Posts Tagged ‘transformation’

EFP Brief No. 257: Creating Prospective Value Chains for Renewable Road Transport Energy Sources

Tuesday, September 16th, 2014

If the Nordic energy and transport sectors are to meet the 2050 energy and climate policy targets, major systemic chang-es are necessary. The transition requires cooperation between public and private actors. The approach outlined in the paper combines elements from the fields of system level changes (transitions), value chain analysis and forward looking policy design. It presents a novel, policy relevant application with a set of practical tools to support development of im-plementation strategies and policy programmes in the fields of energy and transport.

A Major Transition is Necessary

Sustainable energy technologies are driven especially by the climate change challenge, which necessitates paradigm shift also in global energy production and consumption structures. Currently, about 20 % of the Nordic CO2 emissions are due to transport sector. If the Nordic energy and transport systems are to meet the 2050 energy and climate policy goals, a major transition is necessary. Along with new technologies, changes are required also in other societal sectors such as business models and consumer habits. The transition requires cooperation between public and private actors. Political decisions should create potential to enterprises which can provide renewable energy solutions in a way that they attract also consumers and transporters of goods.

In order to be able to make wise political decisions we need foresight actions to get an idea about the future trends and needs, and possible ways of shaping the future. We believe that, for the most part, actors create the future and therefore the state of the transport system is a result of the measures and actions carried out by the producers, operators and users of the system. Therefore we need knowledge and understanding about the actors who are important in the processes. In our understanding actors are outlined in value chains.

A new Approach to Value Chains

The focus in this brief is on developing tools to understand, create and analyse prospective value chains up to the year 2050. With ‘value chain’ we mean a chain of activities needed in order to deliver a specific valuable product and service for the market, incl. activities related to energy sources or feedstock production; energy production; distribution and transportation; retail; consumption; regulation and governance; and research and development. In our case the value chains arise from three alternative, but partly overlapping technology platforms, namely electricity, biofuels and hydrogen.

The motivation for this foresight exercise is to produce knowledge for future decision making and policy support in order to create enabling ground for sustainable energy solutions for the future transport sector. Traditionally value chains are considered in rather short term business opportunity analyses. In our case, we need to outline the value chains in the far future.

The brief is based on the preliminary results of the TOP-NEST project WP4. The task of WP4 is to identify prospective value chains in order to outline roadmap and policy recommendations in the later phases of the project.

Functions of Foresight and Policy-making

The impact of foresight on policy-making has been discussed among foresight experts practitioners (e.g. Georghiou & Keenan 2006, Da Costa et. al. 2008, Weber et.al. 2009, Könnölä e.al. 2009, 2011). One aspect of this discussion is to consider the functions of foresight in policy-making. The functions of foresight can be summarized into three major functions, which are 1) informing, 2) facilitation, and 3) guiding.

The informing function of foresight is generation of insights regarding the dynamics of change, future challenges and policy options, along with new ideas, and transmitting them to policymakers as an input to policy conceptualisation and design.

Facilitation of policy implementation gets it motivation from the changing nature of policy-making. There has been a shift from linear models of policy-making, consisting of successive phases such as formulation, implementation and evaluation phases, into cyclic models, where evaluations are supposed to feed back into the policy formation and implementation phases (Weber et. al 2009; Da Costa et. al 2008). This kind of thinking puts more emphasis on interactions, learning, and decentralised and networked characters of political decision-making and implementation.

The effectiveness of policy depends also on the involvement of a broader range of actors, and therefore also, the role of government shifts from being a central steering entity to that of a moderator of collective decision-making processes. To meet the requirements of the new mode of operation one needs foresight instrument.

Policy guiding refers to the capacities of foresight to support strategy formation or policy definition. In its best foresight exercises may bring to light the inadequacy of the current policy system to address the major challenges that society is facing (Da Costa et al. 2008).

Our approach combines analysis of system level changes (transitions) and value chain analysis with foresight approach. We apply multilevel perspective model (Geels 2005) to define the prerequisites of the transfer of the complex transport system, and value chain analysis in order to concretise the changes needed. With these elements we try to inform, facilitate and guide policy-making.

Multi-level Perspectives of the Energy and Transport Systems

Figure 1 presents the three basic components of the transport system: users, vehicles and transport infrastructure. The use of vehicles involves behavioural and business models, and different types of solutions are available concerning issues such as vehicle ownership (adapted from Auvinen and Tuominen, 2012). The illustration presents also the main elements of the energy system (primary energy sources, production and storage), which are linked to the transport system mainly through energy and transport infrastructures and are crucial for transport operations.

The state of the transport system is a result of the measures and actions carried out by the producers, operators and users of the system. Producers and operators are organisations or companies, which can be categorised according to their main duties, such as: policy formulation, infrastructure construction and maintenance, production and operation of services for the transport system, and production of transport-related services (e.g. vehicle manufacturing and fuels). Individual people, actually the whole population, are the users of the passenger transport system. In freight transport, users are companies and organisations in the fields of industry, transport and commerce (Tuominen et al. 2007). Value chains are composed from these different actors.

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Figure 1. Transport and energy systems in multi-level perspective model. The transfer process requires changes in all levels heading to the same direction.

From Future Wheel to Technology Platforms and Prospective Value Chains

The foresight procedure consists of three stages (see Figure 2):

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Figure 2. A procedure for prospective value chain analysis.

The starting point of the process (Step 1) is to create an idea of the context were the prospective value chains will operate. For this pourpose, various foresight methods, such as Futures Wheel, and scenario methodology can be used. We formulated four different scenarios for 2050, which are described briefly below (Figure 3).

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Figure3. The principle of scenario creation and the four transport scenarios formulated for 2050.

The goal of the second step is to identify the value network actors and analyse their individual interests, and connections between different actors, if possible, in all different scenarios. The analysis covers value chain activities from energy sources and feedstock production to energy production, distribution and transport, retail and consumption. Also regulation, governance and R&D actors are included in the analysis.

All possible actors are listed and their opportunities and advantages, as well as supportive needs are analysed. Opportunities refer to the possibilities to make profit in the value network (How the actor benefits from the value network?), and advantage refers to created value by the actor (What is the added value the actor produces to its customer or in the network?). The analysis of the supportive activities is needed to recognize the connection between different actors. Figure 4 gives an example of the value network illustration.

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Figure 4. Value network of a biodiesel example based on tall oil.

The third step includes outlining of the prospective value chains. In this stage, couple of aspects need to be taken into consideration. Different technology platforms will co-exist in the future and different futures create different opportunities and development possibilities for different technology platforms. Therefore, one needs to describe the level of technological development of the given technology platform in the outline of the value chain. In other words, the outline of the value chain works only in selected scenario, and the level of technological development of a single technology platform is different in different scenarios.

Participative Workshops Informing, Facilitating and Guiding Policy-making

Future value chains and future actors within have to be recognised in order to find out prerequisites of the future actions. The proposed approach may act as a checklist for the key issues to be covered in outlining prospective value chains in the road transport context.

The process integrates methods from different theoretical starting points: foresight, multi-level perspective and value chain theories. It also integrates energy and transport systems, and expands the context far to the future. The process is not yet complete but the work will continue in the TOP-NEST project up to the 2014.

To outline future actors is a challenging task. At this stage of the process development we have noticed that the most challenging part is to be able to imagine potential new actors and to create potential new relationships between the actors in a strongly path dependent situation, as is a biodiesel case. We assume that for instance in testing this procedure in hydrogen technology system the challenge may be slightly easier, because path-dependency is not strong.

Another challenge is to get relevant stakeholders to either participate the workshops or give interviews. The workshops or interviews shall include stakeholders at least from the industry, ministries, NGO’s e.g. nature protection organisations, vehicle industry and associations as well as researchers. The issue to be discussed is so large including energy, transport and transition policies, that the discussion would take time. There may also be confidentiality problems concerning new emerging technologies.

We believe that the prospective value chain analysis helps us to figure out landscape level constraints, like values and global trends, niche level options, as well as the needs which guide us to change or maintain the existing regime. Value chain analysis gives us views about the future and about the potential paths and constraints to help making wise political decisions.

 

Authors: Nina Wessberg, nina.wessberg@vtt.fi, Anna Leinonen, anna.leinonen@vtt.fi, Anu Tuominen, anu.tuominen@vtt.fi, Annele Eerola, annele.eerola@vtt.fi ,Simon Bolwig, sibo@dtu.dk
Sponsors: NER (TOP-NEST project http://www.topnest.no/ )
Type: Nordic foresight exercise
Organizer: VTT, nina.wessberg@vtt.fi
Duration: 2011-2015
Budget: € 402,000
Time Horizon: 2050
Date of Brief: July 2014

Download EFP Brief No. 257_Prospective Value Chains

Sources and References

Auvinen, H. & Tuominen, A. 2012, Safe and secure transport system 2100. Vision. VTT Technology 5 (2012).

Da Costa, O., Warnke, P., Cagnin, C., Scapolo, F. (2008) The impact of foresight on policy-making: insights from the FORLEARN mutual learning process. Technology analysis & Strategic Management, vol. 20, No. 3, pp. 369-387.

Geels, F.W. 2005, “Processes and patterns in transitions and system innovations: Refining the co

evolutionary multi-level perspective”, Technological Forecasting and Social Change, vol. 72, no. 6, pp. 681-696.

Georghiou, L., Keenan, M. (2006) Evaluation of national foresight activities: Assessing rationale, process and impact. Technological Forecasting & Social Change, vol. 73, pp. 761-777.

Könnölä, T., Scapolo, F., Desruelle, P., Mu, R. (2011) Foresight tackling societal challenges: Impacts and implications on policy-making. Futures vol. 43. pp. 252-264.

Tuominen, A., Järvi, T., Räsänen, J., Sirkiä, A. and Himanen, V. (2007) Common preferences of different

user segments as basis for intelligent transport system: case study – Finland. IET Intell. Transp. Syst.,

2007, 1, (2), pp. 59–68.

Tuominen, A., Wessberg, N., Leinonen, A., Eerola, A. and Bolwig, S. (2014). Creating prospective value chains for renewable road transport energy sources up to 2050 in Nordic Countries. Transport Research Arena 2014, Paris.

Weber, M., Kubeczko, K., Kaufmann, A., Grunewald, B. (2009) Trade-offs between policy impacts of future-oriented analysis: experiences from the innovation policy foresight and strategy process of the city of Vienna. Technology analysis & Strategic Management, vol. 21, No. 8. pp. 953-969.

Wessberg, N., Leinonen, A., Tuominen, A., Eerola, A. and Bolwig, S. (2013) Creating prospective value chains for renewable road trasport energy sources up to 2050 in Nordic Countries. International Foresight Academic Seminar in Switzerland, Sept 16-18, 2013.

EPF Brief No. 242: Quality and Leadership for Romanian Higher Education

Friday, December 21st, 2012

The project “Quality and Leadership for Romanian Higher Education” (QLHE) aimed to elaborate a vision of Romanian higher education in 2025 and a strategy consisting of specific policy guidelines to achieve it. Based on a large participatory foresight exercise, the project sought to contribute to improving the strategic management of universities and achieving a wide national consensus on the development of the Romanian higher education system.

Transforming the Higher Education System

The project was to help transform the framework of Romanian higher education, as it has been repeatedly stated that the system lacks a vision and long-term strategy. The Presidential Commission on Education issued a report claiming that “education in Romania is ineffective, irrelevant, and low in quality”. The whole reform process has been incoherent, ineffective and has lacked a long-term, shared vision of the future. Therefore, the education system was in urgent need of change. The transformation had to be endorsed by the academic community, policymakers, stakeholders and public opinion. In order to achieve broad consensus, the project carried out a foresight exercise – a large participatory exercise involving a substantial number of people from various target groups and a wide range of ideas, possible future scenarios, solutions, policy options etc.

The higher education system has been repeatedly evaluated as homogeneous, lacking diversity, outdated and out of tune with the realities of the dynamic and interconnected world around it. Prior to developing and achieving the final results, the project carried out activities to analyse the context and identify the major challenges and drivers of change in order to generate a clear and encompassing view of the environment, its needs, the existing obstacles and the potential opportunities. Panels of experts elaborated a series of studies concerning the analysis of the current state of Romania’s universities in relation to various aspects of society, the existing challenges, and the drivers of change in light of the main features of the Romanian social system. The resulting documents served as a point of reference for the subsequent activities.

Creating a Shared Vision

The goals of the project were to create a shared vision and a set of strategic recommendations for Romanian higher education and, in doing so, to develop the prospective analysis and leadership capacities of key actors through a series of workshops and training sessions on various topics of interest.

Another challenging objective was to develop and sustain a foresight community by creating an environment that would enable the emerging community to interact and exchange opinions. Thus, the project designed a web-based collaborative platform, The Foresight Wiki. The name indicates that the platform uses the wiki technology for developing collaborative websites and Web 2.0 technologies. This allows members of the future studies and foresight communities to write articles that any other member can edit. The platform represents an innovative tool providing a user-friendly interactive setting.

Bucharest Dialogues

The platform was not the only step to advance the development of the foresight community; a series of ten international debates, the Bucharest Dialogues, provided the platform with information and knowledge and gave the participants the opportunity to gain experience in the foresight process. These mutual learning workshops were designed as variations on the Bohm dialogues where experts can get together and discuss fundamental aspects of foresight. The Bucharest Dialogues invited foresight practitioners, managers and policymakers in a setup following David Bohm’s principles of dialogue. During a Bucharest Dialogue, key speakers would represent distinct voices within the foresight community, speaking on a broad, preestablished topic.

Mutual Learning Workshops

Both the Mutual Learning Workshops and the Bucharest Dialogues offered a great opportunity for knowledge, skills transfer and learning by allowing the Romanian experts to closely collaborate with more than one hundred international experts. Among the international experts that participated in the Romanian foresight exercise were representatives of institutions such as Fraunhofer ISI, The Institute for Prospective Technological Studies (IPTS), European Universities Association or UNESCO-CEPES (the European Centre for Higher Education), which acted as partner institutions, different international institutions, such as SAMI Consulting, UNIDO, and well-known individual experts, such as Murray Turoff, Roxanne Hiltz, Riel Miller, Peter Bishop, Ozcan Saritas, Denis Loveridge, Ziauddin Sardar, Wendy Schulz and others (for a full list of participants, see the ForWiki platform).

Large-scale Participative Approach

The context and the challenges addressed by this project and the objectives pursued were suited for a large-scale, participative, systemic foresight exercise. As mentioned above, such an approach was necessary since the lack of a systemic approach to change in higher education has not only generated a mélange of reforms but, more importantly, has also resulted in the absence of a clear vision of the future bearings of Romanian higher education.

The exercise started with a nomination/co-nomination process to identify the key stakeholders. It went on to combine panel work, workshops and online interaction. All these activities involved hundreds of participants who provided knowledge, feedback and recommendations during every step of the project.

A series of workshops and trainings were organised for the stakeholders. They focused on various topics of interest, such as foresight and strategic planning, public policy elaboration in higher education, public policy analysis, introduction to the Delphi method or critical thinking and helped to develop skills and abilities so that the whole transformation would actually occur from within the system and would represent a sustainable process, accepted and widely supported by the stakeholders. All these events were chaired by outstanding international experts.

The whole process highlighted interactivity and focused on sharing experience and new knowledge in an international context. One of the key features of the process was empowering stakeholders to contribute to a shared vision. There were two International Advisory Board meetings, international surveys, and various workshops and trainings facilitated by foresight experts. All the outputs were widely disseminated and constantly tested beyond the initial groups with the help of focus groups and a number of online surveys. At the same time, all results were presented to all participants and stakeholders in an appealing way, using films, attractive websites and platforms.

Following a bottom-up approach, the process started with expert panel analyses, which served as a starting point for the creation of four success scenarios on Romanian higher education in 2025. They were used as frameworks for the transformation of the system and expressed the most relevant and desired changes: University of Life and Jobs, Knowledge Constellation, Atheneum and Blue Ocean.

The scenario building was a vast process that combined three renowned and thoroughly tested methods: World Café, Cards and Integral Matrix Analysis. The scenario workshop was designed as a collaborative process in which the members of the expert panels and the invited stakeholders worked in a World Café setting with more than 70 participants. The participants and stakeholders “played” with the main concepts provided by the previously elaborated documents. They used cards and extracted
the most creative ideas. The goal was to outline a final vision for the higher education system, which was tested and altered in order to meet the requirements and desires of the community.

Elphi Platform

The project was innovative not only in carrying out the first foresight exercise on higher education in Romania but also in creating an adapted version of a Delphi questionnaire tailored to the needs of the Romanian higher education context. The questionnaire was provided on the online platform Elphi, which gave the stakeholders the opportunity to actively participate and in the shaping of the Romanian higher education strategy. A large number of respondents from academic, business, social
and policymaking environments participated. They analysed a series of policy proposals that had previously been drafted by nine different panels of experts in relevant areas. Experts were invited to provide arguments and dynamic rankings; their feedback was essential to improving the initial proposals in order to yield the most desirable policy proposals, adapted to the realities of Romanian higher education, while at the same time being future-oriented and bold enough to spur transformation.
The online platform was innovative in introducing a system of dynamically ranking arguments, providing respondents with an opportunity to refine their views and reach a final consensus. The involvement of a large number of experts also legitimised the recommended policies. Later on, these policies formed the core of the White Paper on Romanian Higher Education in 2015, the strategy document whose recommendations charted the first steps to be made towards the 2025 vision.

Measures of Change

The White Paper was to support the vision by suggesting concrete measures and policy proposals for change, designed for the medium term (2011-2015) and for immediate implementation. The first step in formulating the White Paper was to elaborate a series of policies that were tested and initially integrated into a Green Paper on Romanian Higher Education in 2015 by a group of experts – an intermediate step in developing the White Paper. The Green Paper proposed an approach in waves, in which the interest expressed by individual universities constituted the premise of transformations. According to this proposal, the process of transformation should be supported by financial assistance throughout a transition phase and strongly oriented towards autonomy, leadership and responsibility. Romanian higher education is currently perceived as an administrative service, with the state having the right to intervene in the universities’ internal affairs. Thus, university autonomy is weak and subject to administrative, fiscal and financial restrictions. As a potentially significant opportunity, participating universities should be offered the option to change their legal status. Universities must maintain their public interest status, but, at the same time, enjoy economic and fiscal freedoms specific to educational and research services.

The Green Paper was a consultative document; a large online consultation was opened around the key statements, and several university rectors and vice-rectors were interviewed. The integration of the opinions and comments expressed during this process by over 300 respondents supported the development of the White Paper.

Personalisation, Diversification, and Transparency as New Values

The vision and the White Paper were the products of a broad and complex process whose first stages were described in the sections above. Reflecting the success scenario elaborated by stakeholders, the 2025 vision document describes a future of Romanian higher education based on the values of personalisation, diversification and transparency. In short, the three principles describe the desired changes the system should undergo. Personalisation means more options for students in terms of flexible educational pathways that can be fit to their individual plans for the future. Diversity means institutional structures and a systemic configuration that allow for distinct trajectories for institutions with different missions and goals. Transparency highlights the importance of comprehensive, relevant and easily accessible information about the education system while working towards a reputation system for universities.

Innovative Aspects

In Romania, using the foresight methodology to build a vision of the higher education system and develop strategic recommendations (White Paper) represented an innovative approach. The Romanian higher education foresight exercise was the second national foresight process in this country. Such a toolkit had never been used in higher education before and, as such, it represented a major challenge to the team implementing it.

The foresight exercise was the preferred methodology because the project strove to go beyond the limits of common expertise and the traditional policymaking process in Romania, which had led to inconsistent higher education strategies. Moreover, the need for a systemic approach was implicit in the complexity of an education system that engages a variety of actors and their relationships and eventually influences the life of every citizen. Another innovative aspect was the use and adaptation of the online roundless Delphi, which was adjusted to the specific needs of the project and led to the creation of the Elphi platform.

Reform Approaches Find Society’s Consent

The process and the results were designed to raise awareness about the fact that the Romanian higher education system needs to be changed and that Romanian society supports this transformation. By participating in the process, a variety of actors and stakeholders legitimised the vision document and the strategy-setting White Paper. These two documents, together with the
workshops, training sessions, dialogues and debates organised throughout the three years of the project, set out an appropriate framework for the transformation of higher education. They supported a long-term vision designed to draw the picture of a desirable future, generate and stimulate forward-looking thinking about future challenges, provide the basis for decision-making in the present, and mobilise individual and collective action.

Although these ideas, solutions and policies were embraced by the key actors and stakeholders in the education system, the actual transformation of course requires more than visionary documents or the will of the actors involved. While, to date, there has been no official commitment to carry through with the proposed changes in law, a number of follow-up projects are currently empowering the universities in accordance with the principles set out in the vision (improving the system’s transparency, encouraging the collaboration of universities, and capacity-building for differentiation).

Download EPF Brief No. 242_Quality and Leadership for Romanian Higher Education.

 

Sources and References

Andreescu, L., Curaj, A., Gheorghiu, R. (2011): Unleashing individualization. Challenges for Personalization in Tertiary Education, Proceedings of the 7th International Conference on the Management of Technological Changes, ed. C.

Rusu, Greece, Alexandroupoli: Democritus University of Thrace.

Andreescu, L., Gheorghiu, R., Proteasa, V., Curaj, A. (2012): Institutional Diversification and Homogeneity in Romanian Higher Education: The Larger Picture, in Curaj, A. et al. (eds.): European Higher Education at the Crossroads, Dordrecht, Heidelberg, New York, London: Springer, pp. 863-885

Andreescu, L., Gheorghiu, R., Zulean, M., Curaj, A. (2012): Systemic Foresight for Romanian Higher Education, in Curaj, A. et al. (eds.): European Higher Education at the Crossroads, Dordrecht, Heidelberg, New York, London: Springer, pp. 995-1017

Andreescu, L., Gheorghiu, R., Zulean, M., Curaj, A. (2012): Understanding Normative Foresight Outcomes: Scenario
Development and the ‘Veil of Ignorance’ Effect, Technological Forecasting and Social Change, available online 26 October
2012 ISSN 0040-1625, http://dx.doi.org/10.1016/j.techfore.2012.09.013. (http://www.sciencedirect.com/science/article/pii/S0040162512002399)

www.edu2025.ro, last accessed 17 September 2012.

www.forwiki.eu, last accessed 17 September 2012.

 

EFP Brief No. 223: Analysing Long-term Trends of a Post-industrialised Society: The Case of Finland

Tuesday, October 23rd, 2012

This study contributes to building FTA capacities for systemic and structural transformations. Increasing scientific and societal concerns have been raised about the adequacy of current measures of economic performance, in particular that of GDP. Current de-growth discussion summarises the implications. We do not propose a concrete vision but emphasise the need to make it a topic of futures discussions in EU development strategy. An empirical Finnish case study attests to the vital need to revise the current statistical evaluations of European welfare and economic growth processes.

The De-growth Scenario:
Policy Implications for the EU

The Commission on the Measurement of Economic Performance and Social Progress have been discussing new social welfare evaluation tools. European societies have been locked into socio-economic thought dominated by progressive growth economics. The hegemony of this kind of one-sided thinking has made imaginative thinking outside the box almost impossible. The de-growth topic has become a major international subject of debate, not just within the counter-globalisation movement but throughout the world. The big question is: What are the implications of ‘de-growth’ for the European Union and its policies? Do we need new sustainable macroeconomic policies that go beyond the Lisbon and Europe 2020 strategy?

In traditional mainstream economic policy, GDP (gross domestic product) and GDP per capita are often used as measures of national welfare. Although not originally designed for this task, they have become normative benchmarks of economic and social performance (Easterlein 1974). We have to acknowledge that relying on GDP can lead policymakers to draw wrong policy conclusions in the EU and in the EU member countries.

When Costs of Growth Exceed Benefits

For some time now, economists have been proposing a ‘threshold hypothesis’, the notion being that when macroeconomic systems expand beyond a certain size, the additional cost of economic growth exceeds the flow of additional welfare benefits (Daly & Cobb 1989). In order to support their findings, economists and scientists have developed a number of indexes to measure and compare the benefits and costs of growth (e.g., the index of sustainable economic welfare, ISEW and the genuine progress indicator GPI, etc.). In virtually every instance where an index of this type has been calculated for a particular country, the movement of the index appears to underline the validity of the threshold hypothesis. Philip Lawn (2003) has noted that by adopting a more inclusive concept of income and capital, these alternative new indexes are theoretically sound but require the continuous development of more robust valuation methods to be broadly accepted.

Making Indexes and Statistics Scientifically Sound

There is also ongoing scientific debate about the statistical correlations of gross domestic product (GDP), population, genuine progress indicator (GPI), index of sustainable economic welfare (ISEW), genuine saving (GS) and human development index (HDI) indicators. All these welfare indicators can be used in analysing the welfare and sustainability situation of the EU member countries. An interesting debate on the policy relevance of a set of indicators versus a single index has been going on for quite some time now. Both options have advantages and disadvantages:

  • A set of indicators is more appropriate for expert use, yet hard to communicate to the public and even more difficult to interpret because different indicators usually provide confusing signals.
  • A single index is a highly valuable instrument in political debates and setting targets as well as in communicating such targets to the public.

Nonetheless, the European Union’s macroeconomic planning and strategic decision-making requires active development of new relevant sustainability planning and evaluation tools and indexes. We cannot rely on just one index, GDP, in our welfare policy analyses.

New Approach in Statistical Analysis Needed

If the European Union wants to evaluate long-term sustainability of its macroeconomic development, new kinds of statistical analyses are needed. Our study is based on long-term statistics (years 1960-2009) for three key social welfare indicators; statistical analyses have been conducted for the same period for other variables (GS, HDI, and population) as well (Hoffrén 2001, Kekkonen 2010 and Lemmetyinen 2011). The long-term trends of key indicators have been analysed and a statistical correlation analysis between them has been carried out.

Our results support the validity of the threshold hypothesis, especially for the years following the oil crisis. Figure 1 demonstrates this in the case of Finland.
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Figure 1

Novel Sustainability Evaluation Method to Improve Social Welfare Systems in the EU

The idea of the article is to propose a novel sustainability evaluation methodology for the European Commission and EU member countries. This statistical approach is evidence-based and gives new evaluation and planning information about critical sustainability trends in European Union. In our case study, the focus is on Finland and its sustainability trends. A similar kind of indicator-based sustainability evaluation should be done for all EU27 countries to improve the quality of European Union’s long-term sustainability policy and especially its social welfare policy.

De-growth Strategy for the European Union

For some authors, the very idea of sustainable development seems to be a contradiction in terms. It is not a big surprise that practice has shown unequivocally that it is not possible to reconcile economic growth with environmental sustainability. Some parts of the global scientific community, for instance those participating in the UNEP (see IPSRM-UNEP 2010), think that the Western lifestyle is damaging not only its own environment but also that of the poorer countries and the planet as a whole. In this context, the proposal of ‘sustainable de-growth’ has emerged as a strategy that aims to generate new social values and new policies capable of satisfying human requirements whilst reducing the consumption of resources. De-growth is a political, economic, and social movement based on environmentalist, anti-consumerist and anti-capitalist ideas. ‘Sustainable de-growth’ or ‘de-growth’ is not yet a formalised theory but rather a focal point for social movements, academia or politics to rally around (Latouche 2006).

Questioning the Consumption Paradigm

De-growth supporters have advocated the downscaling of production and consumption – the contraction of economies – as overconsumption lies at the root of long-term environmental issues and social inequalities. Key to the concept of de-growth is that reducing consumption does not require individual martyring and a decrease in well-being. Rather, ‘de-growthists’ aim to maximise happiness and well-being through non-consumptive means: sharing work, consuming less while devoting more time to art, music, family, culture and community. De-growth – in contrast to the idea of dematerialisation, which aims at a reduction of resource use while the economy continues to grow – goes further and means that significant reductions of resource use require fundamental changes in the production and consumption system.

The de-growth movement opposes economic growth, which has created many more poor people and has inevitably led to environmental degradation. From this perspective, the de-growth strategy opposes the Europe 2020 policy. In any case, the de-growth movement’s future success will depend on its capacity to generate coherent political responses and empirical results to shore up its proposals. This study contributes to tackling this challenge facing the de-growth movement.

The Finnish Case: Evidence for the Anti-Growth Strategy

In the case of Finland, we observe a negative correlation between GDP and GPI after the oil crisis years. Growth of GDP appears not to be connected with improved GPI development. GDP still correlates positively with GS and HDI. However, the correlation rates are much lower now than before the oil crisis.

When we discuss de-growth policy and its potential content, we must bear in mind that there are various aspects of welfare beyond economic growth alone. In the Finnish case, we can note that the linkage between GDP growth and welfare indicators is not as strong as it was before the oil-crisis period. Yet, we must also remember that the GDP indicator too includes immaterial and qualitative aspects of welfare. If we think of de-growth from this perspective, it is not a rational aim to radically minimise GDP growth. Probably we should try to find a “golden middle of the road solution”, which is a rather unadventurous or inoffensive path that does not go only one way or the other (neither de-growth nor growth mania).

Another policy conclusion from our empirical analysis is that GPI is a critical indicator for the de-growth movement because the GPI indicator provides empirical foundations for the anti-growth movement and its form of welfare thinking. In Figure 1, the trade-off curve of GDP and GPI is plotted for Finland for the years 1960-2009. The turning point of GDP and GNI  (Gross National Income) trends was in 1988. This year can be seen as a benchmark year because in 1988 Finland reached the peak level of welfare as measured by the GPI. Although GDP has grown in Finland, GPI has not increased since. Socially and politically the situation is most problematic.

Dynamics of Economic & Social Development Have Changed Dramatically

In the study, a long time series (years 1960-2009) was initially analysed by Pearson correlation analysis. Subsequently, the time periods before the oil crisis (years 1960-1972) and the time period after the oil crisis (1973-2009) were analysed in the same way. Six welfare indicators were correlated.

One key observation of this indicator study is that the dynamics of economic and social development in Finland have changed dramatically. We can expect similar structural changes to also have occurred elsewhere in the European Union. The GDP indicator was correlated in a different way before and after the oil crisis. The changes in the correlation tables are considerable, indicating substantial structural changes. We find support for the following analytical conclusions:

  • In the long run, the GDP correlates positively with five other indexes of the Finnish case study.
  • Before the oil crisis, positive correlations were strong between the GDP index and the other indices analysed.
  • After the oil crisis, however, our statistical analysis clearly supports the threshold hypothesis in the Finnish case. Especially the correlation between GDP and GPI has shifted dramatically in Finland after the peak year 1988.
  • A single aggregate index, such as GDP, is certainly a valuable means of communication for policy purposes. At the expert level, however, a set of indicators is a more appropriate toolbox, even though it may be harder to communicate and more difficult to interpret because of different and sometimes opposing signals. As this case study shows, a single aggregate index can lead to very problematic policy choices in the EU member countries.
  • There is a need to develop a sustainable de-growth strategy that goes beyond the Lisbon and Europe 2020 strategies. Many European governments may face a new situation where welfare indicators are developing in an undesirable direction although the GDP indicator shows economic growth and successful economic performance. This phenomenon was also observed in the Finnish case study.
  • Despite all theoretically and empirically motivated criticism of GDP as a social welfare and progress indicator, the GDP’s role in economics, public policy, politics and society seems to remain influential also in the future.

The European Union’s macroeconomic planning and strategic decision-making urgently calls for new sustainability planning and evaluation tools and indexes. We cannot rely on just one old and much criticised GDP index in our European welfare policy analyses. Relying on inadequate signals in coordinating common EU policies may very well lead member countries to make wrong policy decisions. We now need new macro-aggregates, such as ISEW and GPI, to foster our socio-economic performance and competitiveness.

In evidence-based policy making, the European Union should pay more attention to the underlying motivation of growth policy because what we understand as economic growth today does not necessarily contribute to welfare in any linear fashion. Our study is important because it shows that, if we evaluate welfare by the GPI index, this is precisely what has been happening in Finland: there is no longer any immediate link between economic growth and general social welfare. Especially under the Europe 2020 strategy process we need broader evidence that the political decisions taken are actually leading Europe toward improved welfare. The possibility that the threshold hypothesis adequately describes the reality in the European Union countries should be taken more seriously in various policy fields.

Confirming the Commission on the Measurement of Economic Performance and Social Progress

In a recent study, the Nobel prize-winning economists and professors Joseph E. Stiglitz, Amartya Sen and Jean-Paul Fitoussi (2009) (SSF report) urge the adoption of new assessment tools that incorporate a broader concern for human welfare than just economic growth. By their reckoning and insights, much of the contemporary economic disaster owes to the misbegotten assumption that policy makers simply had to focus on nurturing economic growth, trusting that this would maximise prosperity for all. The case study of Finland shows that this taken-for-granted assumption is too simplistic. In this light, the policy recommendations of SSF Report are highly policy relevant for the European Commission and EU member countries to achieve greater social welfare to actually improve the lives of their citizens.

Authors: Jukka Hoffrén            jukka.hoffren@stat.fi  Jari Kaivo-oja    jari.kaivo-oja@tse.fi   Samuli Aho            samuli.aho@tse.fi
Sponsors: Finland Futures Research Centre (FFRC), University of Turku, Finland Statistics Finland, Finland
Type: National FTA exercise, Finland
Organizer: Finland Futures Research Centre (FFRC), Electrocity, Tykistönkatu 4 D, 7th Floor, FIN-20520 TURKU
Duration: 2011
Budget: n.a.
Time Horizon: 2020
Date of Brief: October 2012

Download: EFP Brief No. 223: Analysing Long-term Trends of a Post-industrialised Society: The Case of Finland

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