Economics

Reasons to Be Cheerful

By Dr Clive Hamilton - executive director, Australia Institute

Can we change the way we look at the economy to better reflect community happiness and well-being?

In this address I would like to talk about a fundamental question - a question which is rarely talked about and yet underpins everything people like us do in our work. The question is: What makes people happy? Although we all talk as if our common objective is to improve community well-being, we rarely stop to ask just what it is that makes for a more contented society, and more contented individuals.

When we start to examine this issue, we are confronted with some very uncomfortable questions. For me the biggest one is this: Why do we as a nation invest enormous faith in the ability of economic growth to make us happier? Let's face it, the belief in growth is perhaps the most powerful belief shared by our political leaders, business people, and commentators. But, as I will suggest, the evidence to support this belief is hard to find.

But I am jumping ahead of myself.

Who is happy?

There has been some fascinating work around the world on measuring happiness or well-being. A number of surveys have reported measures of life satisfaction based on self-reported levels of happiness for various countries.

Who do you think are the happiest people in the world? Do we in Australia feel happier than people from, say, New Zealand, Japan or Argentina? A study of 48 selected countries reported 'average appreciation of life' ibn the early 1990s suggests that the Dutch are the happiest people in the world and the Bulgarians are the most miserable. Perhaps the Bulgarians, along with Eastern Europeans in general, are naturally lugubrious, or perhaps the surveys were taken during dark chapters in their histories. We in Australia appear to be reasonably happy by international standards but, as we will see, other evidence indicates that we are distinctly unhappy about where we are going.

At a personal level, although we all say we would like to have more money, we also know deep down that it will not bring happiness. Economists and psychologists have studied this issue in some detail. The evidence strongly suggests that, at least in advanced countries like Australia, to the extent that income matters, it is not so much our level of income that affects our happiness but what our income is relative to other people's incomes and to our expectations about what our incomes should be.

At a national level, there is a weak correlation between a country's income and perceived well-being, but the relationship may be due to other factors such as the prevalence of political freedom and democracy, or tolerance of difference. Some evidence also suggest the reverse. For example, within Asia residents of wealthy countries such as Japan and Taiwan regularly report the highest proportion of unhappy people while the countries with the lowest incomes, such as the Philippines, report the highest number of happy people. Overall, then, it is unlikely that additional income would make much difference to well-being in developed countries such as Australia.

At the personal level, research over a long time by social psychologists has shown that we are not nearly as materialistic as the marketing society and political ideology suggests. People consistently place other aspects of life ahead of income and material wealth. These other aspects of life typically include satisfactions with friendships and leisure activities along with satisfaction with family, job, life-style and health.

The Australia Institute has recently published an analysis of perceptions of quality of life in Australia (Eckersley 1999). The survey shows that only 24% of Australians think that life in Australia is getting better; the same proportion believe that the 1990s have been the decade of highest quality of life. Over a third (36%) say life is getting worse, with slightly more (38%) saying it is staying about the same. About half say the 1970s or 1980s were the best decade.

The results of the survey contradict recent claims of a new mood of optimism in Australia, although they do suggest a lift in public mood within the past two years: in 1997, only 13% of Australians thought quality of life was improving, while about half thought it was declining.

Some more detailed research has broken down the variation of happiness levels between individuals into major components. Personal psychological factors (such as degree of extroversion and self-control) explain 30% of variation in levels of happiness. Life events such as divorce, the birth or death of a child and illness, account for a further 25%.

Social participation, including voluntary and paid work activities and marriage, account for another 10%. It is surprising to discover that income and material wealth account for only about 10% of the variation in personal levels of happiness.

While we might all dream of how our lives would be different if we won the lottery, in fact people who do win the lottery are no happier one year after the event than they were before. In one of the most thorough investigations of the determinants of happiness, the researchers concluded: "A sense of meaning and purpose is the single attitude most strongly associated with life satisfaction".

Is life getting better?

We often hear people talking about "progress" as if there is an inevitable historical process taking us to a better future. We see medical breakthroughs relieving suffering and prolonging life, technology allows us to do things better and faster, cities grow, athletes break records and our GDP keeps on rising. There is a presupposition that life should be getting better. But is it? What if we have plenty of progress but we are no happier, and are perhaps less happy, than we were 50 years ago?

The survey also found that 75% of Australians rated 'being able to spend more time with your family and friends' as very important in improving their personal quality of life, while 66% rated 'having less stress and pressure in your life' as very important. Only 38% rated as very important 'having more money to buy things'

Even though GDP keeps rising, most people believe that life is getting worse, even those who benefit most from economic growth. Surveys in the USA show that even though average incomes have doubled in real terms since the late 1950s the proportion of the population describing themselves as very happy has not increased and may have declined.

Economic growth

The broad conclusion from all of this is that as incomes rise, income and economic factors become less important in well-being. This has been described by the British economist Sir John Hicks as the 'law of diminishing marginal significance of economics'.

Yet despite all of the evidence, more than ever before, economic growth is the touchstone of policy success. Every newspaper, every day, quotes a political leader or a commentator arguing that we need more economic growth to improve our level of national well-being, to build a better society. The release of the quarterly national accounts unfailingly receives extensive coverage. Picking out growth in gross domestic product (GDP), journalists write as if they have a technical barometer of our nation's progress. Produced by some of our best statisticians using the internationally agreed system of national accounting, GDP appears to provide a measure of prosperity that is immune to argument.

If GDP reaches or exceeds expectations, government leaders crow about their achievements. If it falls below expectations, the Opposition seizes on the figures to attack the Government's poor performance. The fetish with the national accounts reached its zenith with Prime Minister Keating's comment on one quarter's figures: "This is a beautiful set of numbers". Few were persuaded that the reality was as beautiful as the numbers.

In the presence of sustained economic growth throughout the 1970s, 1980s and 1990s, Australians have been strangely restive. They are disgruntled, fractious and suspicious of the claims by politicians that the economy is doing well. There is a widespread perception, confirmed by social researchers such as Richard Eckersley and Hugh Mackay, that life in Australia is not improving, but is in fact deteriorating. If growth is so good for us, how come it seems that things are getting worse?

The Genuine Progress Indicator

To shed some light on this question, the Australia Institute has developed the Genuine Progress Indicator as an alternative to Gross Domestic Product (GDP) as a measure of changes in national well-being. The GPI has been calculated for a number of other countries and is a very powerful device for raising questions about the preoccupation with growth and the lesser importance attributed to environmental protection and the social costs of the growth process.

The motivation for the GPI is the observation that GDP excludes a range of important influences on economic well-being and measures others incorrectly. GDP measures only the value of goods and services that pass through markets. It measures their value, and therefore their contribution to economic well-being, by the prices that markets attach to them. Yet we know that an economy with GDP growth of 4% with a high level of unemployment is not improving national well-being as much as an economy with GDP growth of 4% with a low level of unemployment.

Similarly, an economy growing at 4% is to be preferred if the fruits of growth are distributed more rather than less evenly, if output is associated with less rather than more pollution and land degradation, and if foreign debt is lower rather than higher. The 23 factors built into the GPI include income distribution, the value of household work, the costs of unemployment, the costs of commuting, the costs of climate change and ozone depletion and land degradation.

The GPI attempts to account systematically for many of these factors to provide a better measure of changes in national well-being.

The results of the GPI calculations over the period 1950-1996 tell a powerful story, one that contradicts the rosy picture of eternal progress that the GDP figures paint. Adjusted to eliminate the effects of inflation, GDP per Australian rose from around $9 000 in 1950 to over $23 000 in 1996, an annual rate of growth of 2.1 per cent. If we take GDP to be a measure of national well-being, then young people today are much better off than their parents were; life is much better than it was in the 1950s and has continued to improve in each decade.

But when account is taken of the 23 other factors included in the Genuine Progress Indicator, a radically different picture emerges. The GPI per person rises largely in line with GDP throughout the 1950s and 1960s; but everything changes in the 1970s. Since the late 1970s, the GPI does not rise at all. The sharp divergence between rising GDP and stagnant GPI since the late 1970s suggests that for the last two decades in Australia the costs of economic growth have outweighed the benefits.

The Australian GPI results mimic precisely the pattern in other industrialised countries, including the USA, Britain and several European nations. The decline in measured well-being since the 1970s reflects the impacts of globalisation, a phenomenon characterised by rapid financial integration of the world economy, huge and unstable capital markets, the emergence of stagflation and chronic unemployment and the dominance of economic policies premised on a belief in small government and unfettered markets.

Psychological research

There is a vast literature on each of these, work that has had little influence on policy makers. But one of the most interesting research programs of recent times has direct relevance for social change and public policy.

In a series of studies, Kasser and Ryan distinguish between two sets of beliefs about the sources of happiness. The first is the belief that the path to happiness lies in the pursuit of the external goals of wealth, fame and physical attractiveness. The second is that happiness grows from striving for intrinsic goals - deeper relationships, personal growth and contributing to the community.

The first set of beliefs is a self-centred system, one in which happiness is derived by extrinsic material rewards won in the outside world. Clearly, this is the modern myth of consumer society; we are bombarded every day with images and messages that attempt to persuade us that we can find contentment and fulfillment by acquiring this product or that one, or by pursuing a perfect body image or clawing our way up the corporate ladder. We celebrate the wealthy, the powerful, the famous and the beautiful.

After classifying individuals according to whether they operate on a belief in extrinsic goals or intrinsic goals, the researchers then ask which group is happier. The conclusions are unambiguous:

individuals oriented towards materialistic, extrinsic goals are more likely to experience lower quality of life than individuals oriented toward intrinsic goals (Kasser 1999).

Not only are those with extrinsic orientation in life less happy than those with intrinsic goals, but they make others less happy too.

Further, extrinsically oriented individuals are shown to have shorter, more conflictual, and more competitive relationships with others, thus impacting the quality of life of those around them. In sum, the pursuit of personal goals for money, fame and attractiveness is shown to lead to a lower quality of life than the goals of relatedness, self-acceptance and community feeling (Kasser 1999).

Although this research program has focussed on the USA, the results are beginning to be replicated in other cultures, notably Germany, Russia and India.

The implications of this new research for social development and public policy are far-reaching. The results suggest that the more the media, advertisers and opinion makers emphasise financial success as the chief means to happiness, the more they promote social pathologies.

In conclusion

In conclusion then, to question the use of GDP is to pose a simple but extremely challenging question about economic growth - growth of what? While this is a question that has been put most forcefully by environmentalists, in recent years thinkers and commentators from the conservative end of the political spectrum have begun to challenge the preoccupation with 'economic reform' and by implication the growth project itself. Writers such as B. A. Santamaria, Robert Manne and Gerard Henderson have been asking whether the social costs of the policies of economic rationalism have been worth the supposed benefits in terms of higher GDP growth. The US GPI researchers Cobb, Halstead and Rowe have made this observation on the discomfort with the growth obsession shared by the environmental and social conservative camps:

Much as this pursuit [of growth] turns ancient forests into lumber and beaches into sewers, so it turns families into nodes of consumption and the living room into a marketing free-fire zone. Both camps speak from the standpoint of values against the moral relativism and opportunism of the market.

The answer, then, is not to reject growth as such, but to go beyond the obsession with economic growth and focus on the things that really can improve well-being in Australia. The answer is to redefine progress in terms of the richness of our community and personal lives and the quality of the natural environment, rather than never-ending expansion of resource use and material consumption.

The problem with growth is that it can destroy the things that really improve our well-being in pursuit of the things that do not. The accumulation of financial capital has increasingly come at the expense of the destruction of our social capital and the natural environment. We need to remind ourselves that we live not in an economy but in a society embedded in the natural world, and that the purpose of the economy is to serve the people.

If we are to survive and prosper in the third millennium we need a revolution in the way we think about and improve personal and social well-being. At present our national accounting system promotes a profoundly misleading picture of changes in national prosperity in Australia. GDP fails to recognise that the growth process produces ill-being in addition to well-being, 'bads' as well as goods, yet it is the principal measure of success used by our political leaders.

The principal function of government in a post-growth society should be to protect, expand and enrich our human, social, cultural and natural capital. This demands an epoch-making transformation of political and social thinking, one that transcends the 19th century belief that economic growth and material consumption mark out the path to happiness.

Once they have overcome their preoccupation with growth at all costs, governments could do many things to increase social well-being. In the 21st century, governments committed to improving the happiness of their citizens will need to:

� redistribute work, both to provide jobs for those who do not have them and to relieve the pressure on those who are overworked;

� promote more satisfying jobs with greater emphasis on the intrinsic benefits of work;

� invest in developing the personal skills that make relationships survive the difficult times;

� genuinely redistribute income so that those living in poverty have adequate access to the material needs of life;

� refuse to sacrifice the natural environment on the altar of higher incomes;

� build the infrastructure for more supportive and trusting communities; and

� develop and apply better measures of social progress so that governments and communities can accurately determine where they are going.

This is an edited copy of the keynote address from this week's Social Well-Being Conference, jointly sponsored by the Labor Council, NCOSS and the EEC.

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  Issue 33 contents

»	Station Cuts Derailed - But More Hits for the Scull
»	Social Audit Backed by Community Groups
»	Unions Take Common Priorities to State Conference
»	Simmering Discontent Hits Boiling Point
»	Public Sector Job Numbers Rubbery
»	Timor Protest to be Dumped in Reith Wave
»	Big Lunch Break for Stress-Free Day
»	Arch Apologises for Youth Wage Debacle
»	Clean Air Policy Up In Smoke
»	Child Carers Stretched to the Limit
»	Building Workers Won�t Settle for Half Pay
»	Life, Art and Politics

»	Guest Report
»	Sport
»	Trades Hall
»	Piers Watch

»	More Transport News!
»	A Meaningful Contribution
»	Life is Cheap
»	Short Shots - Richo, Reithy

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