Wealth versus Happiness

Economists have long used Gross Domestic Product (GDP) per capita as a proxy measure for the average level of wellbeing within a country. GDP is a measure of the goods and services produced in a country and is a fairly good proxy for material wealth. However, it fails to capture many other factors that are clearly important for wellbeing: for example, amount of leisure time, health, quality of one's environment, wealth distribution, employment rates, and changes in wealth over a lifetime. Some negative influences on wellbeing – such as crime – may even contribute positively to GDP since the costly government responses to them are included in a country's GDP. The gap between GDP and wellbeing obviously has important practical implications since policies correlated with higher (lower) GDP are likely to be adopted (rejected) for that reason.

On 14 September an expert group commissioned by French president Nicolas Sarkozy and and including no less than five Nobel prize laureates released a report recommending that official statisticians should move to a wider measure of wellbeing that takes into account some of the factors that GDP leaves out. This move away from 'GDP fetishism' has long been championed by the commission's chair, Joseph Stiglitz.

Everyone seems to acknowledge the problems with GDP, but the commission's report gets a cool response from some of the business press, with the adjective 'Orwellian' cropping up here and there. The Economist admits that 'broadening official statistics is a good idea in its own right', but emphasises that 'these are early days' and remains sceptical about the practicalities of moving away from GDP. The primary concern is about potential abuse of a less well defined measure by governments or interest groups and a resulting lack of public trust. The message seems to be that it's fine to research broader measures and to start collecting figures, but until something robust is found, GDP per capita should remain the gold standard. Policymakers shouldn't put any credence in the broader measures yet.

One wonders if caution about moving away from GDP as a policy focus reflects dichotomous thinking about this issue: either we stick with GDP, or we embrace the full gambit of broader measures suggested by Stiglitz, Richard Layard and others, including subjective reports of happiness. Such thinking would be disingenuous. There are many possible smaller steps away from GDP, many of which would be insusceptible to the criticisms levelled at the broadest measures. For example, consider GDP per capita corrected for average number of hours spent at work per week. This measure would take into account leisure time – surely an important contributor to wellbeing for most people – without raising undue concerns about government abuse.

It would be premature to throw out GDP targets and focus on untested and highly problematic measures of wellbeing. But it doesn't follow that we shouldn't begin to move towards broader measures. And that doesn't just mean adding broader measures to statistical databases, but actually using the more robust of these broader measures as targets. There are, after all, significant costs of sticking with GDP, neglect for environmental considerations being among the most obvious. Concerns about abuse would have to be very significant in order to outweigh these costs.

REFERENCES:

Commission on the Measurement of Economic Performance and Social Progress

The Economist, 'Measuring what Matters', 17 September 2009.

Newsweek, 'Sarkozy and Stiglitz: A New Way to Grow', 15 September 2009.

The New Statesman, 'Gross National Happiness', 15 September 2009.

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One Response to Wealth versus Happiness

  • David Jay says:

    The suggestion that per capita GDP be corrected for average hours worked is a helpful one, but probably not nearly as straightforward as implied. Rural people in less wealthy countries, for example, are likely to have many ‘occupations’ and it may not actually be clear how each of their daily activities (eg helping a neighbour fix their plough) falls under these. In addition, some activities which we would not count as work – such as collecting a jug of water – may take several hours of their day and seriously cut into their leisure time.

    GBP is a very useful indicator of wealth and can continue to be used as such, but I think it needs to be universally acknowledged that it is only this, and not an indicator of happiness. Then the search for useful happiness indicators can continue without the baggage of being seen as an ‘alternative’ to GDP. For example, an interesting approach to evaluating degree and duration of human happiness per unit of resource consumption can be found at http://www.happyplanetindex.org/

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