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The Index of Sustainable Economic Welfare for Flanders

Issue 12-06-2012On behalf of MIRA, University College Ghent has calculated the Index of Sustainable Economic Welfare (ISEW) for Flanders. The gap between gross domestic product (GDP) and ISEW increased over the period 1990-2009.

The Index of Sustainable Economic Welfare

The Index of Sustainable Economic Welfare was developed in response to the criticism against the use of gross domestic product as an indicator of welfare. The ISEW provides a more accurate picture of actual economic welfare and also better reflects how welfare is perceived by the population. By explicitly balancing benefits and costs, the ISEW represents the contribution of the economy in a country or region to the well-being of its population. The benefits of economic activities are well represented in the personal expenditures of households, but are afterwards corrected for the value of domestic labour, welfare losses from income inequality, and defensive expenditures undertaken to maintain a certain level of welfare. The costs are mainly related to the decline of the environment and the depletion of natural capital.

Welfare in Flanders

Between 1990 and 2009 the gap between GDP Flanders per capita and ISEW per capita for Flanders increased (see figure). Whereas the GDP/capita rose steadily (+34 %) over the period studied, the ISEW/capita showed a different trend.

The ISEW/capita fell by about 16 % during the same period. The ISEW first rose from 1990 to 2000, but fell sharply afterwards. Between 2000 and 2005 the ISEW/capita declined by slightly over 50 % or approximately 15 % on an annual basis, and recovered again between 2005 and 2009.

The sharp decline of the ISEW between 2000 and 2005 was caused by a deterioration of Belgium’s net international investment position, which was passed on to Flanders, and an increase in income inequality in Flanders. The increase in environmental costs, particularly of climate change and the use of non-renewable energy sources, also contributed to the decline in the ISEW for Flanders, albeit to a lesser degree.

Between 2006 and 2009 the improvement of Belgium’s net international investment position formed the basis for the recovery of the ISEW for Flanders. What is also remarkable is the delayed increase in costs for natural capital depletion. The use of non-renewable energy sources within the Flemish economy has been systematically decreasing since 2005.

Policy support

The economic, social and environmental indicators that go into the ISEW constitute a broad base of information for policy makers. The ISEW can provide policy makers with an insight into the broader effects of the implemented policy and help them in devising a more effective policy that enhances per capita welfare in a sustainable manner.

Figure: Evolution of the ISEW per capita versus the GDP per capita (Flanders, 1990-2009)

Figure Evolution of the ISEW per capita versus the GDP per capita (Flanders, 1990-2009)

Read the English summary of the Dutch report 'The Index of Sustainable Economic Welfare for Flanders 1990-2009'

Study commissioned by MIRA, the Environment Reporting Unit
Research report MIRA/2012/04

researchers: Brent Bleys, University College Ghent

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