures of well-being somewhat changes the rankings of countries, as indicated
in Table 3.
Generally, these changes are small, but for the specific case of the Czech Republic, the
results indicate that the score improves once more dimensions or subjective factors are
covered in the well-being measure: While the Czech Republic scores on the 25th
place
for HDI, its position in Better Life Index (and also Life Satisfaction) is somewhat better
(23rd
YBLI, 22nd
LS). This might be connected to the reduction in relative importance of
income under the two latter mentioned indicators and higher emphasis on the multidimensionality
and complexity of well-being. A similar shift in scores can be identified
for Poland (30th
in HDI vs. 25th
in YBLI) and Austria (17th
in HDI vs. 14th
in YBLI and
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REVIEW OF ECONOMIC PERSPECTIVES
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even 9th
in LS). At the same time, the positions of Hungary and Slovakia in HDI and
YBLI show no difference at all. A large and opposite movement was recorded in Germany
which scored very well in HDI (5th
), but rather poorly in YBLI (16th
). Again, this
might be attributed to a different weight of the income dimension which was very high
in Germany. Due to relatively low degree of inequality, relative position of the Czech
Republic improves substantially when IHDI is considered, unlike in other Visegrad
countries. Overall, the data indicate moderate level of well-being in the Czech Republic,
lower than those of Austria or Germany, but at the same time higher than those of the
remaining Visegrad countries. This picture is robust across all the utilised indicators.
Table 3 Rankings of Countries Among 34 OECD Countries Under Different Well-being
Indicators, 2012
HDI IHDI LS YBLI
Austria 17 12 9 14
Czech Republic 25 14 22 23
Germany 5 5 19 16
Hungary 29 25 34 29
Poland 30 28 28 25
Slovakia 28 22 27 28
Source: UNDP, OECD
Sustainability
So far, this article has mainly dealt with the current well-being situation. Yet, the present
state is only one of the aspects of overall well-being. In a broader view, well-being
should be considered in a long-term horizon, i.e. in terms of sustainability of the current
well-being into the future. In this sense, the recent paradigm of sustainable development
is closely related to the approach of assessing well-being ‘beyond GDP’. Sustainability
of the development is being accented by many national and international organizations.
In its Better Life Initiative OECD aims to approach sustainability as one of the key
dimensions of well-being that should be monitored and measured separately from current
well-being outcomes (as described above). OECD defines sustainability through the
capital approach in terms of the non-negative change of the key assets which can affect
well-being over time and ensure maintaining at least current levels of well-being into
the future. The key assets comprise physical, natural, human and social capital. While
the first and partially also the second aforementioned types of capital have traditionally
been covered by statistical measures, the two latter-mentioned present a challenge for
any measurement and even interpretation. For this reason, works on any particular
dashboard of indicators to be followed in monitoring the stock of assets and their distribution
to assess sustainability of current development are still under progress (for details
see OECD, 2013).
Several existing compound indices combine more dimensions of sustainability of current
development. These usually put an accent on environmental aspect. In our article,
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83
we deal with two of them in detail: Happy Planet Index and Sustainable Society Index.
Table 4 sketches the values of these indices for the examined countries.
Table 4 Happy Planet Index and Sustainable Society Index, 2012
Happy
Life
Years
Footprint
(gha/capita))
HPI
HPI
OECD
rank
Human
well-
being
Environmental
well-being
Economic
well-
being
SSI
SSI
OECD
rank
Austria 64.3 5.3 47.1 11 9.2 4.5 7.0 6.6 3
Czech Republic 54.6 5.3 39.4 27 8.7 2.8 8.0 5.6 10
Germany 60.0 4.6 47.2 10 9.0 3.4 5.8 5.6 11
Hungary 44.1 3.6 37.4 29 8.7 3.5 4.7 5.3 17
Poland 51.3 3.9 42.6 20 8.5 3.4 6.1 5.5 12
Slovakia 52.4 4.7 40.1 26 8.7 3.8 6.9 6.0 7
Source: Abdallah et al. (2012), Sustainable Society Foundation
Happy Planet Index (HPI) was introduced by New Economics Foundation in 2006 as a
measure of sustainable well-being which includes environmental impact. HPI combines
information on experienced well-being, life expectancy, and ecological footprint.7
It is
an efficiency measure stating the number of Happy Life Years (life expectancy adjusted
for experienced well-being) achieved per unit of resource use.8
Under the environmental
aspect higher scores go to countries with lower environmental impact expressed in ecological
footprint.
The Czech Republic reached a good score in life expectancy, average score in experienced
well-being, but as a result of its relatively high ecological footprint, it ranks 92nd
in the world (out of 151 countries) and 27th
in the OECD ranking (34 countries). Poland
outperformed the Czech Republic in this indicator due to significantly smaller environmental
impact, Germany and Austria mainly due to higher life expectancy and experienced
well-being. Based on HPI, well-being in the Czech Republic still seems far from
sustainable.
7
Ecological footprint is a measure of human demand on natural capital. It measures the amount of
land and sea area required to sustain a country’s consumption patterns, i.e. land necessary to
supply the resources that are being consumed and resources to assimilate associated waste. It
includes the land used for generating renewable resources (food, wood etc.), the area covered by
infrastructure, and the area necessary to absorb emissions. It also includes ‘embedded’ land and
emissions from imports (Abdallah et al., 2012).
8
The exact formula is
‫ܫܲܪ‬ ൌ
ா௫௣௘௥௜௘௡௖௘ௗ	௪௘௟௟௕௘௜௡௚	ൈ௅௜௙௘	௘௫௣௘௖௧௔௡௖௬
ா௖௢௟௢௚௜௖௔௟	௙௢௢௧௣௥௜௡௧
(Abdallah et al., 2012).
REVIEW OF ECONOMIC PERSPECTIVES
84
Sustainable Society Index (SSI), a metric developed by Sustainable Society Foundation
in 2006, offers a slightly different picture. The index consists of twenty-one indicators
from eight categories that are aggregated into three well-being dimensions: Human,
Environmental, and Economic well-being. Information from these three dimensions is
then aggregated into one overall index9
. Both SSI and individual scores for each indicator,
category and dimension are expressed on 0-10 scale (the higher, the better).
The Czech Republic scores much better in SSI compared to HPI: It occupies the 20th
place in the world ranking (among the 151 countries covered) and scored 10th
in the
OECD ranking, thus leaving behind Germany, Poland, and Hungary. Slovakia outperformed
the Czech Republic slightly and Austria is a clear winner in SSI score among
the examined countries. The Czech Republic exhibits the weakest performance in environmental
well-being and at the same time the strongest results in economic well-being.
Such performance in comparison with stronger economies of Germany and Austria
might seem surprising. Economic well-being in this approach covers five indicators:
Organic Farming, Genuine Savings, GDP, Employment and Public Debt. The Czech
Republic reached solid scores (over 8) in all of these indicators except for Employment;
yet, the very low level of public debt is the main driver of such a good evaluation of
economic well-being in the Czech Republic compared to other countries.
Although the overall assessment of sustainability in the Czech Republic offered by SSI
seems relatively favourable, the difference compared to results under HPI approach
mainly lies in different accent on environmental well-being and the income component.
Both metrics indicate that the quality and sustainability of environmental well-being
have clear limits in the Czech Republic, but different methodology and also coverage of
other indicators alters the general picture given by the overall index.
Conclusion
Well-being is a complex phenomenon with a variety of dimensions. In any attempt for
its overall assessment it must be viewed in its complexity, taking into account the many
components involved, and their relationship. Well-being is primarily an individual phenomenon.
Although it can be aggregated to different levels of societies, such aggregation
does not come without problems. Extensive literature and efforts of various organisations
try to propose and design a framework for shifting from the traditional GDP
approach for welfare assessment to a more complex view. In our article, we take an
aggregate perspective on well-being in the Czech Republic. Utilising various approaches
designed by various international organisations, we try to assess both the current
situation and the sustainability into the future in comparison with Slovakia, Poland,
Hungary, Germany, and Austria.
From the approaches employed, OECD offers the most complex view on well-being. Its
lack of historical data, though, is the main shortcoming thereof, and allows for a short-
9
For aggregation of scores under each indicator, geometric average is used. For any aggregation,
every indicator/category/dimension receives equal weight.
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85
term perspective only. According to the OECD data, the Czech Republic is one of the
countries with moderate overall well-being performance, together with Germany, Slovakia,
and Poland. In general, it shows a very similar picture to that of Slovakia. The
Czech Republic ranks close to the OECD average in most of the well-being dimensions,
while the highest scores were observed in education, environment, safety and work-life
balance. In contrast, lowest scores were reached in categories of housing, income and
civic engagement.
Human Development Index offers a slightly different picture. Again, the Czech Republic
reached a moderate value of this indicator, close to that of Austria. While the Index
held on to a solid increasing trend in the 2000-2005 period, the pace of growth slowed
down thereafter. Consequently, after a decline registered in 2009, the poor performance
of the Czech economy and weak growth of educational and health outcomes translated
into only negligible increase in HDI from 2010 to 2012. Yet, the growth in other countries
continued and the adverse development in the Czech Republic therefore cannot be
attributed purely to the global economic slowdown. Surprisingly, the educational component
of the HDI shows rather uneven development with some periods of deterioration
of educational outcomes. This contrasts with the previously mentioned OCED results
that point in an opposite direction (although for 2012 only). Apparently, the choice of
indicators can alter the overall picture substantially. When switching from HDI to Inequality-Adjusted
HDI, a relatively low degree of inequality improves the picture of
well-being in the Czech Republic substantially and brings it closer to its Western European
neighbours, Germany and Austria.
Subjective life satisfaction measure ranks the Czech Republic among countries with
moderate level of well-being, again. The data also show a certain effect of economic
downturn of 2009: Life satisfaction fell between 2006 and 2010, recovering in 2012.
Although detailed data is not available, similar development was registered in other
OECD countries.
Direct comparison of results of the indicators described above is not possible because of
their different methodology and coverage. We used indirect comparison of rankings of a
group of OECD countries according to these indicators instead. For the Czech Republic,
the results indicate that the position in rankings improves with the growing number of
dimensions or subjective factors included in the well-being measure, mainly due to the
reduction in relative importance of income dimension and higher emphasis on the multidimensionality
and complexity of well-being. All the indicators that do not take into
account the issue of sustainability indicate moderate level of well-being in the Czech
Republic, and are lower than those of Austria or Germany, but at the same time higher
than those of the remaining Visegrad countries. This picture is robust across the indicators
employed.
The analysis shows that for any well-being assessment, the choice of indicators is crucial.
In the case of sustainability, large differences can be identified in evaluation stemming
from Happy Planet Index and Sustainable Society Index perspective. Although
both of them agree on unfavourable situation as regards environmental sustainability in
the Czech Republic, different accent on other areas results in a completely different
final result: while the Czech Republic holds the unsatisfactory 92nd
place in the world
ranking under HPI, it ranks much better, on 20th
place, in SSI ranking. This result is due
REVIEW OF ECONOMIC PERSPECTIVES
86
to the very strong evaluation of economic well-being under SSI, where the Czech Republic
even outperforms Germany or Austria. The very low level of public debt, which
is covered in SSI, contrary to other well-being indicators, is the main driver of such a
good result.
Assessment of well-being offers a broader perspective to policy makers when designing
or evaluating policies. Few concerns can be raised against the appropriateness of such a
complex view in contrast to purely economic perspective represented by the GDP approach.
Apparently, complexity of well-being makes it hard to construct an exact,
unique well-being measure, and, as a result, any composite index is critically dependent
on particular setting of the underlying framework covering choice of suitable indicators
or methodological background (including implicit welfare function or weighting
scheme). For any well-being evaluations, cautious interpretation of existing indices is
necessary.
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