Economics

Happy Nations Don't Focus on Growth

Policymakers should care more about happiness inequality rather than mere income inequality.

Worry about happiness inequality, be happier.

Photographer: Roman Gorielov/iStockphoto via Getty Images

The Socialist candidate for the French presidency, Benoit Hamon, says he doesn't believe in the "myth" and "quasi-religion" of growth-- it's part of the "consumerist, productivist and materialist model" of development, he argues. That's outside the economic mainstream, and many see those views as a symptom of the meltdown of the global left. But the just-released Global Happiness Report 2017, produced under the auspices of the United Nations, shows that Hamon just may be ahead of the curve.

Since the project's inception five years ago, small, rich Western European nations have led the list. In this year's ranking, compiled using the last three years of data, they make up the top six, with Norway, Denmark and Iceland leading the world. In terms of growth, these nations have long lagged behind the global level.

Who Needs Growth?

The world's happiest nations' GDP average growth rates for 2014-2016 were mostly lower than for the world as a whole

Sources: World Happiness Report, data compiled by Bloomberg

Meanwhile, China, which has one of the highest sustained growth rates in the world, is not progressing in terms of happiness. The happiness report contains an entire chapter on that, written by Richard Easterlin, Fei Wang and Shun Wang. They pointed out that based on previous studies, China should have seen an increase in well-being of one full point on the ten-point Cantril Scale. Instead, Chinese people are just about as happy as they were in 1990. 

Easterlin and his collaborators attribute that to the collapse of the meager but ironclad social safety net China had before it became the global factory. The emergence of unemployment and inflation and the erosion of trust in society obliterated gains from the increase in creature comforts that came with growth. Increases in inequality and a deteriorating environment may have contributed, too.

A valid objection would be that, barring major social upheaval such as that seen in China in the last 25 years, growth appears to increase people's perception of well-being. Of the 20 countries where happiness levels increased the most between 2005-2007 and 2014-2016, 11 are post-Communist countries, where living standards increased significantly within that time frame. On the other hand, Italy, France and Saudi Arabia were among the biggest losers in terms of subjective well-being levels, and they haven't experienced catastrophic economic declines. 

The team of respected economists Jeffrey Sachs, Richard Layard and John Helliwell suggests six variables explain the subjective well-being levels: wealth expressed as per capita GDP, the level of social support, healthy life expectancy, freedom to make life choices, generosity (the prevalence of giving to charitable causes), and perceptions of corruption.

Wealth is easy to quantify, so many governments concentrate on fixing this variable. That appears to be Donald Trump's intention in the U.S., too. But the experience of the small European nations at the top of the table shows that once a certain level of wealth is achieved, growth isn't as important to happiness levels. As long as per capita GDP is relatively stable, the other factors do their job, and if there's a problem with them -- for example, health care becomes less accessible or deteriorates, the social fabric starts fraying, people grow more selfish or freedom erodes -- people tend to feel unhappy despite an unchanged comfort level. 

There is an emerging orthodoxy among economists and governing technocrats who appear to think this is a matter of reducing inequality and making economic growth more inclusive. Indeed, the countries at the top of the happiness rankings are relatively egalitarian, and there's a vast economic literature on the relationship between economic inequality and subjective well-being. But that may well be an extension of the growth obsession: Helliwell has argued that it is happiness inequality, not mere income inequality, that matters. Reducing it depends more on social trust and support networks than on sharing wealth more fairly.

The happiness-related findings are politically important. In 2015, George Ward of the London School of Economics analyzed European election data to show that subjective well-being was a stronger predictor of the vote for the incumbent government than GDP growth or the unemployment level. It's hard for technocratic elites to acknowledge that the relative electoral success of nativist parties could be dictated by a yearning for social cohesion that they believe is undermined by immigration and globalization; it's even harder to come up with ways of fixing the problem.

Far left politicians such as Hamon at least give it a try. The French presidential candidate wants to shift the focus from growth to the social support network, primarily health care and education. He also proposes a universal basic income and a shorter workweek, made possible by higher taxes on the rich. It could help or it could backfire, destroying private initiative and fattening a government bureaucracy but doing nothing for the social fabric. But regardless of whether their specific recipes are workable, the left-wing radicals are right in trying to shift the rich world's policy focus. There's plenty of wealth, that goal is already achieved. Good policy is a matter of directing it toward the determinants of happiness.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Leonid Bershidsky at lbershidsky@bloomberg.net

    To contact the editor responsible for this story:
    Mike Nizza at mnizza3@bloomberg.net

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