1 March 2018
If you’re happy and you know it
Is GDP growth the best measure of success?
by Frank O’Nomics
We are continually told that, while experiencing moderate GDP growth, the UK is performing very badly compared to the rest of the world. Expectations of less than 2% GDP growth for the UK in 2018 compare to global growth forecasts of 3.7%. When a former boss was told that money couldn’t buy happiness his response was: “yes it can, you just need to know where to shop”. This is just the sort of glib response that gave City fat cats their bad name, but nonetheless seems to be the way that we measure our success as a nation. Most analysis is purely economic; looks to measure how much we produce and whether that number is increasing. While some will look much more at measures of income inequality, the emphasis is still on monetary values. This may not be the best measure of success. The head of the UN Development programme recently spoke out about the “tyranny of GDP” and it may be time for us to focus on other measures of well-being. Such measures do exist – some focus on trying to measure misery (still using economic variables), others try to assess levels of happiness. As we get more incensed by the UK’s lack of participation in the global growth party, it is worth examining these other approaches to establish whether we are in a better situation than we think.
The recently updated Bloomberg Misery Index produces an interesting concept to sit alongside GDP. Taking a combination of the expected levels of unemployment and inflation, it goes beyond just productivity to look at the extent to which people are working and facing rising prices, as key measures of well-being. The runaway top of the chart is not surprising given that Venezuela has been experiencing hyperinflation for some years and below it sit South Africa and Argentina. At the bottom of the chart (i.e. the least miserable) sit Thailand, Singapore, Japan and Switzerland. In a surprisingly poor position, for a country which has experienced such impressive growth recently, is the US. American unemployment has been falling, but from a high level. In the UK we are let down by the recent rise in inflation, but our unemployment level is very low compared to Europe and our misery measure does not look that bad when compared to the US, Germany and France; although we should of course be aspiring to that of Switzerland.
This is all very well, but unemployment and inflation are still hard economic variables, that do not necessarily fully explain a national sense of well-being (and may not even do that if low inflation merely signals stagnant demand). To go further a more positive stance is needed, measuring happiness, not misery. What is it then that makes people happy? Recent studies have suggested that income only takes you so far. Much of what creates happiness is driven by genes and personality (research suggests around 50%) and there is nothing much we can do about that. Of the rest, while income and employment feature highly, health and human interaction are significant (although not mutually exclusive). The question is, when taking a broad range of factors beyond just monetary or economic variables, are we in a worse state than the rest of the world? The obvious place to start is with the “Happiness Index”. The World Happiness report, prepared since 2011, is based on around 1,000 life evaluations in each of over 150 countries. The report creates a measurement of subjective well-being, looking at life evaluation. Participants are asked on a ladder from 0-10, with 10 the best possible life, on which rung they think that they sit. These are then compared to other measures, such as GDP per capita, social support, healthy life expectancy, social freedom, generosity, and absence of corruption, to see how they explain variations in happiness – although they do not comprise the happiness measure itself.
It may not come as much surprise that four out of the top 10 happiest countries are in Scandinavia, with Norway coming out top. The UK comes in at 19, only around ¼ of a rung behind Germany and the US, above France and Spain by a similar margin, and around half a rung above Italy. On this measure the UK seems to be in a much better situation than the GDP gloom-mongers would suggest and, given that the survey takes an average over a 3 year period from 2014-16, it is not unduly weighed down by short-term considerations.
Other research done within the UK shows that the relationship between income and happiness is very strong until a certain point, and then it starts to plateau. A surplus of income over expenditure seems the main driver of contentment with a level of around £28 a day calculated to be the optimum. Given that only 10% of the UK population achieves this, the answer to making us happier would appear to be to spend less and save more. Perversely, while we are continually told that spending money now is the only way to be truly happy, the truth is that saving and investing so that we have a degree of security is the best way to ensure happiness. Generating a personal income surplus is easier said than done, and has been getting harder for some years as real wages have been in decline.
None of this should be an excuse for poor UK economic performance. However, we should not just use GDP as our yardstick. On a global comparison, when it comes to happiness or misery, the UK appears to sit much better than conventional statistics would suggest. As for improving our standing on happiness indices we should as ever take the stance of Wilkins Micawber: “Annual income twenty pounds, annual expenditure nineteen, nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”