A Comparison of Traditional Economic Indicators and Sustainability Indicators

By Deborah Keeth

Evaluating how a region has changed over time is of vital importance in planning for the future health and wealth of a region. Developing a set of indicators, tracking the data and assessing the indicator’s impact on a community is a useful way to set the compass for the future course. This paper will address what indicators are and what purpose they serve, describe two indicator projects in the Humboldt County region, discuss how these two projects were similar and different, and conclude with some suggestions for improving each of these projects.

Purpose and role of indicators

Indicators are a set of variables that are tracked and analyzed in order to determine the health and wealth of a region. Traditional indicators evaluate the performance of a region in terms of such things as employment, retails sales, and manufacturing activity. Another group of indicators are sustainability indicators. Sustainability indicators include all of the components of a community that must be maintained in order to be sustainable. Sustainability indicators are often divided into four categories of capital: human, constructed, natural and social.

Human capital is the knowledge, skills, and capabilities of the members of a community that can be used to create a flow of useful work for the community, the environment and the economy. Constructed capital can be subdivided into two parts – financial and manufactured. The financial capital of a community includes such things as cash, investments, and monetary instruments while manufactured capital consists of human-built, long-lasting, physical items such as infrastructure, machines, and technologies. Natural capital is the stock of resources and living systems from which flows resource harvest and extraction, as well as the essential ecosystem services of a bioregion. Social capital, as defined by the political scientist Robert Putnam, is the features of social organization including networks, norms and trust that facilitate coordination and cooperation for mutual benefit.

There are three ways that a community can use both traditional and sustainability indicators. The first is to use indicators to compare one community or region with another. The second is to use indicators to compare how one region has changed over time. Finally, and perhaps most importantly, indicators can be used to focus discussion in a region on what directions the region wants to take in the future.

It can be difficult for a group of committed people who care about the quality of life in their region to talk about how to move forward when they aren’t really sure where they’ve been or even where they currently are. Without indicators, community leaders and concerned citizens are forced to rely on feelings and intuitions about the status of their community. For example, it may be common for people to say, "It feels like people in our community aren’t able to afford to buy a house like they used to." Or, "It seems like crime is on the increase in our neighborhoods." While there may sometimes be a place for gut feelings, it can be difficult to convince others, both inside and outside the region, that the gut feeling is correct. Indicators can provide the evidence for what the community may intuitively know. The evidence gathered through the indicators can then be used to create a portrait of the region and can be used as a starting point for envisioning what the future of the region will be.

I have participated in two indicator projects in the Humboldt County region -- theHumboldt Economic Index and the Wealth of Humboldt and the Klamath-Siskiyou Region.

The Humboldt Economic Index

The Humboldt Economic Index began in January 1994 and is the only regularly updated source of comprehensive economic information in the county. The Index functions to monitor the current state of the county economy by tracking six sectors of the economy: employment, retail sales, (lumber) manufacturing, electricity consumption, hospitality (hotel/motel occupancy rates), and home sales. Additionally, the Index tracks what are traditionally considered to be leading indicators of economic activity: help-wanted advertising, new applications for unemployment insurance, lumber orders and building permits. Finally, the Index tracks general-interest data including the 30-year fixed mortgage rate, the prime rate, the median price of homes sold in Humboldt County and the county unemployment rate. The public and private sources that participate in the Index are meant to express a representative sample of the county economy.

The Wealth of Humboldt and the Klamath-Siskiyou Region

A second indicator project I have worked on is the Wealth of Humboldt and the Klamath-Siskiyou Region. The goal of the Wealth project was to develop a set of indicators that focus on the Klamath-Siskiyou region. The region is described as the four northern California counties of Humboldt, Del Norte, Trinity, Siskiyou and the three southern Oregon counties of Curry, Josephine and Jackson. The indicators were divided into the four types of capital necessary to maintain a sustainable society – financial, natural, social and human. This project was modeled on the work of Lucy Blake and the Sierra Business Council and was run as a class project through Economics 309. The students were assigned two indicators to investigate and were asked to answer the questions "How are we doing?" and "Why is this important?" for each of their indicators.

Comparing the projects

Clearly there are similarities between the Humboldt Economic Index project and the Wealth of Humboldt and the Klamath-Siskiyou Region project. Both are projects that choose a set of indicators, research and collect data on those indicators and then report trends. Both are attempts to provide the "evidence behind the intuition" described in the first part of this discussion. Both have succeeded, in different ways, at providing that evidence. While there are similarities, the differences are striking.

The Index is a "traditional" measure of wealth and prosperity. It focuses on human and constructed indicators. Much of the data are fairly easy to quantify and collect. It comes in a format that is commonly accepted and understood – sales dollars, percents, million board feet, payroll, etc. Because it is easy to quantify in a commonly used format, it is easy to compare trends across regions. There are several things missing from this type of traditional indicator project, however. First, it does not address issues of quality of life. Second, it does not take into consideration forms of wealth that are valuable to a community, but that are usually not assigned economic value. For example, the flood control value of a wetland or the value of volunteerism.

The Wealth project is a non-traditional measure of wealth and prosperity. What makes this project unique from the Index is that it tries to address issues of quality of life and to account for the natural and social wealth of communities that are left out of traditional economic analysis. While the Wealth project takes into account the human and constructed forms of capital, it considers natural and social capital to be integral components of a sustainable society.

Suggestions for the future

After working extensively on both the Humboldt Economic Index and the Wealth of Humboldt and the Klamath-Siskiyou Region, I have a few suggestions for how these projects may be improved. In terms of the Index, I would like to see it used more widely throughout the community. I think that it provides valuable information for local business owners, community leaders and all people concerned about the future of our county. One reason why it may not be more widely used is that it may be intimidating and overwhelming to some people – either with limited economic experience or limited time to peruse the report on the web. One suggestion that may make the Index more appealing to both of these groups is to change the formatting of the report on the web. For example the sectors of the report could be divided into more manageable pieces and the site as a whole could use a more modern look. Another suggestion for the Index is to feature more in-depth reports on a quarterly or semi-annual basis. These could be articles focusing on one sector of the Index, such as home sales. The ideal avenue for publication would be to publish the article in full in the Journal. Both of these suggestions require more time, energy and funding in order to complete.

I also have a few suggestions for the Wealth project. First, some of the indicators were difficult to measure. As described above, part of what makes the Wealth project unique is that it includes traditionally "unmeasured" forms of community wealth, specifically in the social and natural capital sectors. It is difficult to quantify some of the indicators. Some students who were assigned indicators in these sectors found this challenging and frustrating. I think that more time and creativity can be given to figuring out how to capture the community wealth in these areas. My second suggestion, despite the difficulties just mentioned, is to expand the number of indicators in the social capital sector. This sector had the smallest representation of indicators, and yet provides very unique and important perspectives of wealth. My final suggestion for the Wealth project is to update it on a regular cycle. Unlike the Index, which is updated on a monthly basis, the Wealth project has only gone through one cycle. Much of the data and analysis it contains was based on 1990 Census data. With 2001 quickly approaching we have the opportunity to use the new Census data to capture the most recent trends in our communities and compare how things have changed over the last 10 years.