Do We Really Know How to Measure Family Wealth?

ISTAT president Enrico Giovannini recently said that the share of national wealth not going to households and going to banks has doubled between 1999 and il 2008, while the share going to firms has gone down by a third. Giovannini gives us the chance to discuss two current issues: changes in Italy's financial balances among sectors; and the appropriateness of measuring a country's welfare with an indicator such as GDP. Financial balances measure the saving capabilities of various institutional sectors (households, firms, financial holdings, public administrations and rest of the world) and the sectors where savings are invested. According the data of the Bank of Italy, Italian households have seen their financial balance going from 4.5% to 2.8% of GDP from 2005 to 2008. The balance with the rest of the world goes down from -0.8% to -3.1% of GDP over the same period, while firms see their negative balances similarly increase, from -2.1% to -3.6%. Using 2008 data limits the impact of the global recession over statistical data, since it was virulent in 2009. Summing up, Italian households show lesser saving propensity, firms have larger financial needs and the Italian economic systems must rely more heavily on the rest of the world to attain internal financial equilibrium. With respect to households, Giovannini argues the GDP has grown more than disposable income over the 1999-2008 period. Setting 1999 equal to 100, the GDP index reached 111 at the end of the period, while family income only grew to 107.
By looking at GDP, we thus record a decrease in the welfare of Italian households. However, GDP as an indicator of social welfare is being increasingly contested. French president Nicolas Sarkozy has established a committee, presided by Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi to study alternative solutions to the measurement of economic performance, aggregate welfare, environmental conservation, and social sustainability.
The three economists have drafted 12 recommendations to make governments improve welfare in terms that are wider than those measured by GDP. The first recommendation is that any assessment of well-being should be more based on income and consumption (as well as accumulated wealth) than on production. Family income and family consumption are more direct indicators to evaluate the welfare of citizens. Also, median rather than average values should be employed to capture representative situations. In addition, the committee proposes to also take into consideration quality of life indicators, such as the sense of personal security, the degree of political representation and social inequality, as well as environmental well-being.