If “Well-Being” is to be the Key-Concept in Political Economy…

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If “well-being” is to be the key concept in political economy, then economists are placed, from a methodological viewpoint, in an uncomfortable position. A well-being approach requires consideration of several non-economic dimensions strongly interrelated with the economic process, and failure to consider them means that the subsequent economic analysis cannot be based on steadily defined categories and, therefore, economists cannot value the full implications of their policy prescriptions. In this note, I show how an interrelated economic-social scheme able to analyse (sustainable) well-being calls for a broadening of the range of social factors interacting (in short and long term) with the market equilibria, and that this entails both new analytical categories and a new socio-economic relations model; in the absence of this apparatus, the effects of economic policies on society are not reliable and, therefore, ought to be systematically subject to a “precaution principle”.

Posted for comments on 1 Nov 2013, 11:24 am.

Comments (4)

  • Francesco Sarracino says:

    The arguments put forward in the paper are interesting, but they are obsolete. The debate on the relevance of subjective well-being measures for policy making is much more advanced than what the author presents. Some recent contributions openly question whether happiness research should be taken seriously for policy-making purposes. For example, the recent works by Sugden and Teng, Frey and Stutzer, Clark and colleagues put forward a deep critique to the possibility of using subjective well-being for policy-making. Sugden and Teng, for example, argue that subjective well-being measures are subject to paternalistic and technocratic evaluations. In a similar vein, Frey and Stutzer argue that happiness research should nourish a political process based on public debate and participation from below, in order not to be paternalistic. Clark, on the contrary, puts forward a radical argument suggesting that we simply do not know enough, about well-being and its correlates, to support any change in public policies. I am afraid that the argument put forward by the author – based on the matrix of production processes – does not provide any answer to these critiques. Even though the article is a nice exercise of style, I doubt it makes any contribution to the literature.

  • Claudio Gnesutta says:

    Of course: “We must not overlook the fact that “well-being” is a multidimensional concept that rests on value judgments, not only on which elements of well-being should be considered but also on which of them loom larger at a given moment in any one particular historical society”. This my conclusion is not too different from the Frey-Stutzer argument on the opportunity to submit well-being choices on public debate and participation from below. However, my prime interest is not on subjective well-being measures for policy making; but it is the need to deepen the analytical structure of socio-economic (multidisciplinary) relations (my style-exercise?) for building the tools able to evaluate the structure and dynamic of the society; as, for instance, in case we will to analyse the austerity policies effects comparing what we gain through on the product increase (a country’s GDP) and what we lose with the decrease of well-being (increase in degradation of resources, deterioration of working conditions, increase in collective insecurity and in deterioration of social relations). In my view, this is a fundamental and pressing request to the economists for a “more comprehensive evaluation of the progress of society and to achieve a more profound verification of the effects of economic policies”. Thank you.

  • Jordi Mundó says:

    Determining the real socio-economic state of a society is of central importance when it comes to setting out public policies that aim to be both materially effective and normatively fair. For many years, economics has relied predominantly on an aggregate product model that, while appearing to offer a precise quantitative description of social reality, in fact fails to take into account many relevant aspects of social life. Consequently, questions have increasingly been raised in recent decades regarding the extent to which an economic analysis based solely on the Gross Domestic Product (GDP) is capable of capturing the complexity of the social world, the implication being that such a measure constitutes a clearly inadequate basis for the development of public policy. Since what is regarded as the pioneering work of Nordhaus and Tobin (1973), if not earlier, countless alternative theoretical formulations have been proposed in an attempt to provide richer and more complex socio-economic analyses, notable examples being corrected GDP, Gross National Happiness, the capability approach and synthetic indicators, among others (Fleurbaey, 2009). However, none of these measures appears to be robust enough to capture the most significant aspects that contribute to the quality of life of citizens; there are several reasons for this, including an overemphasis on production in market terms, the inherent difficulty of applying a more complex measure, the incommensurable nature of many key social or cultural features, and the potentially enormous variability in normative criteria underlying each approach.

    In this vein the starting premise of Claudio Gnesutta’s paper is that aggregates offer an extremely reductionist way of measuring the state of society, and consequently his aim is to redefine and reconstruct a more meaningful economic indicator that would enable empirically more precise and prescriptively better targeted policies to be designed. While acknowledging the value of the aforementioned alternative formulations he proposes that we revise a simple but widely accepted concept, namely GDP, and replace it with a more complex notion, one that has so far played a less central role in socio-economic analyses: sustainable well-being. To this end he draws upon the work of Stiglitz, Sen and Fitoussi (2009), who set out in detail the need to incorporate sustainable well-being into economic analysis, while highlighting the difficulties inherent to such a paradigm shift.

    Were such a recategorization to be viable we would be obliged to take into account not only the aggregate products of interrelated individual behaviours within the market system but also activities and exchanges pertaining to domains external to the market. This process would require of economists that they act within a field defined by more ambiguous categories, since the standard conceptual framework of macroeconomics only covers a part of the wider notion which Gnesutta refers to as sustainable well-being. As he himself puts it, citing one of his previous articles: “[T]he economist (and the economic policy authorities) are (…) in a dilemma between working with a restricted (to economic values) representation inevitably partial, or working on the basis of an extended representation empirically undefined” (n. 4, p. 2). Thus, his proposal seeks to redefine how economists analyse a society’s quality of life, in such a way that this would include discussion of social values, that is, of what a society considers to be of value and of how policies might be developed that would enable what is considered of value to be achieved. At the same time, however, he aims to avoid offering a model that lacks any definition. He does this by constructing a matrix of the socio-economic system, one that seeks to redefine the entire system of income, consumption and capital formation aggregates, and where the process of production of well-being is “a process of production of market-goods, value-goods and resources by means of market-goods, value-goods and resources” (p. 5).

    At first sight this would appear to be a valuable and timely recategorization, one that is consistent with others to have emerged over the last thirty years and which also consider there to be more than enough evidence to suggest that purely productive measures offer an inadequate and biased indication of social well-being. However, given that Gnesutta’s proposal is only meaningful insofar as it manages to redefine the methodological, conceptual and theoretical premises on which the different variants of market production are based, there are three points that need to be made regarding the limits of his approach.

    First, his attempt to recategorize economic measures through a shift from aggregates to sustainable well-being basically involves complementing market products with other elements external to the market, and as such the conceptual basis of markets is not really challenged. Given that Gnesutta is bold enough in his proposal to reject many of the dominant ideas underlying economic theory, it could be argued that he misses the opportunity to show how the traditional separation between the economic and the social (and the normative consequences that follow from this) largely depends on a highly restrictive definition of ‘the market’, one that is associated purely with economic exchanges. Indeed, an analysis such as that of Gnesutta is undermined if it fails to consider real market institutions in order to understand the complex ways in which they function. Moreover, while it is true that neoclassical economic theory uses an idealized, atemporal and a-institutional concept of ‘the market’, consideration of markets as institutions is far from being a recent phenomenon. Adam Smith, David Ricardo, Karl Marx and John Stuart Mill were all fully aware of the fact that markets are profoundly political institutions. Furthermore, contemporary studies of real markets indicate that there are different types of market and that the creation of a market implies a specific choice among a potentially infinite number of alternative institutional features. It is in this sense that Gnesutta’s interesting proposal would be strengthened by taking into account two defining aspects of what is usually referred to as the market: (1) the market is a social and political institution, and (2) institutionally differentiated types of market may exist, such that many aspects which are assumed to lie outside the market in fact constitute other markets in a broader sense of the concept. With this in mind it becomes clear that markets, far from being abstract entities, are social, political, cultural and economic realities that result from highly distinct historical trajectories (Polanyi, 1944; Polanyi et al., 1957; Callon, 1998; Starmer, 1999; Hodgson, 2001). Incorporating these ideas into the concept of ‘the market’ would in itself lead to a richer view of the notion of sustainable well-being, along the lines that Gnesutta proposes. The author clearly recognizes that a process of production does not refer solely to the goods and services that are exchanged within a market (i.e. market goods), since there are other goods and services that generate well-being without forming part of the market (what Gnesutta calls “value goods”). However, implicit to his recognition of this is an overly narrow view of what ‘the market’ is.

    The second point to be made is that any representation of well-being and quality of life that seeks to go beyond the aggregate outcome of the interrelated individual behaviours in an exchange market system must incorporate two fundamental notions: inequality and power. While Gnesutta explicitly acknowledges the need for his analysis to include important aspects of social and economic life such as household self-consumption, leisure, use of common goods, collective services (security, medical, educational, housing facilities, sport facilities and so on), this more complex framework is undermined by the omission of a fundamental element, namely people’s real decision-making capacity. Although Amartya Sen’s notions of “capabilities” and “functionings” are there in the background, Gnesutta’s paper does not make an explicit link to the problem of how quality of life is affected by imbalances in social power. In fact, the author openly acknowledges his decision in this regard: “For the sake of further simplicity, the production of public services is not distinguished from the production of other value-goods. The activity of consumption is attributed to a single institution, the overall population (…) which also owns the entire final stock of productive resources (…). However, the decision to aggregate the entire population in a single sector entails the impossibility of considering significant aspects such as the interdependence of the various lines of production of value-goods and inequality in distribution in income and resources” (n. 17, p. 6). The problem here is that in the context of severe (or even moderate) social and economic inequality that clearly affects well-being and quality of life, it makes little sense to treat social and economic reality as “a single institution, the overall population”. Based on the analysis presented in the paper it is far from clear how an individual might respond to the capacity of a third party to interfere arbitrarily in his or her actions or decisions (in the words of Pettit, 1995), that is, to the exercise of power that he or she is unable to match (in the words of Weber, 1978). As Bowles and Gintis (1993, p. 88) so eloquently put it: “[T]he disciplinary function of markets operates through the exercise of power. While the concept of power is far from settled in political theory, we can offer a relatively uncontroversial sufficient condition for the exercise of power, namely, the ability of furthering one’s interests by imposing (or credibly threatening to impose) sanctions on another agent when the converse is not also true”. Social classes and interest groups are, however, absent from Gnesutta’s analysis of social life (they are not regarded as relevant categories), and the same can be said for power imbalances within the capitalist enterprise (it is not deemed relevant that one person provides the capital and has ownership over the means of production while the only option open to another individual is being hired in exchange for a salary). Interestingly, the author does make a good case for why we would do well to think in terms of the stock of “well-being productive resources” rather than the stock of capital. However, this appears to be more of an extension to the existing aggregate rather than a genuine conceptual shift. It is true, of course, that a century ago neoclassical economic theory replaced the social and political content of the notion of ‘capital’ with a purely mechanical conception. Capital was recategorized as a physical asset associated with labour in order to produce outputs. This notion of capital enabled the mathematical expression of the ‘production function’, such that wages and profits could be linked to the respective ‘marginal products’ of each factor. However, if our goal is to obtain an accurate portrait of the social and economic world, then surely we must also recategorize the very notion of capital (or, in this case, of “well-being productive resources”) so that it incorporates its profound political connotation: capital has to do with ownership of the means of production. This may involve money or machinery, it may be fixed or variable, but the fundamental feature of capital (in the broad sense) is neither physical nor financial. Rather, it is the power it confers on whosoever possesses it, in other words, the authority and the capacity to make decisions regarding third parties who themselves lack any equivalent authority and capacity.

    The third point I wish to make, which is not unrelated to the previous two, has to do with an aspect that is clearly set out by the author and which is worth citing in its entirety. Gnesutta argues that we “must not overlook the fact that “well-being” is a multidimensional concept that rests on value judgments, not only on which elements should be considered but also on which of them loom larger at a given moment in any one particular historical society” (p. 8). Having done so, he then highlights the fundamental theoretical problem underlying his ambitious project: “Choosing between different interpretations of sustainable well-being deriving from value judgments is ultimately a normative decision” (ibid.). His solution to this key problem involves subjecting economic policy choices to what he terms “deliberative processes” in democratic contexts. In my view, this brief final consideration by the author illustrates the generally sound nature of his proposal, yet it also highlights how the proposal, as it stands, requires further theoretical development. Regardless of whether the principles and criteria of distributive justice we draw upon are those of Rawls, Dworkin or Sen (to cite just some of the interesting developments in this field over the last forty years) it is important to remember that any deliberative process which seeks to provide a collective appraisal of different normative alternatives is itself conditioned by economic, social and cultural factors. Indeed, far from being abstract processes guided solely by ideal criteria, these are processes that are subject to innumerable biases. Therefore, the virtue of a deliberative process largely depends on its capacity to mitigate and, where necessary, to eliminate these biases, such that a rational discussion about criteria of justice may take place. However, as I have sought to show in the previous points this deliberative process crucially depends on the conceptual and theoretical framework on which it is based. And this framework should ideally include not only economic and social aspects but also cultural and political ones.

    Overall, then, Gnesutta’s proposal is relevant and well-targeted. However, some of its underlying premises need to be revised in order to extend its scope and to render it a genuine alternative to other more reductionist proposals. The challenge is how to achieve his goal of designing economic policies that are empirically more precise and prescriptively better targeted.


    Bowles, Samuel and Herbert Gintis (1993) ‘The Revenge of Homo Economicus: Contested Exchange and the Revival of Political Economy’, The Journal of Economic Perspectives, 7 (1), pp. 83-102.

    Callon, Michel (ed.). (1998) The Laws of the Markets (Oxford: Blackwell).

    Fleurbaey, Marc (2009), ‘Beyond GDP: The Quest for a Measure of Social Welfare’, Journal of Economic Literature, 47 (4), pp. 1029-1075.

    Hodgson, Geoffrey M. (2001) How Economics Forgot History. The Problem of Historical Specificity in Social Science (London and New York: Routledge).

    MacGilvray, Eric (2011) The Invention of Market Freedom (Cambridge: Cambridge University Press).

    Nordhaus, William D. and James Tobin (1973) ‘Is Growth Obsolete?’, in Milton Moss (ed.), The Measurement of Economic and Social Performance, National Bureau of Economic Research (http://www.nber.org/chapters/c3621), pp. 509-564.

    Pettit, Philip (1997) Republicanism. A Theory of Freedom and Government (New York: Oxford University Press).

    Polanyi, Karl (1944) The Great Transformation: The Political and Economic Origins of Our Time (New York: Rinehart).

    Stiglitz Joseph E., Amartya Sen and Jean-Paul Fitoussi (2009) Report by the Commission on the Measurement of Economic Performance and Social Progress (http://www.stiglitz-sen-fitoussi.fr/documents/rapport_anglais.pdf).

    Weber, Max (1978) Economy and Society, G. Roth and C. Wittich (eds.) (Berkeley: University of California Press).

  • Claudio Gnesutta says:

    I appreciated the critical comment by Jordi Mundò that “some of [my paper’s] underlying premises need to be revised in order to extend its scope and to render it a genuine alternative to other reductionist proposals”, because, his identification of several poor points notwithstanding – insufficient treatment of market and power inequalities and of decision-making in a democratic economic policy – he considers my proposal worthy for the “designing [of] economic policies that are empirically accurate and prescriptively better targeted”; and, therefore, that it is useful to continue in the job.
    I have first to admit that my proposal is very limited compared to the ambitious analysis which motives it. If, as in general we agree, interpretation of the economic process requires the formulation of appropriate economic categories, of a system of relations that connect them together, of a set of consistent assumptions about the behavior of all institution and, finally, identification of the empirical facts that allow the interpretation of the real world, then my paper focuses clearly on the first two points (recategorization and web of relations), which are necessary but non-sufficient for an answer to the other two dimensions (theoretical explanation and real world interpretation), certainly the more important and difficult issues. Recognizing the partiality of my argument, I fully endorse Mundò’s criticisms that – richly suggestive as they are as to the analytical aspects of the theoretical model and of the economic policy decision – offer me the opportunity to clarify my positions on the three points that he singles out.
    The first point concerns the claim that my “separation between the economic and the social (and the normative consequences that follow from this) largely depends on a highly restrictive definition of ‘the market’, one that is associated purely with economic exchanges”; a definition that makes it impossible to grasp a situation in which “markets are profoundly political institutions.” I think my use of the concept of market-goods narrowed to the relationships of capitalist exchange (in the systems supply/demand/price, where the prices are monetary prices) is a forced distinction if we are to separate sharply the market-goods activities from value-goods activities. Settling in this way the boundaries of the production (both market-goods and value-goods) sector, I can build the structure of the accounting relations that highlight just what the economists ought to explain within and between the two, distinct but interlinked, sections of the social process: that is, both the activities that use (human, social, natural) resources in the capitalist process (turning them into “capital”) and the activities that generate well-being services the non-monetary exchanges of which are managed by institutions other than the market. If an accounting representation of these relationships is necessary, it is not, as argued by Mundò, sufficient to understand how the institutions of the two sectors (market and value) pursue their own objectives (profit and well-being) and determine the mode of reproduction of society. This is especially true in the real world where the boundaries between these two sections are different in time and space and the various configurations of capitalist societies require, for their understanding, timely information concerning the specific institutional context.
    The representation of social production in only two distinct interconnected sections is so aggregated that it cannot provide any indication of the hierarchy existing between the social and economic dimensions. In his second point, Mundò claims, in fact, that such a scheme does not “incorporate two fundamental notions: inequality and power” and criticizes me for having treated “social and economic reality as ‘a single institution, the overall population.'” The only justification I can advance for such a drastically reductive hypothesis is that I choose to make it a priority to verify if the explicit consideration of a value-goods productive sector can provide an acceptable vision of the economic process; this led me to build an accounting model reduced to bare essentials. If economists could accept the logical eligibility of value-goods and their availability for inclusion in their analytical models, there should be no difficulty in extending the model by disaggregating the consumption-savings sphere to describe in greater detail the interdependence between economy and society. This does not mean I am not aware that the aggregation in one sector of the whole consumption-savings activity prevents analysis of the effects of the social articulation and so the power distribution within society. I think, however, that such a distinction by social classes (both inside and outside the firm) is latent in my schema as it is not difficult, on an adequate theoretical basis, to explain the structure of relationships that connect the different areas of society by providing, through a breakdown of the accounts on an institutional basis, a more detailed representation of the social process. This done, it will still be necessary, as noted by Mundò, to supplement the interdependent relationships with hypotheses that describe the power levels of the different institutions if we were to have an explanation of the position, more or less subordinate, of the social classes in the production-distribution process, both in the market-goods and in the value-goods sectors.
    I also agree on the observation (third point) that my paper “requires further theoretical developments” for an analysis of the relation between economic policy and democratic choices. This theme, as noted by Mundò, is too large and complex to be fixed by a simple accounting scheme (especially if based on a new sustainable well-being concept). I have no doubt that my contribution to this important question is simply to show that evaluating the results of the social process exclusively by means of economic (market product and capital) criterion must be deemed highly questionable when we take value-goods production and resources reproducibility into consideration. The explicit introduction of a productive dimension not entirely attributable to goods and capital makes explicit also to the economist the irreducible duality of the goals that a society pursues; the social process cannot be explained only in terms of market-goods but must incorporate values outside the market: the society (of well-being) has structurally its own autonomous goals, which exist in partial opposition to the economy (the present economic-financial power). And here it is appropriate to bring in Mundo’s suggestion as to the need to consider appropriate forms of a wider democracy, since “any deliberative process which seeks to provide a collective appraisal of different normative alternatives is itself conditioned by economic, social and cultural factors” and, therefore, is “subject to numerous biases.” But considering that this “deliberative process crucially depends on the conceptual and theoretical framework on which it is based”, and that it “ideally include[s] not only economic and social aspects but also cultural and political ones”, I hope my proposal can be a useful if, also, preliminary tool.