The common welfare economy còpia

THE COMMON WELFARE ECONOMY

OUR PROPOSAL FOR THE COMMON WELFARE PRODUCT

International Business Economics

Universitat Pompeu Fabra

Academic year 2012-2013

Natalia Campos Alemany

Mireia Reixach i Molet

Tutor: Xavier Cuadras Morató

2 Universitat Pompeu Fabra


We would like to thank Xavier Cuadras Morató for his willingness to guide us and for being so

generous with his time.

We would also like to express our gratitude to Professor Mercè Carreras-Solanas for her

knowledge, guidance and endless energy.

Our sincere thanks also go to the group of the seminar from Casa Elizalde, for their support and

contribution to the project with their opinions and ingenious ideas.


It is not from the benevolence of the butcher, the brewer, or the baker that we

expect our dinner, but from their regard to their own interest.

Wealth of Nations, 1776; Adam Smith

It is from the benevolence of the butcher, the brewer, or the baker that we expect our

daily dinner.

Common Welfare Economy, 2011



Abstract

The Common Welfare Economy is a new model proposed by Christian Felber that has been taking shape

during the last few years in response to the current capitalist crisis. It is a model that harmonises a market

economy with universal values such as trust, honesty and cooperation. It puts a special emphasis on the

importance of achieving a real, participative democracy in order to make this model just and

representative.

The aim of all economic activity is to satisfy needs, to guarantee a good quality of life and therefore, to

create common welfare. Felber suggests that success should be measured in terms of the production of

common welfare. At a micro level he proposes the Common Welfare Balance Sheet, which serves to

measure the utilities a company produces, and at a macro level, he talks about the concept of a Common

Welfare Product as an alternative or a complement to GDP.

The aim of our project is to make a small contribution to this model by suggesting how the Common

Welfare Product could be measured.

We propose 15 indicators that try to represent the degree of common welfare in a country and we join

them together into a matrix that shows how each indicator contributes to common welfare through

percentages.

Finally, we apply the theory to a practical example by measuring the Common Welfare Product of Spain.



Table of Contents

1. A summary of Christian Felber's book: The Common Welfare Economy ................................ 9

1.1 Introduction .......................................................................................................................... 9

1.2 Common Welfare Economy ............................................................................................... 10

1.3 Common Welfare Balance Sheet (appendix 1: matrix) ...................................................... 11

1.4 Common Welfare Product .................................................................................................. 13

2. Controversy with the concept and measurement of the Common Welfare Product ................ 14

3. Common Welfare Product ........................................................................................................ 15

3.1 Areas of focus and Indicators ................................................................................................. 16

3.1.1 Health Status ................................................................................................................ 16

3.1.2 Education ..................................................................................................................... 18

3.1.3 Material Living Standards ............................................................................................ 22

3.1.4 Personal activities, including work .............................................................................. 23

3.1.5 Political voice and governance .................................................................................... 24

3.1.6 Social connections ....................................................................................................... 25

3.1.7 Environmental conditions ............................................................................................ 26

3.1.8 Insecurity ...................................................................................................................... 26

3.1.9 General indicators ........................................................................................................ 28

4. Creating the Common Welfare Product matrix ........................................................................ 29

4.1 Matrix for Common Welfare Product ................................................................................ 30

4.2 An example: Indicators for Spain ....................................................................................... 31

4.3 Matrix: Common Welfare Product for Spain ..................................................................... 39

4.4 Spain’s Common Welfare matrix: General Comment ........................................................ 40

5. Conclusion ................................................................................................................................ 43

Appendix ...................................................................................................................................... 44

Appendix 1: The Common Welfare Matrix ............................................................................. 44

Appendix 2: The quality of health status indicators ................................................................. 45

Appendix 3: The quality of work-life balance indicators ......................................................... 45

Bibliography and other sources .................................................................................................... 46


1. A summary of Christian Felber's book: The Common Welfare Economy

Christian Felber was born in Salzburg in 1972 and has studied Roman Philology, Political Sciences,

Socioclogy and Psychology in Vienna and Madrid. He is one of the founders of Attac, an international

movement campaigning for social, democratic and environmental justice in the current global economy.

Christian Felber is also a successful author, trained dancer, university lecturer and international speaker.

1.1 Introduction

The current financial crisis we are living today has had devastating worldwide effects such as increasing

inequality, insecurity and unemployment. In several years, the economy will hopefully start to recover

and people’s quality of life will improve, but this situation will be repeated every now and then due to

the cyclical nature of capitalist economies, where periods of growth and prosperity are followed by deep

recessions that further increase inequality.

In addition, the current financial crisis is not an isolated phenomenon. Societies are experiencing climate

change, increasing unemployment and inequality, excess consumerism leading to a crisis of values and

identity and most important of all, a crisis in democracy.

In short, we are experiencing a crisis in our current capitalist system. Should we have to put up with this

system or is there an alternative? Are people too afraid to propose changes or is there an elite who is not

so interested in fixing the real problems? Either way, it is clear that there is a general feeling of unease

and frustration. In Germany, for instance, 88% of the population answered they wanted a new economic

order in 2010.

Christian Felber has written several books in the past years where he claims that capitalism leads to ten

major crises: concentration and abuse of power, interruption of competition and the creation of cartels,

localisation of competition, inefficient pricing policy, social polarisation and fear, a lack of satisfaction

of basic needs and hunger, ecological destruction, loss of sense, value deterioration and the elimination

of democracy.

Christian Felber proposes a system that is both old and new at the same time. Inspired by many

constitutions, he suggests a new model whose aim is to serve the people, to contribute and maximise

common welfare. He proposes the Common Welfare Economy, a model that, slowly and steadily, seeks

to transform our current system into a more socially-oriented model.


1.2 Common Welfare Economy

The Common Welfare Economy is a new model that has been created by combining the most successful

features of previous economic models.

The main change from current capitalist economies is that the model redefines the rules of the game and

sets cooperation as the means to achieve the ultimate goal for all economic activity: common welfare.

Humans are naturally both competitive and cooperative, depending on the circumstances, but this model

seeks to incentivize and promote the cooperative side of the human being, basing its proposals on the

same values that allow our relationships to prosper, such as trust, generosity, empathy and responsibility.

The main idea conveyed by this model is that through cooperative behaviour and solidarity, we can

ensure that all activities contribute to common welfare.

The concept of Common Welfare represents social utilities that should be available to citizens, such as

food, clothing, housing, relationships, intact ecosystems, security, justice and freedom. The Common

Welfare Economy wants to find ways to measure these utilities in order to maximise their production

through trust and cooperation.

Economic success will no longer be measured through monetary indicators such as financial benefits and

GDP. Instead, success will be the achievement of the highest contribution to Common Welfare. Profits

will be considered a means to meet the end: Common Welfare.

Felber proposes the Common Welfare Product as a substitute for GDP and a Common Welfare Balance

Sheet to measure the real success of individual companies, leaving financial statements as a secondary

measure. Companies with good scores in the balance sheet will be compensated with legal benefits.

Since companies will not base their success on increasing profits, they will no longer have the pressure to

grow constantly and this will encourage them to reach and remain at their optimal size. Achieving

optimal growth will allow the co-existence of many small companies and will facilitate cooperation

between them.

The model also tries to achieve greater social equity by limiting the difference between the minimum and

the highest salary. This maximum difference should be decided democratically and should be enough to

reward the most challenging jobs. From the surveys done so far, it seems that 20 times the minimum

salary is what people are prepared to accept as maximum inequality.

The book also dedicates a chapter on property and argues that in important public institutions and big

companies with an exceeding number of employees, decision and property rights should partially and

progressively be transferred to employees and citizens.


The model proposes there should be democratic banks that work for common welfare, facilitating

transactions by only charging a small percentage to cover costs, not to make profits. It also suggests that

a global currency could be established, in parallel with national currencies, along with global fair trade

regulated by United Nations.

Concerning the labour market, the model proposes a reduction in working hours per week that would

have to be decided by majority. Surveys suggest people would be happy working 30 hours a week.

Felber also proposes that for every 10 years worked, individuals should take a year off, which would be

financed with an established and guaranteed minimum salary. This would reduce unemployment and

allow people to enjoy leisure by engaging in extra-curricular activities, travelling and simply having time

for themselves.

The book also mentions that Nature should be attributed its own value in all constitutions in order to

prevent it from being privately owned and it highlights the importance of reducing the Ecological

Footprint of individuals, companies and countries in order to reach a sustainable global situation.

An emphasis is also put in the importance of education as a means to transmit common welfare values to

children. Felber suggests there should be compulsory subjects that work on aspects such as the

development of emotions and communication, ethics, democracy and nature.

Finally, the book gives special importance to developing democracy by complementing current

representative democracy with direct and participative democracy.

The final aim of the Common Welfare Economy is to achieve a society that is more responsible,

empathic, just, participative and socially-competent.

1.3 Common Welfare Balance Sheet (appendix 1: matrix)

Up till now, economies have based their success on monetary indicators, which are very useful for

quantifying results but do not represent the utilities a society wants.

Through much debate, a Common Welfare Balance Sheet has been designed that is represented in a

matrix. The idea is that this matrix should be the main measure of success of a company since it will be

measuring the production of social utilities. The current financial statements will still be necessary but

they will become an intermediate or parallel measure in order to determine the economic viability of the

company, not the utilities.

The balance sheet is audited externally and it measures the effects a company’s activities have on its

stakeholders through five dimensions: human dignity, solidarity, social justice, environmental

sustainability and democracy.


The aim of the matrix is to measure the extent of contribution to these five dimensions through a points-

system with a maximum of 1,000 points: Those who achieve a higher score will be compensated through

various legal advantages such as tax benefits, subsidies and bank credits with better conditions. These

advantages will be financed by the revenue from the legal and financial obstacles imposed on firms that

do not contribute to society.

Eventually, the companies who start following the model will enjoy better benefits than the rest and will

be able to sell their goods and services at a lower price, obliging the other companies to choose between

closing down or following the Common Welfare model.

The practical implementation of this idea is for all products to be labelled with a colour representing a

specific level of common welfare contribution. There are a total of 5 levels ranging from red (0-200

points) till green (801-1,000 points.). The idea is that these labels will be able to be scanned with a phone

application which will show the matrix scores in the different dimensions.

If consumers are aware of the colour-labelling they should choose the products with the green colours,

since these goods will be contributing the most to society. Eventually, prices will be reliable in the

decision-making process because the cheapest products will also be the ones who have been produced

most ecologically, fairly and democratically.

This will be the case because the companies who score well in the matrix will receive many legal and

financial benefits and responsible consumers will be more likely to choose their products. At the same

time, companies with very low or negative scores will face legal and financial difficulties, such as higher

taxes and tariffs and higher interest for loans. Eventually these two effects will allow responsible

companies to produce cheaper than the others. In the case of a company obtaining financial profits, these

will be regulated and certain activities will be illegal, such as lobbying political parties and speculation.

An important remark is that within the Common Welfare Economy there will still be scope for

competition because it is based on a market economy with private companies. However, the more

competitive and aggressive a company is, the worst results they will have in the Welfare Matrix. This

will translate into higher legal obstacles which will increase their chance of bankruptcy. In addition, their

products will have red labels since their common welfare scores will be negative, creating consumer

distrust.

Instead, with increasing cooperation, a win-win situation can be achieved where collaboration between

companies is rewarded. The more common welfare produced, the higher legal benefits enjoyed and less

likely will bankruptcy be. Companies can collaborate with each other by sharing knowledge, lending

labour and offering interest-free loans.


1.4 Common Welfare Product

At the macro level, the model discusses the concept of Common Welfare Product (CWP) as a substitute

for the Gross Domestic Product (GDP). The model wants to find a measure that represents the happiness

and well-being of a country, instead of its economic success. The aim of this measure is to show the real

conditions and quality of life of a country, such as its conflict level and social equity.

However, this concept has not been developed in the book yet so we decided we could try and propose

some indicators that could represent the Common Welfare Product of a country.


2. Controversy with the concept and measurement of the Common Welfare

Product

When we first decided we wanted to focus on the measurement of the ‘Common Welfare Product’, our

first doubt was what exactly the concept represented.

This concept still has to be discussed and elaborated democratically, but this is the reason why we chose

it, so we could give a small contribution to Christian Felber’s Common Welfare model. Since the

concept is still very vague, it led us to some confusion, especially because Felber seems to use two

concepts interchangeably: happiness and well-being.

In page 49 of The Common Welfare Economy, he explains that many economists have searched for a

measure of welfare and that he believes Bhutan has been the closest in achieving it through their National

Happiness Index. It is later stated that a survey with approximately 70 questions could give an accurate

representation of the happiness of a nation, and that to create an alternative to GDP, 15 to 25 indicators

would be enough to compose the Common Welfare Product (Felber 2012, p.50).

From this information it was not clear whether we should focus on measuring a country’s happiness level

or measuring its well-being from another perspective.

We read and discussed different essays and finally came to a conclusion. Our first goal was to understand

what ‘Common Welfare Product’ meant. We assumed that in order to achieve the maximum common

welfare, a country would have to maximise the objective well-being of its citizens.

Basing our study on this assumption, we discarded the idea that a happiness index could give us reliable

data on the current well-being of a country, because as Amartya Sen said in Development as Freedom,

‘we do not necessarily want to be a happy slave’.

The main aspect is what each individual is capable of doing, this is something that has to be measured

objectively and it must take into account the real opportunities available in different countries and for

different groups of society (Sen 1985).


3. Common Welfare Product

In order to measure what matters we will focus on what we are producing and ask ourselves: Is it

contributing to common welfare or is it not?

We must contribute as much as we can in order to maximize common welfare, that is, well-being. Just as

GDP represents the total monetary value of economic transactions, we need a measure that represents the

total level of utilities produced in a country (Felber 2012, p.48). This will be represented by the Common

Welfare Product (CWP), a welfare index. We need a non-monetary indicator whose goal will be to

achieve the greatest common welfare. The more common good produced, the more successful that

country will be.

The ultimate goal of the Common Welfare Economy is aligned with what has been written by Sen,

Stiglitz & Fitoussi in 2009: their goal is to achieve global responsibility and citizenship.

To measure the CWP we have decided to choose indexes that represent real opportunities and we will

organize them into different dimensions. The main areas of focus describe people’s states and the

freedom individuals have to choose what they value the most, these were identified by Sen, Stiglitz &

Fitoussi in 2009:

Health; it is the main component of capabilities as without a good life condition the others would not

have any value (Sen, A., Stiglitz, J. E., & Fitoussi, J.-P. 2009, p. 156).

Education; has intrinsic value and it is a means to acquire monetary and non-monetary outcomes that

matter for the well-being of an individual (Sen, A., Stiglitz, J. E., & Fitoussi, J.-P. 2009, p. 165).

Material Living Standards; income and wealth expand individuals’ consumption possibilities while

providing them with the resources to satisfy their needs as well as non-economic benefits such as

education and health status and the possibility of living in cleaner and safer locations (OECD, 2011a).

Personal activities including work; explain the quality of life as they affect people’s hedonic experiences

as well as their evaluative judgments (Sen, A., Stiglitz, J. E., & Fitoussi, J.-P. 2009, p. 170).

Political Voice and Governance; it has intrinsic value as it enables essential freedoms and capabilities, as

well as instrumental value as it can lead to corrections of the current situation of the country, affecting

the well-being.

Social Connections and Relationships: it is a powerful predictor of subjective well-being that could be

better measured through surveys (Sen, A., Stiglitz, J. E., & Fitoussi, J.-P. 2009, p. 182); instead, we will

use the concept of Social Equity with the aim to show income inequality through an objective indicator.

We will see how inequality can affect individual’s quality of life.


Environment (present and future conditions): it has immediate effects on people’s well-being through

human health, access to basic resources such as clean water and through climate variations and natural

disasters (Sen, A., Stiglitz, J. E., & Fitoussi, J.-P. 2009, p. 188).

Security at both economic and physical levels: fears and anxieties decrease quality of life; uncertainty

about the future decreases well-being for those risk-averse individuals (Sen, A., Stiglitz, J. E., & Fitoussi,

J.-P. 2009, p. 194)

3.1 Areas of focus and Indicators

3.1.1 Health Status

Brief description

None of the other areas of focus would be meaningful if we were not healthy enough to enjoy them.

Thus, health remains an essential component of the well-being and common welfare mainly through its

effects on the length of life and its quality (Sen, A., Stiglitz, J. E., & Fitoussi, J.-P. 2009, p. 156-157).

Health therefore has an intrinsic value for people, but it does also have instrumental value as health

enables more opportunities to participate in the labor market, in education programs and benefits good

social relationships (OECD, 2011a)

Our health status depends on our genetic makeup but also on other factors such as living, working and

environmental conditions. It might depend as well on the income, whether an individual spends more or

less on health-care and prevention. The latter areas (environment, work, etc) will be analyzed as well as

areas of focus that must be taken into account when measuring the Common Welfare Product.

Indicators

The question now is which health indicators we should choose in order to see the contribution that a

country’s health system makes on the common welfare of a country.

Our intention was to include the Perceived health status as an indicator of health status; most OECD

countries conduct regular surveys that allow respondents to report on their health. A commonly asked

question is “How is your health in general?” According to the well known annual report named Health at

a Glance undertaken by the OECD in 2011, this question has been found to be a good predictor of

people’s future health care use and mortality.

Nevertheless, we have decided not to include it in the Common Welfare Product because, for the

purposes of international comparison, cross-country differences in perceived health are difficult to

interpret mainly due to social and cultural factors, among other biases (OECD 2011b).


Percentage of population using exclusively public coverage

First of all, there is a problem of information which explains why governments do take a role in licensing

doctors as well as regulate the drugs to be administered to patients: when we consume health, that is,

when we go to the doctor, we buy the doctor’s knowledge. The patient, due to the lack of medical

expertise, relies on the doctor’s judgment without even being able to assess and evaluate it. The patient

as a consumer might not even be able to notice whether the doctor is qualified.

However, one of the principal reasons for government action in health care remains on distributional

grounds and what is known as specific egalitarism: the idea that there are goods and services, for

instance health care, whose availability to individuals should not just depend on their income. Moreover,

another view is that everyone should have the right to a minimal level of health care (Stiglitz, J., 1999,

p.304-27).

It contributes to CWE if

- The percentage of population using exclusively public coverage is high and increases over

time (while decreases might signal that people are shifting to private insurance due to a

decrease in the quality of the public service).

Life expectancy at birth

Measures how long on average a newborn can expect to live if current death rates do not change. If rates

are falling, actual life spans will be higher than life expectancy calculated using current death rates. It

reflects the overall mortality level of a population as well OECD (2011b).

Appendix 2: The quality of health status indicators, shows why life expectancy at birth is one of the best

indicators for health status.


- Life expectancy increases; the gain in longevity comes from rising living standards improved

lifestyles, greater access to quality health services and better education. Increases can also be

attributed to better nutrition, sanitation and housing, among other factors (OECD 2011b).

- Countries with better health status show higher average income and wealth, lower

unemployment rates, greater participation in political activities, higher social network support

and thus, higher overall life satisfaction (OECD, 2011a).


Waiting times

The indicator measures the waiting times for specialist and elective surgery. It is the time comprised

between the patient is advised that they need care and the appointment.

The indicator relies on multi-country patient surveys by the Commonwealth Fund Surveys; thus, results

might differ from the administrative data. Moreover, they do rely on self-report and have limited sample

size. There is the future potential challenge to generate objective waiting times data.

There is not a universal definition of waiting time and thus data might not be fully comparable across

countries. Universal definition is a potential issue for future research in order to create comparable

indicators (OECD 2011b)

Waiting times contribute to CWE if

- Low waiting times.

High waiting times might indicate lack of medical equipment, no available hospital beds, short-

staffing or inefficiencies in the organization of the services (OECD 2011b)

Moreover, high waiting times can cause health problems as well as stress, anxiety or pain

(Sanmartin, 2003).

3.1.2 Education

Brief description

Education has an intrinsic value for individuals; better education translates into more freedoms and

opportunities for individuals. The deprivation of education will lead to economic and non-economic

consequences (Sen, A., Stiglitz, J. E., & Fitoussi, J.-P. 2009, p. 165).

That is what Adam Smith, the father of human capital said about education: “…there is another great loss

which attends the putting of boys too soon to work… when he is grown up he has no ideas with which he

can amuse himself.” (Smith 1776, p.256-7)

Education is also a means to achieve higher income, earnings, wealth as well as non-monetary benefits

such as better health and greater subjective well-being (Sen, A., Stiglitz, J. E., & Fitoussi, J.-P. 2009, p.

165-6)


Indicators

Percentage of population in the public education system

Public education is provided on distributional grounds: it enables to integrate groups making the melting

pot work. Moreover, it provides opportunities to educate to those individuals lacking funds; they would

not have access to education without assistance of government. If public education system is provided,

then children access to education does not depend on parents’ financial ability or their sense of altruism

(Stiglitz, J., 1999, p.420-2).


- The percentage of population in the public education system is higher and increasing over time

(while decreases might signal that people are shifting to private education due to a decrease in

the quality of the public service).

Program for International Student Assessment, PISA

Since 2000, PISA works as an international assessment which measures the performance of 15-year olds

in the following three different areas: reading, mathematics and science literacy. It is conducted every

three years; although all three areas are assessed, each PISA cycle assesses one of the three subject areas

more in depth, considering the other two as minor subject areas for that assessment year (Fleischman,

H.L., Hopstock, P.J., Pelczar, M.P., and Shelley, B.E. 2010)

Coordinated by the Organization for Economic Cooperation and Development (OECD) since 1997, it

selects every three years a randomized group of 15-year-olds who take the tests in the previous stated

areas. Both the students and their respective school principals fill in background questionnaires to

provide information on the student’s family background and the way their school is run. There are some

countries and economies which choose to have parents fill in an additional questionnaire. To date, over

70 countries have participated in PISA (Fleischman, H.L., Hopstock, P.J., Pelczar, M.P., and Shelley,

B.E. 2010)

Its valuable features are the following (OECD 2010):

1. Its policy orientation; it analyses and extrapolates the results at a national level, showing how

effectively each country educates their children and in which position each country stands in

relation to other countries. It highlights the similarities and differences in performance patterns

and identifies features common to high performing students, schools and education systems by

linking data on learning results with data on student background and other key factors that shape

learning in and outside the school.


There is a really good video: “PISA – Measuring student success around the world” which

explains that analysts look at all the pieces of information available from the PISA survey and

try to determine the main characteristics of successful education systems such as whether

teachers in this system are paid more, whether individual schools get to decide what their

teachers teach, whether the curriculum is determined by a central government authority or

whether classes are generally smaller or larger.

Once a profile of a successful education system emerges, it can be used as a model by

governments and policy makers from other countries and economies. PISA does not make a

critique on the effects of the different policies implemented by governments. Otherwise, it shows

what it is possible to achieve and serves as a powerful tool for governments to re-think their

current education policies while motivating them to design new ones so as to improve their

student’s performance at schools. At the same time, PISA is useful for all parents, educators and

governments as it enables them to capture their country’s progress and establish a set of

benchmarks and national goals.

2. Innovative concept of “literacy”, which involves both the student’s capacity to apply knowledge

and skills in key subject areas and to their ability to analyze, reason, draw conclusions and

communicate effectively as they pose, interpret and solve problems in different situations.

Moreover, the video states that PISA’s tests are not directly linked to school curriculum and

through the background questionnaires they provide a context which helps analysts interpreting

the results. The main objective of PISA is to assess to what extent students at the end of

compulsory education can apply their acquired knowledge to real-life situations and problems

and, at the same time, be prepared for full participation in society.

For example, whether students are able to use the reading skills they have learned at school to

understand the information they may find in a book, a newspaper, on a government form or in an

instruction manual. It is not only reading but also about understanding what it is read, thinking

about it and drawing conclusions from it.

3. Relevance to lifelong learning, which goes beyond assessing students competencies in school

subjects by asking them about their learning motivations, their beliefs about themselves and their

learning strategies.

From PISA results we learn also that in all countries, students who enjoy reading the most

perform significantly better than students who enjoy reading the least.

4. Regularity; the repetition of PISA every three years enables countries to assess their progress in

meeting key learning objectives and standards.


5. Breadth of geographical coverage and collaborative nature, which in the last PISA carried out,

in 2009, encompassed 34 OECD member countries and 41 partner countries and economies.

6. Possibility to improve; the video “PISA – Measuring student success around the world” explains

that rankings are not definitive; PISA’s trends reveal the capacity for all countries to improve.

7. Apart from Quantity, it gives information on Quality; for example, OECD countries place at least

an equal or a larger number of teachers into socio-economically disadvantaged schools as they

do in advantaged schools. However, findings from PISA suggest that in disadvantaged schools,

the quantity of resources does not translate into quality of resources; in general, more advantaged

students attend schools that have higher proportion of full-time teachers who have an advanced

university degree.

An education system is successful and contributes to CWE if

- Students’ achieve high scores in PISA surveys.

- All students from all backgrounds perform well on tests; not just those who come from wealthier

or more intellectual or more culturally sophisticated families. And just as every student has the

potential to achieve, every country has the potential to raise the standards of its education system.

- Governments make education a priority; if they share the belief that skills can be learned and that

all students can achieve high levels. If they show that they value the teaching profession by

investing in it so that they can attract highly qualified candidates, train them appropriately and

retaining the best teachers among them.

- Students are given the best opportunities to achieve the best possible results.

Results from PISA show that successful school systems, those that perform above average and show

below-average socio-economic inequalities, provide all students, regardless of their socio-economic

backgrounds, with similar opportunities to learn.

Early school leaving

According to the European Union, early school leavers are students between 18 and 24 years old who

have lower secondary education or less and are no longer in education or training. It includes students

who have dropped out of school before the end of compulsory education, students who have finished

compulsory education but have not acquired an upper secondary qualification, and those who have

followed pre-vocational or vocational courses which do not lead to a qualification that is equivalent to

upper secondary level.

It is a main concern faced by European societies. Early leaving school might be a result of both

psychological and social problems as well as a cause of continuous social insecurity. Students that leave


school early do not have the adequate skills for later life. One of the objectives of European agendas is to

reduce early school leaving to less than 10% by 2020 (European Comission, 2003).

Early school leaving rates contribute to CWE if:

1. The rates are low and decreasing over time.

3.1.3 Material Living Standards

Brief description

According to the Compendium of OECD well-being indicators undertaken by the Organisation for

Economic Co-operation and Development (OECD) in 2011, material standards are also referred as

economic well-being. They provide information on people’s consumption possibilities as well as their

command over resources.

Income and wealth expand consumption possibilities and are a means to obtain the resources to satisfy

individual’s needs. Besides the monetary benefits, income and wealth provide non-monetary benefits as

well; for instance, they might bring higher security, health status and education (OECD 2011c).

Annual median household disposable income

Measures the income of a typical household, in the middle of the income distribution, and gives

information on how the middle class is faring.

The Common Welfare Product Matrix will compare the minimum wage with the annual median

household disposable income.

Contribution to CWE if

- The larger the gap between the minimum wage and the household income, the greater will be

the consumption possibilities of the household. Also, it would allow individuals to smooth

consumption over time while protecting them from unexpected events that could lead to

destitution and poverty (OECD 2011c).


3.1.4 Personal activities, including work

Brief introduction

Personal activities have effects on people’s hedonic experiences as well as on their evaluative judgments

(Sen, A., Stiglitz, J. E., & Fitoussi, J.-P. 2009, p. 170). Work, on the other hand, increases people’s

control over resources and enables individuals to develop skills and abilities and achieve their ambitions.

Employment makes individuals feel useful in society by enhancing their self-esteem (OECD 2011d)

Employees working more than 50 hours per week

This indicator shows the proportion of employees who usually work for more than 50 hours per week. It

excludes self-employed workers who are likely to choose deliberately to work long hours.

Employees working more than 50 hours per week, assuming that they dedicate time to commuting,

unpaid work, eating and sleeping, are left with few hours to dedicate their time to other activities related

to leisure and personal care. Working long hours can lead to stress and health problems which, at the

same time, might affect family relations in a negative way (OECD 2011d). Policy makers thus play an

important role in this area when designing regulations limiting working time. It is interesting to see the

disaggregated results showing men and women separately so as to see whether there is equality between

them.

Appendix 3: The quality of work-life balance indicators shows the quality and relevance of the indicator.

Contributes to CWE if

- The indicator shows workers are left with a minimum of free hours per week.

- Small differences in the trends between women and men.

Long-term unemployment rate

It measures the number of persons who have been unemployed for one year or more as a percentage of

the active labor force. It includes people of working age who, when surveyed were: without work (not in

paid employment or self-employed), available for work and actively seeking work or had taken specific

steps in previous four weeks to seek paid employment or self-employment.

Long-term unemployment rate affects peoples’ quality of life as it places people at risk of social

exclusion, poverty and deprivation while having a job limits the risk of poverty faced by households

(OECD 2011d).

It Contributes to CWE if

- The indicator shows low long-term unemployment rates.


3.1.5 Political voice and governance

Brief description

This dimension takes into account political voice, legislative guarantees and the rule of law, which are

essential in representing citizens’ freedom of opportunities (Sen, A., Stiglitz, J. E., & Fitoussi, J.-P. 2009,

p. 179).

If we want a country to be democratic, the actions taken by the government should represent the

preferences of the individuals it serves. To ensure this there must be transparency and accountability, as

well as a rule of law that guarantees the effective implementation of citizens’ rights.

A definition of Governance offered by the World Bank states that: ‘Governance consists of the traditions

and institutions by which authority in a country is exercised. This includes the process by which

governments are selected, monitored and replaced; the capacity of the government to effectively

formulate and implement sound policies; and the respect of citizens and the state for the institutions that

govern economic and social interactions among them.’ (World Bank Group, 2012)

Indicator

Worldwide Governance Indicators (WGI)

To measure Political voice and Governance we can use the Worldwide Governance Indicators (WGI),

which consist of six aggregate indicators that represent six essential dimensions of governance (World

Bank Group, 2012):

1. Voice and Accountability

2. Political Stability and Absence of Violence

3. Government Effectiveness

4. Regulatory Quality

5. Rule of Law

6. Control of Corruption

Since we want to simplify the information added to the Common Welfare Product, we decided to only

select three indicators, those which seem more relevant in representing political voice and governance:

1. Voice and Accountability, which measures the extent to which citizens can participate in politics

and if they are correctly represented, it also captures free media, freedom of expression and

association.

2. Political Stability and Absence of Violence, which measures the probability of governments

being destabilized or overthrown by political and terrorist violence.


3. Control of Corruption, which intends to capture the extent of public power used for private gain

and the influence of bribery and vested interests in governmental decisions.

The indicators contribute to CWE if:

- High participation and accountability.

- Stable and pacific governance.

- Low levels of corruption.

3.1.6 Social connections

Brief description

This area relates to the quantity and quality between interactions of individuals. We thought this would

be better measured through surveys and have chosen to modify this dimension in order to make it more

relevant for the Common Welfare Product.

Instead, we will use the concept of Social Equity, which is more in line with the value of ‘Social Justice’

that we find in the Common Welfare Balance Sheet.

Social Equity is an important dimension because it focuses on the degree of inequality within a country,

an essential factor in determining the well-being of a country.

Some consequences of high inequality are the existence of monopolies, rent-seeking, cronyism and

influential vested interests. All these factors create social unrest and a decrease in equality of

opportunities and social mobility, which often lead to increased poverty and social exclusion (The

Economist, 2012).

Therefore, it is important to measure the degree of inequality of a country in order to determine if people

have equal opportunities.

Indicator

GINI index

We believe the GINI index would be a good measure of social equity since it represents the degree of

inequality of a country. It is calculated from the Lorenz curve, which shows the cumulative fraction of a

country’s total income. A 45 degree line represents total equality, so you can determine a country’s

income distribution by seeing the degree of separation between the straight line and the Lorenz curve, the

more separation, the more inequality (Stiglitz, 2000).

The degree of the GINI index ranges from 0, which represents no inequality to 100, which represents

total inequality. If a country has a high GINI it will mean that a small percentage at the top of the curve

owns the large majority of income.


It contributes to CWE if:

- The GINI index is low, taking into account that current indexes range from 26 to 58.9. All

countries should try to approach an inequality of 26 or less.

3.1.7 Environmental conditions

Brief description

This dimension is very complex since scientific knowledge is still limited in assessing the interactions

and consequences of environmental conditions. The environment is considered natural capital, and

human capital depends entirely on this limited resource. Environmental conditions affect our health and

provide us with free, essential services like clean water (Sen, A., Stiglitz, J. E., & Fitoussi, J.-P. 2009,

p.292). It is therefore very important to think of the effect human activities have on the environment in

order to regulate them and reach a situation that is fair and sustainable in the long-term.

Indicator

Ecological Footprint

We have decided to use the Ecological Footprint as a representative indicator in assessing the state of

environmental impact. The Ecological Footprint measures the impact of human activity on the

environment, that is, humanity’s demand on nature (National Footprints Accounts, 2011, p.1).

An important remark is that we will consider this measure with respect to global capacity in order to see

if a country’s activities are sustainable or not. This can be done by assessing if the average footprint of a

country’s citizen exceeds the number of global hectares allowed for each individual, 1.8 global hectares

per person (National Footprints Accounts, 2011, p.4).


1. The average Ecological Footprint of a country’s citizen is 1.8 hectares or less.

3.1.8 Insecurity

Brief description

A country is considered prosperous if it provides a safe place to live in regarding both economical

and physical security. War, crime, dictatorship and discrimination relating to gender, race and

religion all contribute to social fear and undermine the possibilities of individuals to achieve their


maximum capabilities (Sen, A., Stiglitz, J. E., & Fitoussi, J.-P. 2009, p.194). It is therefore essential

that a country provides the maximum security possible to allow a good quality of life.

Indicator

Human Security Index (HSI)

We considered several indicators such as the rate of unemployment, and the Strategy Survey which

measures conflicts, but in the end we found a complete index that accurately represents the level of

security of a country. It is the Human Security Index (HSI), which takes into account the following

factors (Human Security Index, 2009):

1. Protection of, and benefiting from, diversity: this factor measures if people are at ease related

with their gender, age, place of origin, religion and other personal characteristics. It

represents the degree of tolerance and/or discrimination.

2. Peace: this is essential in determining the level of security; it measures how safe people feel

in their home, city and country.

3. Environmental protection: this factor analyses the extent to which environmental hazards

can put citizens in danger, it also measures if there is a sustainable use of resources or not.

4. Freedom from corruption: this measures the degree of corruption found in businesses and

governments, including bribery, fraud and lobbying.

5. Information empowerment: this final factor analyses if citizens have access to complete,

reliable and objective information through all different means.


- The index is high, there is more security, although this will make more sense if the results are

compared across several years in order to identify if there has been an improvement. When

assessing the index we must also take into account that the minimum and maximum scores are

26% and 86% respectively. This means that any scores larger than 80% will be considered a very

high contribution to a country’s well-being.

http://www.humansecurityindex.org/?p=77






3.1.9 General indicators

Besides the social areas discussed above, we think it is important to include two other indicators in order

to determine the diffusion and success of the model:

Number of companies following the Common Welfare Matrix in a country in %=

This indicator will be essential in keeping track of the expansion of the Common Welfare model,

since it will measure how many companies within a country have adopted the alternative balance

sheet.

Average contribution to Common Welfare in a country =

This second indicator allows us to see the average score of the companies following the

Common Welfare balance sheet within a country. It will be helpful when assessing the success

of the model since it shows us how a country’s average contribution to common welfare expands

overtime.


4. Creating the Common Welfare Product matrix

Now that we have found several representative indexes to determine the CWP, we can create a matrix

that summarises the % of contribution to the Common Welfare of each index.

For instance, if we are looking at the World Governance Indicators of a specific country and they score a

total of 60% this will represent a contribution of 60% to Common Welfare.

In the case of the Ecological Footprint, we could also calculate the % of contribution:

We know that 1.8 global hectares per person are available world-wide, and that Europeans use 4.9 global

hectares per person (National Footprints Accounts, 2011).

If we want to find out the % of excess use of hectares in Europe we would compute the following

equation:

- 0.632.

We know the optimal score is 1.8, and this will be represented by a 0 negative effect. Any consumption

that exceeds 1.8 will start having negative effects. In this case, Europe would have a negative % score in

the matrix of 63.2%.

4.1 Matrix for Common Welfare Product

Below is our suggested matrix to represent the Common Welfare Product, the contribution of a country to Common Welfare:

4.2 An example: Indicators for Spain

Health Status

Percentage of population using exclusively public health coverage

Source: García Armesto, S., Abadía Taira, M.B., Durán, A., Hernández Quevedo, C., Bernal Delgado, E.

España: Análisis del sistema sanitario. Sistemas sanitarios en transición, 2011, 12(4):1–269.

The previous table shows that 85.1% of the population uses exclusively public health coverage. It is a

good result and we think it could be improved up to the level of Ceuta y Melilla (96%) or Navarra (94%).

Life expectancy

Source: IndexMundi

The following calculations show that Spain has a really high life expectancy occupying the 15th position

out of 220 countries with 81.27 years. However, its position with respect to Monaco, the country with the

highest life expectancy, points out that Spain can still improve up to 9 basic points.


Life expectancy at birth (years)

Spain 81,27

Mónaco

(Max) 89,68

Spain/Monaco 91%

Waiting Time

We have not found reliable data related to waiting times so it is an issue for future research.

Education

Percentage of population in the public education system

Early Years (0-5)

Primary School

Special Education

Secondary School

Baccalaureate

Vocational Trainning Module

(mid level)

Vocational Trainning Module

(upper level)

University

64.2 % 67.3% 55.3% 65.8% 73.1% 75.4% 78.1% 87.5%

Source adapted from MEC, 2010

The previous table shows that there is a high percentage of the population that prefers to receive private

education, especially during early years, primary school and secondary school. For special education

parents rely much more on private institutions as well.

This might be due to the fact that the quality of public education is lower than the education received in

private institutions. The government should definitely invest resources in analyzing the causes of such

bad results so as to improve public education.

On the other hand, results for public universities are much better but they can be improved as well.

Early school leaving

In 2010 the percentage of early school-leavers was 28.4% (MEC, 2011, p.106). It is quite a bad result so

the government should analyse the causes and design public policies to improve the results.

In the matrix we will consider this percentage as a negative contribution.


PISA

33,33% 33,33% 33,33%

Reading Scale Mathematics Scale Science Scale

Spain 481 483 488

Max 556 600 575

Spain/Max

86,5108

80,5000

84,8696

Spain (average) 28,83 26,83 28,29 83,95

Source adapted from OECD 2010.

The grey line shows the scores of Spain (2009) in each area. The blue line shows the results of the best

country in each area; we take the latter data as the maximum and we compute the percentages. Finally,

we have assumed that each area counts the same (33.33%). With respect to the maximum scores, Spain

averages 83.95%, a result that could be improved.

Material living standards

Annual median disposable household income

We found the following information for Spain:

Source: Idescat

By dividing the annual median disposable household income by 12 months we find the median

disposable income/month:

/month

We compare the median disposable income/month with the minimum wage/month; the minimum wage

for Spain in 2012 is €641.40.

The gap between both numbers is quite small; the cost of living is high and it is hard to live with

€811.42/month: individuals have very low consumption possibilities and their wage does not enable

them to save or invest in order to protect themselves from future unexpected events. There is a risk of

destitution as well as poverty.


Personal activities including work

Long-term unemployment

According to the Instituto Nacional de Estadística, the long-term unemployment represents 52.2% of

total unemployment in Spain in 2012 (25.02%); the calculation of the latter percentages shows that the

total long-term unemployment represents the 13.06% of the labor force.

The non accelerating inflation rate of unemployment (NAIRU) is approximately a synonym for the

natural rate of unemployment (Laurence Ball & N. Gregory Mankiw, 2002, p.115). It is used as a proxy

for long-term unemployment.

The idea behind the natural rate hypothesis is that any given labor market structure must involve a certain

amount of unemployment. NAIRU shows the steady state unemployment rate above which inflation

would fall and below which inflation would raise. In 2007, the NAIRU in Spain was around 5.5% (Luisa

Stock, Kurt Vogler-Ludwig, 2010, p.33). 5.5% is far below the current Spanish unemployment rate

(25.02%) and the long-term unemployment rate (13.06%).

The long-term unemployment rate for Spain is a really high percentage and it does not contribute at all to

common welfare. We will therefore show it as a negative contribution in the matrix: -13.06%

Employees working more than 50 hours per week

Country 1995 or first

available year 2009 or latest available year

NLD 0,92 0,62 SWE 1,51 1,24 DNK 4,81 1,85 ESP 5,54 6,91 OECD 9,23 8,46

Source: OECD 2011b

The previous table shows that 6.91% of workers in Spain work longer than 50 hours a week. It is relevant

to highlight the percentage of employees working more than 50 hours per week has increased in Spain

with respect to the year 1995, while the OECD average percentage has decreased over time.

In Spain there is nearly a 7% of the population that has really little free time, while in Netherlands,

Sweden and Denmark percentages are much lower and have decreased over time, showing that

population enjoys more free time.

Therefore, in the matrix, we will indicate that 6.91% is a negative contribution: -6.91%


Political Voice and Governance

We found the following information for Spain:

We will use the percentile rank in order to determine how well a country’s governance is doing and as

we stated before, we are choosing the three most relevant indicators: voice and accountability, political

stability and control of corruption.

In Spain in 2011, its rating for Voice and Accountability was 84%, quite a good percentile score. It also

had a good result for control of corruption with an 81%.

However, the Political Stability indicator did not score so well, with only a 50.9%, which could be due to

the terrorist group ETA.

In order to have a reference we compared Spain’s data to Sweden, since we found that it had one of the

best worldwide scores.


Below we can observe Sweden’s data:

All of Sweden’s results are in the highest percentile, whereas Spain’s results, are majorly in the second

highest percentile. This shows that, even though Spain has quite good scores for governance, there is still

room for improvement.

Social Equity

GINI Index

The most recent GINI coefficient we found for Spain was for 2005, which equals to a degree of

inequality of 32 (CIA World Fact Book, 2012). This is quite a good score since the lowest GINI is 26

and the highest is 58.9. However, if we take into account the ranking of the country, Spain is number 105

out of 136 countries analysed in the CIA Factbook (country number 1 being the most unequal). This

means Spain is in ranking

.


Ecological Footprint

In the following graph extracted from Footprintnetwork.org, we can see the increasing evolution of

Spain’s Ecological Footprint from 1960 to 2008. However, from 2010 to 2012, the footprint went from

5.42 to 4.74, a positive change. Although this is an improved result, the Factsheet explains that the

decrease was due to data revision.

Source: Footprintnetwork.org

If we use the formula explained before, we will obtain a % of excess use of hectares equal to:

- 0.62, a negative contribution of 62%.

Human Security

We found the HSI table for 2010:

Source: Human Security Index


According to the table, Spain scored a HSI of 70% in 2010. The lowest score is 29% and the highest 86%

so Spain’s relative security with respect to the rest of the countries is quite high (Human Security Index,

2009). Taking into account that 232 countries are analysed and ranked, Spain’s ranking is in position

. So Spain’s relative security with respect to the rest of the countries is higher than

the average but not optimal.

4.3 Matrix: Common Welfare Product for Spain

4.4 Spain’s Common Welfare matrix: General Comment

The Common Welfare matrix has the following areas of focus: health, education, material living

standards, personal activities, political voice and governance, social equity, environmental conditions and

insecurity. Within those areas there are several representative indicators that show a country’s

contribution to Common Welfare.

The Common Welfare matrix for Spain serves as an example on how our theory could be applied. The

matrix summarises Spain’s percentage contribution to common welfare for each indicator. Spain does

not yet have data related to the general indicators as the model of the Common Welfare Economy in

Spain is still in its early days. Results for Spain can be classified into two groups:

The first group contains the “good scores”, in which we clearly find the health system: Spanish citizens

have an average life expectancy at birth of 81.27 years, which is good if we compare it to Monaco, the

country with the highest life expectancy (89.68 years). With respect to the maximum, 89.68 years,

Spain’s contribution to Common Welfare is around 91%.

Moreover, the percentage of people using the public health system exclusively amounts to 85.1%, which

is a really positive result.

Concerning waiting times, there is not enough data available and even less for cross-country

comparisons. In addition, there is no agreement on a universal definition for ‘waiting time’. It therefore

remains a potential issue for future research as this indicator could provide useful information on the

quality of the health system.

Even though the current scores for health are good, they have been downgraded due to the current

economic crisis and the stringent public policies applied by governments. This means there is a potential

risk for public health services to decline in their level of contribution to Common Welfare.

As for education, there is a high percentage of population relying on public universities (87.5%). It might

indicate that people rely on public universities because of their good quality.

The GINI for Spain was 32 in 2005, which is quite good taking into account that Spain is number 105 out

of 136 countries, thus being 77.21 in the ranking. It would be interesting to see the evolution of the GINI

during the coming years to find out if it worsens due to the economic crisis and the public policies

applied by governments.

Spain shows good scores for Voice and Accountability (84%) and finally, the Human Security Index

contributes 70% to Common Welfare, which we think is a good contribution as from the 232 countries


analyzed, Spain’s ranking is in position 69.40; its relative security with respect to the rest of the countries

is higher than the average but still not optimal.

Finally, the data show that Spain has a good control of corruption with an 81% of contribution. However,

comparing this percentage with other countries such as Sweden, we can observe that Spain has great

room for improvement.

The second group contains Spain’s “bad scores”. In the current context of the crisis, Spain’s median

disposable household income as well as its minimum wage remain low taking into account the high cost

of living. The long-term unemployment is really high (13%) as well as the unemployment rate (25.02%).

It clearly does not contribute at all to the Common Welfare of a country and, in fact, it causes the

downgrade of some, if not all, the other indicators and their contributions to Common Welfare:

unemployment leads to a decrease in the median disposable household income and an increase in

insecurity; in the context of crisis, unemployment sometimes comes together with an increase of the

GINI coefficients: the gap between the rich and the poor broadens further. Long-term unemployment in

Spain has increased in the last few years due to the crisis and, surprisingly, those working seem to work

for longer hours: 6.91% of people work for more than 50 hours a week; this percentage has been

increasing since 1995.

Spain scores relatively badly in other dimensions such as in education: there is a really high percentage

of families that choose private education for their children, especially when it comes to early years,

primary and secondary education as well as special education. Taking into account the high

unemployment and the decrease of the median disposable household income, families will have less

money to spend on the education of their children and will have to rely on public education even if its

quality is not good. PISA results seem to be good at first sight, but if we analyze them in more detail and

compare them with other countries, we realize that Spain is not performing that well. Moreover, the early

school leaving rate is significantly high (28.4%).

The Political Stability indicator shows that Spain does not score well and that might be due in part to the

terrorist group ETA. It should therefore be a priority in the government’s agenda.

Finally, even though Spain has improved its Footprint score, it still shows a very negative contribution to

Common Welfare of -62% which should be improved urgently.

The matrix for Spain gives valuable, disaggregated information to the government and citizens regarding

the quantity and quality of the country’s contribution to Common Welfare. From our previous analysis

we also see that the matrix and data suggest which countries governments should look at as a reference

for future improvement.


Ideally, and if we had more time for this project, we would like to assign weightings to the different areas

or indicators so as to aggregate them into a unique number or percentage that could complement the

GDP.


5. Conclusion

Reflecting and contributing to Felber's Common Welfare model has been very inspiring for us. When we

first heard about the Common Welfare Economy it felt like a breath of fresh air, a new exciting

alternative to our current model. We have really enjoyed writing this project because the model is still

taking shape and everyone is encouraged to participate one way or another.

On the way, we have met and talked to many people who are currently working really hard on this

model. Moreover, we had the pleasure to talk and present our project to Christian Felber in a conference

he gave in the Cambra de Comerç in Barcelona. It has been really inspiring and encouraging to meet all

these people.

We chose an area within the model that has not yet been discussed so we could be creative and make a

small contribution. The Common Welfare Product is supposed to be decided democratically through

regional and then national majority voting. In order to try and simulate this, we proposed several

indicators to a group of 20 people who attend a weekly seminar on the Common Welfare Economy

taught by Professor Mercè Carreras-Solanas. Thanks to their help we chose the final indicators that are

presented in this project. We hope our proposal will be of some help to future research and debate.

Finally, we would like to emphasize the importance of clarifying what is understood by national common

welfare and how it should be measured. In this project we took a more objective approach when defining

national well-being because we assumed the results would be more clear and reliable. However, we think

subjective surveys related to the individuals’ opinion would be useful to find out how they feel in relation

to various issues. Their happiness should also be considered along with objective data in order to see if

there is a real correlation between high quality of life and happiness. We would hope there is.


Appendix

Appendix 1: The Common Welfare Matrix

Appendix 2: The quality of health status indicators

Source: OECD, 2011a

Appendix 3: The quality of work-life balance indicators

Source : (OECD 2011d)


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Economy & Finance

The common welfare economy còpia