In order to compare distributions of welfare in different countries, or to study changes in the distribution within a given country, some kind of index is required that measures differences in welfare or income. The construction of such indexes is an important application of the theory of social choice, in the sense that inequality indexes are closely linked to welfare functions representing the values of society.
National and international statistics record some of the parameters of quality of life, for instance health care provision, life expectancy, water and sanitation provision, education and pollution levels. There is, however, no established overall Quality of Life Index that compares with GNP in the economic field and provides a better measure of the success of development. It is considered that there should be cross-sectoral action in order to develop more meaningful indicators of the quality of life.
This strategy features in the framework of Agenda 21 as formulated at UNCED (Rio de Janeiro, 1992), now coordinated by the United Nations Commission on Sustainable Development and implemented through national and local authorities. Agenda 21 recommends that such indicators should cover, for example, health, education, social welfare, state of the environment and the economy.
Nobel Prizewinner Amartya Sen has emphasized that what creates welfare is not goods as such, but the activity for which they are acquired. According to this view, income is significant because of the opportunities it creates. But the actual opportunities – or capabilities, as Sen calls them – also depend on a number of other factors, such as health; these factors should also be considered when measuring welfare. Alternative welfare indicators, such as the UN's Human Development Index, are constructed precisely in this spirit.
The Human Development Index (HDI), published annually by the UN, ranks nations according to their citizens' quality of life rather than strictly by a nation's traditional economic figures. The criteria for calculating rankings include life expectancy, adult literacy, school enrollment, educational attainment, and per capita GDP.
Friends of the Earth in Norway conducted a survey in 1993 on what Norwegians regarded as indicators of high quality of life. In decreasing order of importance, the first five indicators were: high quality interpersonal relationships; good health; access to healthy nature; access and availability of meaningful work; and having enough goods and services.
In 1998, the Labour government in the UK initiated a "quality of life barometer." It is available interactively online on the Internet. This is a set of indicators to measure quality of life, not based on conventional indicators such as GDP or economic growth, but on things like air pollution levels, quality of the built environment, housing standards, the state of the countryside, numbers of songbirds (as an indicator of the environment) etc.
Too often, Gross National Product (GNP), which measures monetary flows in the economy, is taken to be the central indicator of wealth and progress. It is, however, a highly misleading guide to society's quality of life and the state of the environment. When the Index of Sustainable Welfare (ISEW) is applied to the UK between 1950 and 1990, it indicates that "sustainable economic welfare" (per capita) has risen only marginally (by 3%), despite a 230% increase in per capita GNP. Sustainable economic welfare peaked in the mid-1970s and had declined dramatically since. Rising levels of income also disguise two other significant factors behind welfare: (1) An increasing proportion of income is required to mitigate environmental and social costs – "defensive expenditure" needed simply to maintain welfare levels; (2) Some factors are not accounted for by the market, such as poor air quality and the depletion of natural resource, where personal expenditure alone cannot "buy" welfare.